Case Study Questions3-13 Analyze Walmart and Amazon.com using the competitive forces and value chain models.3-14 Compare Walmart and Amazonâ€™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 answerCase Study Whoâ€™s The Worldâ€™s Top Retailer? Walmart and Amazon Duke It Out Walmart is the worldâ€™s largest and most successful retailer, with $476 billion in fiscal 2014 salesand nearly 11,000 stores world-wide, including over 4,000 in the United States. Walmart has 2million employees, and ranks Number 1 on the Fortune 500 list of companies. Walmart had sucha large and powerful selling machine that it really didnâ€™t have any serious competitors. No otherretailer came closeâ€”until now. Today Walmartâ€™s greatest threat is no other than Amazon.com,often called the â€œWalmart of the Web.â€ Amazon sells not only books but just about everythingelse people want to buyâ€”DVDs, video and music streaming downloads, software, video games,electronics, apparel, furniture, food, toys, and jewelry. The company also produces consumerelectronicsâ€”notably the Amazon Kindle e-book reader. No other online retailer can matchAmazonâ€™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 worldâ€™s largest ecommerce retailer. It, too, has a very large and powerful selling machine, although it hasprimarily focused on selling through the Internet. But if Amazon has its way, thatâ€™s about tochange, because it dearly wants to move in on Walmartâ€™s turf. Walmart was founded as a traditional, off-line, physical store in 1962, and thatâ€™s still what it doesbest. But it is being forced to compete in e-commerce, whether it likes it or not. Six or sevenyears ago, only one-fourth of all Walmart customers shopped at Amazon.com, according to datafrom researcher Kantar Retail. Today, however, half of Walmart customers say theyâ€™ve shoppedat 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,Walmartâ€™s traditional customersâ€”who are primarily bargain hunters making less than $50,000per yearâ€”are becoming more comfortable using technology. More affluent customers whostarted shopping at Walmart during the recession are returning to Amazon as their financesimprove. Amazon has started stocking merchandise categories that Walmart traditionally sold,such as vacuum bags, diapers,and apparel, and its revenue is growing much faster thanWalmartâ€™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 cutadvantages. Amazon has created a recognizable and highly successful brand in online retailing.The company has developed extensive warehousing facilities and an extremely efficientdistribution network specifically designed for Web shopping. Its premium shipping service,Amazon Prime, provides fast â€œfreeâ€ 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 theWall Street Journal, Amazonâ€™s shipping costs are lower than Walmartâ€™s, ranging from $3 to $4per package, while Walmartâ€™s online shipping can run $5â€“$7 per parcel. Walmartâ€™s massivesupply chain needs to support more than 4,000 physical stores worldwide, which Amazondoesnâ€™t have to worry about. Shipping costs can make a big difference for a store like Walmartwhere popular purchases tend to be low-cost items like $10 packs of underwear. It makes nosense 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 thanAmazon. Consumers associate Walmart with the lowest price, which Walmart has the flexibilityto offer on any given item because of its size. The company can lose money selling a hot productat extremely low margins and expect to make money on the strength of the large quantities ofother items it sells. Walmart also has a significant physical presence, with stores all across theUnited States, and its stores provide the instant gratification of shopping, buying an item, andtaking it home immediately, as opposed to waiting when ordering from Amazon. Two-thirds ofthe 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 $300million 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 likeimproving the product recommendations for Web visitors to Walmart.com, using smartphones asa marketing channel, and personalizing the shopping experience. Walmart has been steadilyadding new applications to its mobile and online shopping channels, and is expanding itsintegration with social networks such as Pinterest The companyâ€™s technology team is working on an application called Endless Aisle, which wouldallow shoppers to immediately order from Walmart.com using their smartphones if an item is outof stock. A Pay With Cash program enables the 25 percent of Walmart customers who donâ€™t havecredit cards or bank accounts to order their products online and then pay for them in cash at theirnearest Walmart store. Walmartâ€™s online and digital development division @WalmartLabsacquired the recipe technology startup Yumprint in order to expand its online grocery deliveryservices. Management hopes that Yumprint will help Walmart customers more easily makeshopping lists from recipes they find in Yumprint before they shop. The company also hiredformer eBay executive Jamie Iannone to manage the integration of Samâ€™s Clubâ€™s Website withWalmartâ€™s global e-commerce unit. Walmartâ€™s Samâ€™s Club has been testing a new subscription service called My Subscriptions thatallows its 47 million members to order over 700 items, including baby, beauty, and office supplies in order to compete with Amazonâ€™s Subscribe & Save program. Online customers willnot need to pay shipping fees for these subscription items. Samâ€™s Club used to be unaffected bycompetitors like Amazon among shoppers of fresh food, groceries, and basic products that wereeither not sold on Amazon, or were more expensive online. Now 35-40 million householdsenrolled in Amazon Prime, and many Samâ€™s Club members tend to belong to Amazon Prime aswell. Samâ€™s Club is starting to feel the pressure. Amazon is looking into starting a new businesscalled â€œPantry,â€ which would allow customers to purchase goods like toilet paper and cleaningsupplies in bigger bundles for cheaper shipping costs. Walmart is also trying to improve links between its store inventory, Web site, and mobile phoneapps so that more customers can order online and pick up their purchases at stores. Shoppers canorder 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.) Walmartâ€™s lockers are similar toAmazonâ€™s recent deal with Staples and 7-Eleven to do the same.The idea is to be able to offerWalmart products anywhere a consumer prefers to shop, whether thatâ€™s online, in stores, or onthe phone. The company is re-thinking its in-store experience to draw more people into its stores. More thanhalf of Walmart customers own smartphones. Walmart has designed its mobile app to maximizeWalmartâ€™s advantage over Amazon: its physical locations. About 140 million people visit aWalmart store each week. The company started testing the appâ€™s in-store mode, which detectswhen a customer is in a physical store. When the mode is activated, customers can check theirwish lists, locate items of interest in the store, and see local promotions. The appâ€™s â€œScan & Goâ€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 andlower its online prices if necessary. The company is also doubling inventory sold from thirdparty retailers in its online marketplace and tracking patterns in search and social media data tohelp it select more trendy products. This strikes directly at Amazonâ€™s third party marketplacewhich accounts for a significant revenue stream for Amazon. Additionally, Walmart is expandingits online offerings to include upscale items like $146 Nike sunglasses and wine refrigeratorscosting 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 Walmartâ€™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 ofonline 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 forselling its products and services online. Amazonâ€™s smartphone has four cameras that can trackfaces to show images that appear to have depth similar to a hologram. Users are able to scrollthrough Web or book pages just by tilting the device or to quickly navigate menus, accessshortcuts, and view notifications. Mayday is a 24-hour customer support service for users ofAmazonâ€™s devices, offering one-tap access to Amazon customer service agents who can talk tophone users via video chat, and take over the screen on their devices to show them exactly howto do something. Firefly is a tool that automatically recognizes through the camera over 100million items, including merchandise, music, or television shows, then offers a way to buy themthrough Amazonâ€™s online store. For example, a user could point the phone at a pair of runningshoes and then order them immediately from Amazon.com. Amazon continues to build more fulfillment centers closer to urban centers and expand its sameday delivery services, and it has a supply chain optimized for online commerce that Walmart justcanâ€™t match. But Walmart has thousands of stores, in almost every neighborhood that Amazonwonâ€™t ever be able to match. The winner of this epic struggle will be which company leveragesits advantage better. Walmartâ€™s technology initiative looks promising, but it still hasnâ€™t succeededin getting its local stores to be anything more than local stores. Still up in the air is the questionof the relationship of online selling to Walmartâ€™s overall business model. Should Walmart try tobest Amazon as the worldâ€™s dominant e-commerce site? Or would it be better off using onlineselling to boost revenue for all of Walmart. Would more companywide profits be generated byhaving a modest online site and using technology to boost store profits?
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