How Amazon Competes with Walmart: The Power of Customer Focus
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Introduction
In the business landscape, few rivalries capture attention like the one between Amazon and Walmart. While Walmart has long been viewed as the titan of retail, Amazon has carved out its niche through an obsessive focus on customer satisfaction. This article delves into the strategies that enable Amazon to compete fiercely with one of the world's largest retailers, particularly in three key areas: selection, pricing, and delivery.
Amazon's Differentiation: Three Pillars of Success
To understand Amazon's edge over Walmart, it's essential to break down its approach into three primary pillars: selection, low prices, and fast, convenient delivery.
1. Selection
- Broader Range of Products: Amazon's business model allows it to offer a far broader selection of goods than physical stores typically can. This variety is not just a significant advantage but is crucial for meeting diverse customer needs.
- Leverage of Online Infrastructure: Unlike Walmart, which is constrained by its physical locations, Amazon's online model provides significant cost structure advantages, enabling it to maintain lower prices across a vast inventory.
2. Low Prices
- Competitive Pricing Strategy: Amazon does not see profitability as its customers' problem. Instead, it prices products competitively, sometimes accepting losses in the short term to foster loyalty and trust. This strategy allows Amazon to build long-term relationships with its customers while keeping prices attractive.
- Leveled Playing Field: In the past, Walmart's purchasing power appeared to give it a significant advantage. However, the dynamics of purchasing relationships have shifted, allowing Amazon to negotiate competitively with suppliers.
3. Fast, Convenient Delivery
- Efficient Logistics: Amazon has invested heavily in its logistics network, ensuring fast and dependable delivery. This commitment to shipping speed has become a cornerstone of customer satisfaction, setting the company apart in the e-commerce world.
- Prime Membership: With services like Amazon Prime, customers enjoy additional benefits, including faster shipping options and exclusive access to products, further enhancing the value proposition.
Customer Obsession: The Heart of Amazon’s Strategy
Jeff Bezos, the founder of Amazon, has always emphasized the importance of customer obsession in every aspect of the business. A pivotal moment came during an all-hands meeting when Bezos urged employees to focus on serving customers instead of worrying about competitors. This ethos has led Amazon to prioritize customer feedback, rapidly incorporating it into service improvements.
The Role of Innovation
- Investment in New Business Areas: From the Kindle to Amazon Web Services (AWS), Amazon's willingness to invest in new lines of business—even if they initially have a negative impact on profits—reflects a steadfast commitment to customer satisfaction. Bezos has believed in long-term growth over short-term profitability.
- Cloud Computing Leadership: AWS has emerged as a dominant player in the cloud computing space, allowing companies to access computing power as easily as electricity from the grid. This forward-thinking approach has not only broadened Amazon's revenue streams but has also differentiated it from competitors.
Competing with Walmart: Strategic Insights
While some analysts view the competition between Amazon and Walmart as a zero-sum game, Bezos highlights that both companies can succeed independently. The retail market is vast, and their strategies can coexist, leading to an overall growth in the sector.
Shifting Market Dynamics
- E-commerce Growth: The rise of e-commerce means that more customers are turning to online shopping, which plays into Amazon's strengths. The shift is not merely a trend but a significant change in consumer behavior, favoring platforms that prioritize ease and efficiency.
- Diverse Customer Needs: As shopping habits evolve, both retailers can cater to their customer bases effectively. Amazon's focus on online convenience complements Walmart's traditional brick-and-mortar approach.
Conclusion
In conclusion, Amazon's ability to compete effectively with Walmart can be attributed to its customer-focused approach, strategic innovations, and commitment to operational excellence. By prioritizing selection, competitive pricing, and fast delivery, Amazon has not only managed to challenge the retail giant but also set new standards for customer expectations in e-commerce. As the retail landscape continues to evolve, both Amazon and Walmart will face new challenges and opportunities, but one thing remains clear: customer obsession is a powerful tool for success.
okay let me go back to the Walmart issue yes what was it that made you able to sustain a challenge from a the world's
greatest retailer obsessive customer focus on how do you focus on the customer better than they focus on the
customer well we're so good at focusing on the customer - but we're very differentiated in how we do it and so
our approach will you if you if you think about our retail business which i think is what you're asking about here
they're really three things that we know or that still was none of your business well and especially relative to the
Walmart question I think that's the key its selection low prices and fast convenient reliable delivery so that the
shipment side and so we wait wait so Walmart doesn't have low prices fast and convenient delivery I would claim that
Amazon has much broader selection in many cases if I don't want to be overly bold in my claim but the online model
gives us significant cost structure advantages that lets us have even lower prices than physical stores selling
online well sometimes they have them they do have a briella problem sometimes where they they don't want to compete
against themselves online versus off but a Walmart with all of the volume that it buys its purchasing power therefore
gives it the ability to offer lower prices well doesn't that give them an advantage they ought to be able to
translate because their purchasing power is bigger than your purchasing power is it not I wouldn't I think in a lot of
the product categories that ship sailed a long time ago meaning that we have the purchasing we really compete with it we
have the volume relationships with suppliers that playing field has been leveled if you'd asked me that question
you know 10 or 15 years ago right I'd have agreed with you that and that there was a challenge you had overcome but
even then we don't our profitability is not our customers problem we don't take the point of view that we're gonna price
products you know at a particular margin for ourselves we say we're going to price products
competitively and if that means on that product that we lose money that's okay cuz we need to take care of the customer
earn trust and we'll figure out over time and if we can if we find we can't ever make money with that park we'll
stop selling it but we don't want to we're not going to make customers pay for any of our inefficiencies if you see
what I use money on the Kindle every new business that we have ever invested in we have it's it has taken years what
most businesses have either no impact on our financials for the first five to seven years or a negative impact on our
financials for the first five to seven years and we do a lot of new things the company is is very healthy financially
we're doing very well and it's it's an outcome of customer obsession so you know when when we were Amazon toast
that was because Barnes and Noble had you know this is we only had a hundred and when we were declared Amazon Duck
toast I think we had a hundred and fifty employees Barnes & Noble had thirty thousand employees and somebody wrote an
article that said you know Amazon has had a great two-year run but now the big boys have shown up and they're gonna
steamroll them and you know we had a All Hands meeting called a hundred and fifty employees together I said look because
everybody's wherever they were every employee has read the Amazon Duck toast article every mother of every employee
has read the Amazon toast article and has falled and so father mother lawyer you knew your are you okay and so we had
an All Hands meeting and I said look um you should wake up worried terrified every morning but don't be worried about
our competitors because they're never gonna send us any money anyway let's be worried about our customers and stay
heads down focused and so I you know there these are big most of these are big markets another way to answer your
your question about competitors and Walmart is to said look they can succeed fabulously and it won't stop us from
succeeding these retail markets are huge so we can it often doesn't make sense for us to think of it as a pitched
battle you know sometimes people think about business as it's kind of like a a sporting event there's a winner and a
loser it's not a zero-sum game usually isn't yeah I'm sure there are cases where but most often industries succeed
so I can tell you I think ecommerce is succeeding and the way we think about it nobody else has to fail for us to do
well I think ebooks is like that I think they're gonna be many winners I think ebooks is gonna be a huge
industry well there are many competitors now you've got Barnes and Noble as one of their sony's you know they're now and
now people is another but I have a list of 50 competitors that we could walk through I mean you know all over the
world doing different things and our focus is going to be you know it will try to pay attention to those
competitors and we're not gonna obsess over them we're gonna obsess over readers and that because those are the
people who are buying that device and we're gonna make it and it's not just a business for us it's a mission for us
and missionaries build better products what is Jeff Bezos thinking about today in 2010 that we might not know anything
about that he thinks maybe a reality in 2013 or 2015 well air is the one of the things as are the Amazon Web Services
business now there is a business that processes not this is it Amazon Cloud stuff yes and there's a business that's
growing you know it's in a hyper growth phase it's already a significant business that's a business that probably
well Emma's in the infrastructure part of it which is the part that we play in Amazon is by far the leader right and
you know it started mostly with startup companies but now it's big enterprises adopting the best analogy I can give you
for this is it's like the electric grid so instead of you know right now big companies build their own data centers
and they buy their own servers and they put it in it's a lot of capex there's a lot of price of admission you have to if
you're gonna operate a data center you have to do it well but it doesn't differentiate
you from your competitors it doesn't it's just a price of admission and so what we do at Amazon Web Services is we
sell compute by the hour we sell compute by the drink which is just like buying electricity off the grid instead of