Inside This Issue - Opinion
Low prices no longer enough
September 2nd, 2013
by David Pinto, Editor
The debate surrounding the customer’s preferred shopping venue — in-store or online — rages unchecked, amid theories and largely unsupported evidence favoring one or the other.
Now come the results of a recent survey comparing the shopping habits of Walmart and Amazon customers that, though interesting, do little to clear the confusion.
As background, the survey, conducted by a major management consultant, measures three shopping options: the Walmart store, the Walmart online option and Amazon.com, seeking to monitor how shoppers approach and interact with each in relation to the others.
Let’s start backwards, offering some initial conclusions. Not surprisingly, the study found that competition between Walmart and Amazon is intensifying. Less obvious is the fact that, while both retailers rely heavily on price, they do so in different ways. Walmart uses price as it always has, to convince its customers that, particularly in its stores, it is the price leader in the market. By contrast, being the price leader is not Amazon’s primary objective. Rather, the world’s largest and most successful online retailer got that way by emphasizing the customer, striving to be competitive on price while relying on assortment and convenience to win the day.
Thus, the first surprise: Contrary to both Walmart and popular conception, Amazon’s appeal is not primarily about price. It is about the customer.
Now for some of the findings. The study found that, over a four-week period, 51% of Walmart shoppers also shopped Amazon. Additionally, the study revealed that Walmart shoppers were twice as likely to frequent Amazon on a weekly basis than to shop Walmart.com. More specifically, 19% of Walmart’s customers over this four-week period also shopped Amazon weekly, whereas just 9% also shopped Walmart.com each week.
Clear so far?
Now we digress for a moment. This same research firm also set out to compare prices among the three retailers, examining 59 nationally branded items that included grocery products, general merchandise and health and beauty aids. Viewed in this context, Walmart’s Supercenter — apparently only one was chosen for the study, ignoring the fact that Walmart’s brick-and-mortar prices sometimes vary from store to store — offered the greatest value, with a total price of $853.08 for the 59 items. The identical products cost the consumer $924.74 at Walmart.com, 8% more than the Supercenter charged. However, the shopper who chose to buy these same 59 products at Amazon.com would have paid $985.49, 16% more than they cost at the Supercenter.
We won’t delve too deeply into the reasons behind the price discrepancies — the cost of shipping perishables and the use of third-party suppliers are major factors. More telling are these conclusions:
• While price is important to Amazon, it is not the differentiator of popular perception. Rather, such considerations as selection, ease of shopping and speed of delivery are equally, if not more, important.
• Walmart.com is apparently content to compete with other online retailers on price, but has little interest in competing with its brick-and-mortar equivalent.
Beyond these immediate and rather obvious findings, this much is clear: Amazon wins here, at least in terms of attracting the customer. Moreover, that customer shops Amazon for the very reasons the company seeks to attract her: for assortment and convenience, though it’s also true that these factors alone, without the added inducement of competitive pricing, would not be enough to carry the day.
Walmart’s conundrum appears to be that, in today’s competitive marketplace, the perception of low prices is no longer enough to win the shopper. If it were, shoppers who didn’t find what they wanted at a Walmart Supercenter would quickly access Walmart.com as an alternative. Instead, twice as many gravitate to Amazon when Walmart fails to satisfy them.
What’s Walmart to do? Apparently the stated position of its online managers is that the website has no intention of competing on price with its brick-and-mortar relative.
Apparently, too, this position is costing Walmart business. To remedy that, many observers believe that Walmart must hammer home its price message more effectively, hoping that Amazon’s real or perceived advantages in assortment and convenience can be largely neutralized the way Walmart has always neutralized the competition: by stressing the fact that it is the low-price leader.
As for Amazon, its position in the marketplace appears unassailable. Online at least, it is the go-to retailer when customers are looking for overall value — and when price ceases to be the only consideration.