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Walmart Against Amazon

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EXECUTIVE SUMMARY

This report provides an analysis and evaluation of:

  • Walmart and Amazon use the competitive forces and value chain models for success.
  • Comparison of Walmart and Amazon’s business models and business strategies.
  • What roles does Information Technology play in each of these businesses? How is it helping them refine their business strategies?
  • Will Walmart be successful against Amazon?

The case study draws attention to the fact that these two e-commerce giants have dominated the industry, also fostering its further development and trends, and at the same time are in strong competition for the dominant market share.

As of today Walmart is the largest and most successful retailer with more than 11,500 stores and 2.3 million employees worldwide, faces the largest competition from Amazon, drastically increasing the variety and number of the product while matching the best prices and shipping options to its clients. It has become the largest e-commerce retailer and most powerful online selling machine. The ‘pull’ business strategy implemented by Amazon, responds to the customer demands in real-time, severely disrupting the traditional ‘push’ business models, where the provider has a large degree of control and is currently adopted by Walmart and other retailers. They must adapt in order to keep the competitive edge. Technological advancements allow the attraction of clients on a much larger scale and keep the sustainable profits using the trend and demand analytics, however, the presence of physical stores plays a major role in business strategy components that are not available for the purely virtual retailer and with the adoption of the new technology and matching marketing plans, Walmart might not be giving up on his leading position in the industry any time soon.

WALMART AND AMAZON USE THE COMPETITIVE FORCES AND VALUE CHAIN MODEL

Being one of the largest retailers and operating across 27 countries in the world, Walmart has not yet faced real competition until Amazon has risen its forces. Amazon became known as ‘Walmart Of The Web’ due to its ability to sell pretty much any retail product you can find in a Walmart store or any product you actually need. The primary strategy of Amazon online sales is to focus on the customer’s needs in real-time, aka ‘pull in’ strategy, “free” two-day shipping for Prime members ($99/month, although considered to be a weak point for some retailers) and competitive inventory resulted in more than $113 billion in revenue in 2015. Amazon had also acquired Whole Foods in August 2017 to compete is the grocery market with Walmart, however, it has not yet been proven as a completely successful strategy as the profits for the segment have been blended into combined operational profit. However, the move has increased Amazon’s presence as a retailer with a physical location.

The Amazon Value chain

Inbound Logistics

Fulfilled by Amazon (FBA) – takes full responsibility for logistics, customer service, and returns

Operations

North America – 33% 2017, international –23% in 2017, Amazon Web Services (AWS) 43% 2017

Outbound Logistics

Amazon Prime Air, Amazon Flex (independent logistic operations and delivery).

Marketing and sales

Investment exceeded 10B USD in 2017 in the segment, includes a variety of marketing tools, promotions, and advertisements, and represents one of the major sources of value in Amazon operations.

Services

Exceptional customer service historically – a major component of creating value for e-commerce and cloud computing for the company.

Walmart on another hand is associated with the lowest prices and has the flexibility to offer the same due to its size. The hot product prices may bring losses but selling large quantities of other products strengthens the income. The significant presence of physical stores (70% of the US population is within a 5-mile range of the Walmart location) plays an important role in competing. The consumer is able to buy the item and take it home immediately, rather than waiting for it to arrive in the mail if ordered online. Walmart steadily increases its investments in online business development including fulfillment centers and technology – by 1.5 B in 2015. To further compete with Amazon, ‘free’ two-day shipping is offered to all customers with a minimum order of $35, and keep trying to find a more successful alternative to Amazon Prime. The pick-up option along with free shipping to the local store has been a success in finding a way to keep their customers and at the same time having them visit a physical location. A significant step was purchasing Jet.com and a few other e-comers successors in retail. This allowed the company to build stronger e-commerce foundations and accelerate growth.

Walmart Value Chain

Inbound Logistics

Over 50% of US products are coming from overseas; 75% of Walmart’s online sales come from non-store inventory. Three principles are followed:

  • The minimum amount of links in the supply chain
  • Strategic partnership with vendors
  • Cross-docking inventory tactics

Operations

Walmart US – largest operational segment; about 60% of net sales.

Walmart international; about 25% of net sales, growth primarily through the acquisition of other businesses.

Sam’s Club; about 12% of net revenue.

Outbound Logistics

Rounding and load building operations in a systematic manner in order to increase the overall efficiency of these operations and cost reduction achievement.

Marketing and sales

Utilization of both online and offline channels in integrated marketing and sale and a shift toward the online channel. Online channels proved to be more cost-effective in targeting a specific customer segment and communicating the message. It also contributes to Walmart’s cost leadership strategy sustainability.

Services

Historically poor reputation due to low wages to a customer service support department, however, new CEO have announced a new strategy for improvements and investment of 1 B, in Feb 2015 has been made to higher the wages and training programs.

Amazon is using its value chain to compete in the space of vast shipping and has already established a successful online business model with exceptional customer service; Walmart, on the other hand, uses its vendor relationship to hit Amazon’s third-party market place which accounts for a significant revenue of the company.

AMAZON AND WALMART BUSINESS STRATEGIES

Walmart commits not to replicate Amazon’s business model. Instead, it designs the leadership is designing an omnichannel approach to retailing. The vision is that it is not a complete e-commerce retailer, but if the consumer can have a more comprehensive shopping experience either it is shopping online or interacting with the store. Walmart will sell strenuously online and in a physical location, retaining the ever-low prices and a wide variety of products in both divisions utilizing its large networks of stores as a distribution point. The strategy is to closely integrate online shopping with a physical location, allow the customer to have as much variety and freedom to shop via modern technology or in-person, and also incorporate flexible delivery and pick-up options. Walmart is aimed to become the largest omnichannel retailer.

Amazon’s strategy is to expand the selection of the product to be as extensive as Walmart’s. It is executed through third-party sellers to sell the product through the Amazon website for years now and has dramatically increased its variety of products, including purchasing Zappos, giving the company a competitive edge in footwear. The company is building new fulfillment centers with an expansion of same-day delivery options, focusing on sharpening customers service support and business diversification while entering new markets.

WHAT ROLE DOES INFORMATION TECHNOLOGY PLAY IN EACH OF THESE BUSINESSES? HOW IS IT HELPING THEM REFINE THEIR BUSINESS STRATEGIES

Information technology plays an important role in both companies. Amazon is not only the largest e-commerce marketplace but also a cloud computing platform, with strong acumen in AI and the newest advancement in Information Technology. Amazon’s online platform transformed an e-commerce model to a completely new level and also allowed strong support to the 3-rd party provider’s operation through it creating new ways of market development and overseeing it at the same time. The business model based on the customer’s current needs requires comprehensive data analytics and immediate response, which Amazon managed to accomplish using information technology. The consumer can place an order at any time virtually from any device, either it is a computer, phone, tablet, or voice recognition device like Alexa, all designed to provide the best service experience possible. The independence of Amazon in Inbound and Outbound logistics was made possible with the support of Information Technology. The consumer can enjoy robust shipping anywhere in the United States using Amazon services. The company experiments with drones, and developing grocery market exposure; all is made possible by IT support and integration.

Walmart is primarily associated with supermarkets, store retailers however made huge progress in developing its online sales exposure. This would not be possible without utilizing Information technologies. To support the operation across the globe, and perform competitively and consumer analysis, strong analytical, communication, logistics, and security systems are in place and are primarily supported by Information Technology. With the acquisition of Jet.com Walmart has moved forward in succeeding in online sales, and appropriate IT tools and resources have made it possible. Walmart now has all the tools and resources to successfully operate physical locations and support their consumer online as well; as Amazon Walmart experiments with drone delivery and is oriented on further customer analytics and service improvement to become both an in-store and online leading providers. Success and development are highly correlated with IT systems and technological advancement.

WILL WALMART BE SUCCESSFUL AGAINST AMAZON?

Walmart is a retailer, utilizing the technology for online sales and Amazon is the technology company that designs, supports, and dictates the trends in the e-commerce market. It is very unlikely that Walmart will become more successful in e-commerce than Amazon anytime soon, simply because of the background factor. Amazon already has an ability to offer a lot of value through Amazon Prime (free shipping, entertainment services (video streaming) Whole Foods Discounts, and more). Walmart has yet failed to accomplish a similar level of services and expertise and needs fundamental support on the technological level. The acquisition of Jet.com and the agreement with Microsoft in developing Walmart’s online sales is a step forward toward success, however, Amazon is stepping forward to the brick and mortar business by acquiring Whole Foods. Based on the current development, Amazon will stay a leader in the e-commerce business for some time.

REFERENCES

  1. Laudon Kenneth C. (2018). Information Systems Management. 15th edition, New York, NY: Pearson.
  2. Amazon Business Strategy and Competitive Advantage: cost leadership & customer-centricity. Retrieved from: https://research-methodology.net/amazon-business-strategy-competitive-advantage-benefiting-cost-leadership-diversification/
  3. Walmart value chain Analysis. Retrieved from: https://research-methodology.net/walmart-value-chain-analysis/
  4. Amazon value chain Analysis. Retrieved from: https://research-methodology.net/amazon-value-chain-analysis/

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