amazon vs walmart

Which Giant Will Dominate E-commerce?CASE STUDY

by: Roslinda Perangin-angin

1009200020082MM - LIV/A

The concepts illustrated in this case are value chain and competitive forces models.

Business Value Chain Model• Views firm as series of activities that add value to

products or services• Highlights activities where competitive strategies

can best be applied• Primary activities vs. secondary activities

• At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy

• Utilize benchmarking, industry best practices

1. What concepts in the chapter are illustrated in this case?

The Value Chain ModelThe Value Chain Model

Michael Porter’s competitive forces model• Provides general view of firm, its competitors,

and environment

• Five competitive forces shape fate of firm• Traditional competitors • New market entrants • Substitute products and services• Customers• Suppliers

Porter’s Competitive Forces ModelPorter’s Competitive Forces Model

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers.

AMAZON

Amazon developed a value chain of itself to internal it can

operationally best add value and maintain a competitive

advantage.

They used the value chain model from Michael Porter's

book, "Competitive Advantage: Creating and Sustaining

Superior Performance."

2. Analyze Amazon and Walmart.com using the value chain and competitive forces models

AMAZON’s VALUE CHAIN

Primary Activities and Support Activities

Primary activities are those needed to produce a product or services for the end customers. These activities typically include:

Inbound Logistics: receiving goods from suppliers, and storing and moving those goodOperations: Manufacturing or assembling the productOutbound Logistics: Sending the goods to wholesalers, retailers or directly to the end customerMarketing and Sales: Marketing involves understanding customer needs, communicating those needs, and promoting the end products.Service: Involves after-sales support (e.g., handling, complaints, installation, training)

Support activities help to facilitate or assist the primary activities of producing product. Examples include:

Procurement: purchasing raw material and other items used in operationsHuman Resource Management: recruiting, hiring, firing, training, developing, compensatingTechnological Development: research and development, process automation, software, hardware, equipment, etc., to support operationsInfrastructure: May include accounting, legal, finance, planning, public affairs, government relations, quality assurance and general management.

Some of Amazon's competitive advantages from a value chain perspective include:

Strong technological infrastructure with a single platform

High investments in technology development (e.g., Kindle)

to best leverage digital products

Great product forecasting system

Print on demand

Constantly soliciting suggestions on new products

Easy and fast payment system

24 hour operations

Free returns within 30 days

WALMARTIn reference to the Five Forces Model, being the largest retailer in the world, Wal-Mart’s position is strong overall. Rivalry among competitors is fairly weak. The market is crowded but Wal-Mart has the lowest costs, prices, profits, and market share. The threat of substitute products is also weak. Wal-Mart exerts a great deal of effort in making sure they are innovative and meeting customer demands. The bargaining power of suppliers is weak as well. For most producers, Wal-Mart would be their largest account. The bargaining power of buyers is also weak. There is a very broad base of customers and a significant demand for low prices. The threat of new entrants is weak. Wal-mart has a scale of operation that is so great, it would take years, maybe even decades, for a new company to be on the same level. Even prominent companies today would have an extremely difficult time matching the costs and prices Wal-Mart provides.

WALMART’s INTERNAL VALUE CHAIN

WALMART’s EXTERNAL VALUE CHAIN

A more sophisticated analysis of Wal-Mart’s internal value chain reveals: It is very aggressive with respect to technology (one of the support activities) and was the first retailer to use bar codes. It uses satellite linkages to communicate with all its stores. It has integrated its POS, inventory-control, RFID, and other logistical technologies to speed product delivery, improve security (including merchandise shrinkage), and reduce costs.

It has developed regional procurement centers in addition to its legendary center in Bentonville, Arkansas (known as ‘‘Vendorville’’). It even has one just outside Shenzhen, China. Suppliers set up satellite offices next door to the most convenient procurement center. For example, Procter and Gamble, Wal-Mart’s largest supplier, has 300 employees fulltime in Bentonville.

It focuses on the complete ‘‘customer experience’’ – having someone welcome each customer to the store, helping them find what they are looking for, taking returns, and carrying merchandise to the customer’s car.

Because Wal-Mart is a retailer, not a manufacturer, its external value chain is extremely simple. It deals with a variety of vendors and sells to customers. But the secret to discovering what makes Wal-Mart great lies in examining its internal value chain.

Some of Walmart's competitive advantages from a value chain perspective include:

distribution capabilities: efficient distribution (e.g. cross docking), predominance of Walmart’s own distribution centers and “inside-out” location strategy partnership relationship with suppliers: integrates suppliers via IT & treats them well in terms of pricing, they are more partners than “value takers” advanced data mining: active collection and usage of customer purchase behavior info workforce culture: customer-oriented workforce motivated through generous monetary participation and belief in Walmart’s culture EDLP: maintenance of “Everyday Low Prices”

The management, organization and technology factors that have contributed to the success of Wal-Mart:

1.Strategy of managing costBudgeting payroll costSaving on business travel costInvesting in technology: energy system, new equipped store, and RFIDEliminating unnecessary costs

2.Strategy of managing growthLocationAcquisition

3.Strategy of managing people resourcesMotivating employeeInternal promotionExternal recruitment

3. What are the management, organization, and technology factors that have contributed to the success of both-Wal-Mart and Amazon?

All in all, by implementing these three important strategies successfully, Wal-Mart has become from a single store to the biggest retailer in the US and to the biggest company in the world.

The cost management strategy of Wal-Mart wills create an operational model with the lowest cost which will increase the margin of profit on the financial statements.

Moreover, the growth management strategy had dragged Wal-Mart into the right direction of investment and expanded radically around the distribution center.

Lastly, the people management strategy inspires all associates to work more efficiency and creates a great workplace environment which full of self-improvement, competition, and respects. It also provides an opportunity for people to build-up experience from the low-rank position to the high-rank position.

Therefore, strong management in these three strategies had transformed Wal-Mart into the biggest company in the world with the highest number of employees worldwide and had also provided benefits to millions of people around the world by transferring unnecessary cost into low-cost products.

The management, organization and technology factors that have contributed to the success of Amazon:

1.Convenience and ease of useLarge selection: publisher relations, wholesale relations, unlimited virtual shelf space

2. High Performance ServiceWebsite is fast, reliable, and easy to useShipping is promptCustomer is kept informedInnovative technology

3. Brand share of mind/NetworkingShort, clever name/URL/tag lineReferral programCo-branding, cross promotion and high advertising

The management, organization and technology factors that have contributed to the success of Amazon (con’t):

4. CommunityPosting customer reviews with author reviewsCustomer gifts: bookmarks, notepads, cups, etcPromotion where customers collaborate with famous authors

5.Personalization/Large customer databaseExtensive customer profilesRecommendationsOther readers who bought this title also boughtOther readers who bought this author also bought

6.TrustGuaranteesReturn policyGreat customer service: superior service reps, easy search, no hassle return, email confirmation

The management, organization and technology factors that have contributed to the success of Amazon (con’t):

7.Extended ServiceExtensive subject indexSearchAbility to order before publicationOut of print search

8. Cost StructureLow priceLow overhead: less employee, less real estate, low inventory

9.LogisticsFast, reliable, inexpensive shippingOriginally no inventory, use Ingram

Wal-Mart’s e-commerce business model

Possibly the single greatest success story of e-business and B2B implementation is that of the rise to dominance by Wal-Mart in the North American retail market. Wal-Mart’s impressive growth in such a short time span and arguably the single most important factor in this rise was their harnessing of the power of e-business, e-procurement, and the adjustment of internal processes to maximize this advantage.

More than any other company, Wal-Mart has revolutionized supply chain management by using a “pull” model where customer demands drive the suppliers. Inventory control is finely honed and purchasing trends are available to suppliers, whom now must be able to quickly respond to the needs of millions of customers. The business decision to decentralize the procurement process means that front-line staff in every store can immediately order the appropriate stock electronically, which will in turn require rapid turnout of product from the suppliers. This rapid replenishment system, coupled with accurate purchasing forecasting, helps Wal-Mart reduce overall costs.

4. Compare Wal-Mart's and Amazon's e-commerce business models. Which is stronger?

Wal-Mart’s e-commerce business model (con’t)

While not always good for suppliers in general, Wal-Mart’s power as a giant in business has helped in establishing new standards for B2B e-commerce.

Wal-Mart’s mindset of cutting costs at all costs resulted in them deploying EDI over the Internet to eliminate the costly VAN altogether.

EDI over the Internet (EDI-INT) uses a new standard called AS2, a communication protocol that attempts to make EDI communications over the Internet both secure and reliable. By mandating their suppliers to use AS2, Wal-Mart leads the way in creating a demand for a new generation of EDI, and in turn drives the whole world of ebusiness forward.

Amazon’s e-commerce business model

Amazon started as a store that focused primarily on books and music. It quickly expanded to other segments and now sells products in nearly every segment – apparel, home improvement, groceries. In addition, Amazon has expanded from a Business-to-Consumer (B2C) only store to a mixed model with its corporate account functionality that focuses on business buyers. Added to the mix, is the Amazon marketplace – Amazon's answer to eBay- which allows merchants to list their products and customers to purchase from merchants while using Amazon's eCommerce platform.

As a provider of eCommerce software to mid-market, we use Amazon as a reference for the features it has on the web store. Some of these features not easily found on other sites include the ‘1-Click Ordering’, ‘Customer Viewing’, ‘Recently Viewed Products’, ‘Keyword Auto-fill’ on the product search, ‘Your Personalized Store’, and ‘Items to Consider’. While some of these features are relatively easy to implement e.g. ‘1-click Ordering’, others are not so easy and require an advanced platform.

Amazon’s e-commerce business model (con’t)

But selling goods isn't the only way to make money with Amazon.com. The Web site's affiliate program is one of the most famous on the Web. Through Amazon's Associate Program, anyone with a Web site can post a link to Amazon.com and earn some money.

The associate can also take advantage of Amazon Web Services, which is the program that lets people use Amazon's utilities for their own purposes. The Amazon Web Services API (application programming interface) lets developers access the Amazon technology infrastructure to build their own applications for their own Web sites. All product sales generated by those Web sites have to go through Amazon.com, and the associate gets a small commission on each sale.

On the flip side, Amazon seems to not have kept up with the Web 2.0 and Web 3.0 user interface improvements and for most part still incorporates Web 1.0 technology which means – you still need a mouse click to view a product as opposed to being able to see product details with a mouse roll-over. Amazon could use a make-over to make for a snazzier shopping experience.

I think Amazon’s e-commerce business model is stronger than Wal-Mart’s e-commerce business model because E-commerce is Amazon’s core mission and environment.

Amazon started with a store that was fairly feature-rich for its time and has gone on to strengthen that foundation. Today, it probably ranks as the leader in terms of the richness of its e-Commerce features, product breadth, personalized recommendations and depth of content available across eCommerce sites. However, there is a need for Amazon to offer a simplified and hipper shopping experience as an alternative which many other sites now offer.

I don't think Wal-Mart will displace Amazon any time soon, if ever, but it gives them a good shot of increasing their overall Web penetration. Amazon's value proposition until now has been a broad assortment. This enables Walmart to compete with other companies with big assortments.

I would prefer to make my internet purchases at Amazon because the richness of the content on a product detail page is absolutely amazing.

Not only can customers view product images uploaded by Amazon but other customers can upload images and include relevant content to that. The quality of the customer reviews is better than just about any other eCommerce site. Not only can customers post a review (which most sites offer) but other users can vote on the usefulness of the review. Some reviewers have actually built their following on Amazon.com with good quality reviews.

Even when shopping at another store, I find myself going to Amazon.com to see the user feedback on the product. Other examples of rich content are user-specified tags and the ability to preview a book without purchasing – bringing the “browsing a book at Borders” experience in home.

5. Where would you prefer to make your Internet purchases? Amazon or Walmart.com? Why?

In short, I choose to make my internet purchases in Amazon with considerations as follows:

Rich shopping features Strong analytics for product recommendations High quality content and very detailed product descriptions User generated reviews and usefulness ratings of reviews

amazon vs walmart

Business

amazons value chain

value chain perspective

walmarts internal value

competitive forces models

walmarts external value

competitive strategies

series of activities

secondary activities