Tuesday, October 30, 2012

Wal-Mart's competitive response to Amazon's delivery service

Wal-Mart responses aggressively to the erosion of its profitability due to the promotion of a smartphone app by Amazon that facilitates buyers to check and compare Amazon prices with the in-store prices of the products. This move by Wal-Mart was declared in Sept this year followed by a strategic move by promising same day delivery for the orders that are placed online in some cities. This clearly explains that Wal-Mart is trying to gain competitive advantage over its other retail competition which is a giant in the online delivery market. The testing of this offer began in selected cities including Philadelphia, San Jose and San Francisco and the service costs $10 independent of the size of the order. This is not for the first time that Wal-Mart has launched an attack on its online rival. Three years ago, Wal-Mart started a price war against amazon over the best-selling books. The current strategic move is to take leverage of the already established network of thousands of stores that Wal-Mart already has with an added advantage of improved online delivery system.

I would like to draw the attention of the readers towards what was discussed in the strategy class last week. The major part of the lecture focused on the strategic tools used for gaining competitive advantages and how an organization’s strategy is linked to taking unfair advantages over the competition. Retailers such as Wal-Mart are a part of a low margin, high volume industry and so if we analyze the industry based on Michael porter’s five forces, we see that the bargaining power of customers is very high in this industry in addition to the high competition within the industry itself. It is hence clear that Wal-Mart is trying to stay on top of the competition by adding value for its customers by giving new and better services in addition to what it is currently offering.

We also talked about the value of focusing on the core competency of a firm which in this case is “providing goods at the cheapest rate”. Wal-Mart is trying to make all the efforts to remind its customers that it is still the cheapest store around and that it still is focused on “Save money, Live better” mantra that it proudly advertises to its customers. All this goes for new customer acquisition as well as customer retention strategy.

However, according to analysts it will be almost three to four times more expensive to Wal-Mart in terms of efficiency of the process to do the shipping from the stores rather than warehouses. Competing directly against Amazon for better delivery system does not necessarily ensure success for Wal-Mart as the process can turn out to be extremely inefficient and expensive for them. This is due to the fact that Wal-Mart plans to deliver the products taken from the local retail stores and not directly from the distribution outlets. Amazon’s business model surpasses the channel between distributor and retailer hence cutting costs thus making it more profitable for the company.

So all that being said, the question really is how successful Wal-Mart is going to be in its mission of retaining the customers that otherwise would go to Amazon for buying stuff at cheaper prices and more importantly how will Amazon respond to this strategic move by Wal-Mart? 


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