Case Study: WalMart vs Amazon

profileLVAS
amazon_vs_walmart.pdf

Page 1 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

Case Study Who’s The World’s Top Retailer? Walmart and Amazon Duke It Out

Walmart is the world’s largest and most successful retailer, with $476 billion in fiscal 2014 sales and nearly 11,000 stores world-wide, including over 4,000 in the United States. Walmart has 2 million employees, and ranks Number 1 on the Fortune 500 list of companies. Walmart had such a large and powerful selling machine that it really didn’t have any serious competitors. No other retailer came close—until now. Today Walmart’s greatest threat is no other than Amazon.com, often called the “Walmart of the Web.” Amazon sells not only books but just about everything else people want to buy—DVDs, video and music streaming downloads, software, video games, electronics, apparel, furniture, food, toys, and jewelry. The company also produces consumer electronics—notably the Amazon Kindle e-book reader. No other online retailer can match Amazon’s breadth of selection, low prices, and fast, reliable shipping.

For many years, Amazon has been the leader in online retail and is now the world’s largest e-commerce retailer. It, too, has a very large and powerful selling machine, although it has primarily focused on selling through the Internet. But if Amazon has its way, that’s about to change, because it dearly wants to move in on Walmart’s turf.

Walmart was founded as a traditional, off-line, physical store in 1962, and that’s still what it does best. But it is being forced to compete in e-commerce, whether it likes it or not. Six or seven years ago, only one-fourth of all Walmart customers shopped at Amazon.com, according to data from researcher Kantar Retail. Today, however, half of Walmart customers say they’ve shopped at both retailers. Online competition from Amazon has become too tough to ignore.

Why is this happening to Walmart? There are two trends that threaten its dominance. First, Walmart’s traditional customers—who are primarily bargain hunters making less than $50,000 per year—are becoming more comfortable using technology. More affluent customers who started shopping at Walmart during the recession are returning to Amazon as their finances improve. Amazon has started stocking merchandise categories

Page 2 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

that Walmart traditionally sold, such as vacuum bags, diapers,and apparel, and its revenue is growing much faster than Walmart’s. In 2013, Amazon had sales of nearly $67 billion, compared to online sales of about $9 billion for Walmart.

If more people want to do even some of their shopping online, Amazon has some clear cut advantages. Amazon has created a recognizable and highly successful brand in online retailing. The company has developed extensive warehousing facilities and an extremely efficient distribution network specifically designed for Web shopping. Its premium shipping service, Amazon Prime, provides fast “free” two-day shipping at an affordable fixed annual subscription price ($99 per year), often considered to be a weak point for online retailers. According to the Wall Street Journal, Amazon’s shipping costs are lower than Walmart’s, ranging from $3 to $4 per package, while Walmart’s online shipping can run $5–$7 per parcel. Walmart’s massive supply chain needs to support more than 4,000 physical stores worldwide, which Amazon doesn’t have to worry about. Shipping costs can make a big difference for a store like Walmart where popular purchases tend to be low-cost items like $10 packs of underwear. It makes no sense for Walmart to create a duplicate supply chain for e-commerce.

However, Walmart is no pushover. It is an even larger and more recognizable brand than Amazon. Consumers associate Walmart with the lowest price, which Walmart has the flexibility to offer on any given item because of its size. The company can lose money selling a hot product at extremely low margins and expect to make money on the strength of the large quantities of other items it sells. Walmart also has a significant physical presence, with stores all across the United States, and its stores provide the instant gratification of shopping, buying an item, and taking it home immediately, as opposed to waiting when ordering from Amazon. Two-thirds of the U.S. population is within five miles of a Walmart store, according to company management.

Walmart has steadily increased its investment in its online business, spending more than $300 million to acquire five tech firms, including Small Society, One Riot, Kosmix, and Grabble, while hiring more than 300 engineers and code writers. Other recent acquisitions include Torbit, OneOps, Tasty Labs, and Inkiru, that will help give Walmart more expertise in things like improving the product recommendations for Web visitors to Walmart.com, using smartphones

Page 3 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

as a marketing channel, and personalizing the shopping experience. Walmart has been steadily adding new applications to its mobile and online shopping channels, and is expanding its integration with social networks such as Pinterest

The company’s technology team is working on an application called Endless Aisle, which would allow shoppers to immediately order from Walmart.com using their smartphones if an item is out of stock. A Pay With Cash program enables the 25 percent of Walmart customers who don’t have credit cards or bank accounts to order their products online and then pay for them in cash at their nearest Walmart store. Walmart’s online and digital development division @WalmartLabs acquired the recipe technology startup Yumprint in order to expand its online grocery delivery services. Management hopes that Yumprint will help Walmart customers more easily make shopping lists from recipes they find in Yumprint before they shop. The company also hired former eBay executive Jamie Iannone to manage the integration of Sam’s Club’s Website with Walmart’s global e-commerce unit.

Walmart’s Sam’s Club has been testing a new subscription service called My Subscriptions that allows its 47 million members to order over 700 items, including baby, beauty, and office supplies in order to compete with Amazon’s Subscribe & Save program. Online customers will not need to pay shipping fees for these subscription items. Sam’s Club used to be unaffected by competitors like Amazon among shoppers of fresh food, groceries, and basic products that were either not sold on Amazon, or were more expensive online. Now 35-40 million households enrolled in Amazon Prime, and many Sam’s Club members tend to belong to Amazon Prime as well. Sam’s Club is starting to feel the pressure. Amazon is looking into starting a new business called “Pantry,” which would allow customers to purchase goods like toilet paper and cleaning supplies in bigger bundles for cheaper shipping costs.

Walmart is also trying to improve links between its store inventory, Web site, and mobile phone apps so that more customers can order online and pick up their purchases at stores. Shoppers can order items online and pick them up from lockers in local stores without waiting in line. (Walmart already offers in-store pick up of online orders.)

Page 4 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

Walmart’s lockers are similar to Amazon’s recent deal with Staples and 7-Eleven to do the same.The idea is to be able to offer Walmart products anywhere a consumer prefers to shop, whether that’s online, in stores, or on the phone.

The company is re-thinking its in-store experience to draw more people into its stores. More than half of Walmart customers own smartphones. Walmart has designed its mobile app to maximize Walmart’s advantage over Amazon: its physical locations. About 140 million people visit a Walmart store each week. The company started testing the app’s in-store mode, which detects when a customer is in a physical store. When the mode is activated, customers can check their wish lists, locate items of interest in the store, and see local promotions. The app’s “Scan & Go” feature lets customers scan items as they shop so they can move quickly through self-checkout. Shoppers can add items to their lists using voice or by scanning bar codes.

The Walmart Web site uses software to monitor prices at competing retailers in real time and lower its online prices if necessary. The company is also doubling inventory sold from third-party retailers in its online marketplace and tracking patterns in search and social media data to help it select more trendy products. This strikes directly at Amazon’s third party marketplace which accounts for a significant revenue stream for Amazon. Additionally, Walmart is expanding its online offerings to include upscale items like $146 Nike sunglasses and wine refrigerators costing more than $2,500 to attract customers who never set foot in a Walmart store.

Amazon is working on expanding its selection of goods to be as exhaustive as Walmart’s. Amazon has allowed third-party sellers to sell goods through its Web site for a number of years, and it has dramatically expanded product selection via acquisitions such as its 2009 purchase of online shoe shopping site Zappos.com to give Amazon an edge in footwear.

On June 18, 2014, Amazon announced its own Fire Phone to provide a better mobile platform for selling its products and services online. Amazon’s smartphone has four cameras that can track faces to show images that appear to have depth similar to a hologram. Users are able to scroll through Web or book pages just by tilting the device or to quickly navigate menus, access shortcuts, and view notifications. Mayday is a 24-hour customer support service for users of Amazon’s devices, offering one-tap access to

Page 5 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

Amazon customer service agents who can talk to phone users via video chat, and take over the screen on their devices to show them exactly how to do something. Firefly is a tool that automatically recognizes through the camera over 100 million items, including merchandise, music, or television shows, then offers a way to buy them through Amazon’s online store. For example, a user could

Page 6 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

point the phone at a pair of running shoes and then order them immediately from Amazon.com.

Amazon continues to build more fulfillment centers closer to urban centers and expand its same-day delivery services, and it has a supply chain optimized for online commerce that Walmart just can’t match. But Walmart has thousands of stores, in almost every neighborhood that Amazon won’t ever be able to match. The winner of this epic struggle will be which company leverages its advantage better. Walmart’s technology initiative looks promising, but it still hasn’t succeeded in getting its local stores to be anything more than local stores. Still up in the air is the question of the relationship of online selling to Walmart’s overall business model. Should Walmart try to best Amazon as the world’s dominant e-commerce site? Or would it be better off using online selling to boost revenue for all of Walmart. Would more companywide profits be generated by having a modest online site and using technology to boost store profits?

Sources: Shelly Banjo, “Wal-Mart Looks to Grow by Embracing Smaller Stores, “Wall Street Journal,

July 8, 2014; Greg Bensinger, “Amazon Unveils ‘Fire Phone’ Smartphone,” Wall Street Journal,

June 18, 2014 and “Amazon Raises Prime Subscription Price To $99 A Year,” Wall Street Journal,

March 13, 2014; Anna Rose Welch, “Walmart, Sam’s Club Amp Up Online Shopping Experiences,

“Integrated Solutions for Retailers, February 28, 2014; Donna Tam, “Walmart: Amazon image

recognition a ‘shiny object’,” CNET, February 6, 2014; Brian O’Keefe, “Walmart Plans to Be an

Online Juggernaut,” Fortune, July 23, 2013; Claire Cain Miller and Stephanie Clifford, “To Catch Up,

Walmart Moves to Amazon Turf,” New York Times, October 19, 2013; Claire Cain Miller, “Wall-Mart

Introduces Lockers as It Battles Amazon in E-Commerce,” New York Times, March 27, 2013; Evan

Schuman, “Amazon’s Supply Chain Kicking the SKUs Out of Walmart’s,” StorefrontBacktalk, June

19, 2013; and David Welch, “Walmart Is Worried About Amazon,” Business Week, March 29, 2012.

Page 7 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

Case Study Questions

3-13 Analyze Walmart and Amazon.com using the competitive forces and value chain models. 3-14 Compare Walmart and Amazon’s business models and business strategies. 3-15 What role does information technology play in each of these businesses? How is it helping them refine their business strategies? 3-16 Will Walmart be successful against Amazon.com? Explain your answer.

MyMISLab

Go to mymislab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions.

3-17 Describe the impact of the Internet on each of the five competitive forces. 3-18 What are the main factors that mediate the relationship between information technology and organizations, and that managers need to take into account when developing new information systems? Give a business example of how each factor would influence the development of new information systems.

Chapter 3 References

Page 8 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

Attewell, Paul, and James Rule. “Computing and Organizations: What We Know and What We Don’t Know.” Communications of the ACM 27, No. 12 (December 1984).

Bresnahan, Timohy F., Erik Brynjolfsson, and Lorin M. Hitt, “Information Technology, Workplace Organization, and the Demand for Skilled Labor.” Quarterly Journal of Economics 117 (February 2002).

Cash, J. I., and Benn R. Konsynski. “IS Redraws Competitive Boundaries.” Harvard Business Review (March–April 1985).

Ceccagnoli, Marco, Chris Forman, Peng Huang, and D. J. Wu. “Cocreationof Value in a Platform Ecosystem: The Case of Enterprise Software. MIS Quarterly 36, No. 1 (March 2012).

Chen, Daniel Q., Martin Mocker, David S. Preston, and Alexander Teubner. “Information Systems Strategy: Reconceptualization, Measurement, and Implications.” MIS Quarterly 34, No. 2 (June 2010).

Christensen, Clayton M. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business, New York: HarperCollins (2003)

Christensen, Clayton. “The Past and Future of Competitive Advantage.” Sloan Management Review 42, No. 2 (Winter 2001).

Clemons, Eric K. “Evaluation of Strategic Investments in Information Technology.” Communications of the ACM (January 1991).

Page 9 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

Clemons, Eric. “The Power of Patterns and Pattern Recognition When Developing Information-Based Strategy. Journal of Management Information Systems 27, No. 1 (Summer 2010).

Coase, Ronald H. “The Nature of the Firm.”(1937) in Putterman, Louis and Randall Kroszner. The Economic Nature of the Firm: A Reader, Cambridge University Press, 1995.

Drucker, Peter. “The Coming of the New Organization.” Harvard Business Review (January–February 1988).

Freeman, John, Glenn R. Carroll, and Michael T. Hannan. “The Liability of Newness: Age Dependence in Organizational Death Rates.” American Sociological Review 48 (1983).

Goh, Kim Huat and Kauffman, Robert J.” Firm Strategy and the Internet in U.S. Commercial Banking.” Journal of Management Information Systems 30, No. 2 (Fall 2013).

Gurbaxani, V., and S. Whang, “The Impact of Information Systems on Organizations and Markets.” Communications of the ACM 34, No. 1 (Jan. 1991).

Heinz, Theo-Wagner, Daniel Beimborn, and Tim Weitzel.” How Social Capital Among Information Technology and Business Units Drives Operational Alignment and IT Business.” Journal of Management Information Systems 31 No. 1 (Summer 2014).

Hitt, Lorin M. “Information Technology and Firm Boundaries: Evidence from Panel Data.” Information Systems Research 10, No. 2 (June 1999).

Hitt, Lorin M., and Erik Brynjolfsson. “Information Technology and Internal Firm Organization: An Exploratory Analysis.” Journal of Management Information Systems 14, No. 2 (Fall 1997).

Page 10 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

Iansiti, Marco, and Roy Levien. “Strategy as Ecology.” Harvard Business Review (March 2004).

Iyer, Bala and Thomas H. Davenport. “Reverse Engineering Google’s Innovation Machine.” Harvard Business Review (April 2008).

Jensen, M. C., and W. H. Meckling. “Specific and General Knowledge and Organizational Science.” In Contract Economics, edited by L. Wetin and J. Wijkander. Oxford: Basil Blackwell (1992).

Jensen, Michael C., and William H. Meckling. “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure.” Journal of Financial Economics 3 (1976).

Kauffman, Robert J. and Yu-Ming Wang. “The Network Externalities Hypothesis and Competitive Network Growth.” Journal of Organizational Computing and Electronic Commerce 12, No. 1 (2002).

Kettinger, William J., Varun Grover, Subashish Guhan, and Albert H. Segors. “Strategic Information Systems Revisited: A Study in Sustainability and Performance.” MIS Quarterly 18, No. 1 (March 1994).

King, J. L., V. Gurbaxani, K. L. Kraemer, F. W. McFarlan, K. S. Raman, and C. S. Yap. “Institutional Factors in Information Technology Innovation.” Information Systems Research 5, No. 2 (June 1994).

Kling, Rob. “Social Analyses of Computing: Theoretical Perspectives in Recent Empirical Research.” Computing Survey 12, No. 1 (March 1980).

Kolb, D. A., and A. L. Frohman. “An Organization Development Approach to Consulting.” Sloan Management Review 12, No. 1 (Fall 1970).

Kraemer, Kenneth, John King, Debora Dunkle, and Joe Lane. Managing Information Systems. Los Angeles: Jossey-Bass (1989).

Page 11 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

Lamb, Roberta and Rob Kling. “Reconceptualizing Users as Social Actors in Information Systems Research.” MIS Quarterly 27, No. 2 (June 2003).

Laudon, Kenneth C. “A General Model of the Relationship Between Information Technology and Organizations.” Center for Research on Information Systems, New York University. Working paper, National Science Foundation (1989).

———. “Environmental and Institutional Models of Systems Development.” Communications of the ACM 28, No. 7 (July 1985).

———. Dossier Society: Value Choices in the Design of National Information Systems. New York: Columbia University Press (1986).

Laudon, Kenneth C. and Kenneth L. Marr, “Information Technology and Occupational Structure.” (April 1995).

Leavitt, Harold J. “Applying Organizational Change in Industry: Structural, Technological, and Humanistic Approaches.” In Handbook of Organizations, edited by James G. March. Chicago: Rand McNally (1965).

Leavitt, Harold J., and Thomas L. Whisler. “Management in the 1980s.” Harvard Business Review (November–December 1958).

Ling Xue, Gautam Ray, and VallabhSambamurthy. “Efficiency or Innovation: How Do Industry Environments Moderate the Effects of Firms’ IT Asset Portfolios .” MIS Quarterly 36, No. 2 (June 2012).

Luftman, Jerry. Competing in the Information Age: Align in the Sand. Oxford University Press USA 2 edition (August 6, 2003).

Malone, Thomas W., JoAnne Yates, and Robert I. Benjamin. “Electronic Markets and Electronic Hierarchies.” Communications of the ACM (June 1987).

Page 12 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

March, James G., and Herbert A. Simon. Organizations. New York: Wiley (1958).

Page 13 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119

PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.

Page 14 of 14

7/10/2017https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119