Walmart has announced that this summer it will start testing an unlimited free shipping service that will bring online goods to its customers for just $50 a year—half the cost of Amazon Prime.
It’s big news. But it should come as no surprise to anyone with an understanding of Walmart’s history. A quick look at the company’s rise to dominance puts into context its aggressive response to Amazon’s growth in the online space.
The company, which was founded in 1962, became the largest employer in the world by 2000 and currently employs more than 2.1 million people, with 8,500 stores opening its doors to 200 million shoppers every week.
The keys to the company’s success are its size and “Every Day Low-Pricing” value strategy. Simply put, Walmart provides products at discount rates to drive up volume as well as profits. It can use its size to leverage suppliers into slimming down their own profits to sometimes razor-thin margins. The big winners within this business model are the suppliers that have been able to overhaul their own operations and cut costs out of their supply chains.
Amazon’s own history is shorter yet not all that different from Walmart’s. It has its own version of EDLP, based on serving up low-cost products to customers and offers a Prime subscription for free shipping. Amazon’s model has grown so much that it has become an online data-driven and technology-enabled behemoth. And it clearly has been cutting into Walmart’s share of the market.
Walmart is not taking this lightly. It will be fascinating to watch how this battle plays out.
My prediction is that Walmart will find a way to harness the massive amount of data it acquires daily from its consumers and turn that into meaningful innovations that will bring to life its EDLP value proposition in innovative new ways. Today we are seeing this exemplified by a free shipping program. Tomorrow it may be something that we haven’t yet imagined.
Then again, Amazon loves a good challenge on the innovation front.
Will we be seeing delivery drone dog fights on the horizon?
Jill Draper is president of data-driven direct marketing strategy firm Marketsmith, Inc., and advertising and PR agency Brushfire.
Photo by Wolterk/iStockphoto.com