Wal-Mart Versus Amazon: Price Isn’t Everything

When Jill Davis needed a cover for a 7-inch tablet she purchased on QVC, she went to a Wal-Mart in Bentonville but found limited options and a low price of $29.99.

When shopping the product online at Walmart.com she found a much larger selection but none which suited her. At Amazon.com Davis found the red portfolio cover and stylus pen she wanted for $11.54. It was delivered to her home in two days via Amazon Prime.

This resembles a similar local experience between the two retail giants. A customer purchased two of the 8-inch Nextbook tablets at Wal-Mart for $99 each. The purchase included the two-year replacement coverage, but in asking about covers for the exclusive product offered at Wal-Mart, the customer was told by the cashier in a Rogers supercenter that they could likely be found online at Amazon.

A quick search online revealed that the covers listed on Amazon’s site were promoted as the “the tablet sold at Walmart.” Two were purchased and were delivered free to at Bella Vista home in two days.

A recent study by Kantar Retail found that Wal-Mart shared 51% of its past four-week shoppers with Amazon. The study also indicated Wal-Mart shoppers were twice as likely to frequent Amazon (19%) on a weekly basis than Walmart.com (9%).

“Historically, Wal-Mart’s stores have asserted price leadership, but today’s online pricing dynamics create a new level of competition between the two retailers. A recent price study conducted by Kantar indicated that competition between Wal-Mart and Amazon is intensifying,” the study noted.

Anne Zybowski, senior analyst with Kantar, said the two giant retailers have very different philosophies about price. She said with a mission to help people save money and live better, Wal-Mart strives to be the price leader via an everyday low price strategy, particularly through the store.

In contrast, Amazon’s mission is to be earth’s most customer­centric company by starting with the customer and working backward. Being the price leader is not Amazon’s goal. It seeks to be competitive on price and win on assortment and convenience, Zybowski added. She said consumers can be very unforgiving when they make an effort to go to a physical store and the item they want is not available. She said retailer’s like Wal-Mart that also operate online stores have a real opportunity to give consumers the products they want in one store or the other, but there is still a lot of work to do.

PRICE COMPARISON
Wal-Mart, Walmart.com and Amazon were recently part of an annual pricing study that looked a full basket of goods. This was the second year for the basket study by Kantar.

The overall basket of goods included 59 nationally branded items bought in bulk including edible and nonedible grocery, health & beauty products and general merchandise.

When looking at the full basket results, Wal-Mart’s supercenter offered the greatest value with a total price of $853.08. The identical products cost $924.74 at Walmart.com, some 8% more expensive than at the supercenter. Shoppers who purchased the same basket at Amazon would have paid $985.49, which was 7% more expensive than Walmart.com and 16% more costly than at the supercenter.

Edible grocery had the widest gaps in pricing given the fresh nature of some of the products in the basket.

Zybowski said Amazon’s edible grocery prices were driven higher because most of them involved third party suppliers. But if shoppers were to solely purchase Amazon’s own stock items, Amazon’s pricing would be on equal footing with the supercenter, and 19% less expensive than Walmart.com.

In the non-edible grocery category the prices were far more competitive between the three. For instance, Glad trash bags were the same price of $7.48 among all three retailers. The Finish powerball tabs for dishwasher, Mr. Clean erasers and Clorox disinfecting wipes were also evenly priced between the three stores.

Bounty paper towel and Similac baby formula were cheaper at Amazon, while Windex cleaner and SOS steel wool pads cost less at Wal-Mart’s supercenter.

Amazon’s heath & beauty aid sub­-basket registered 6% more expensive than both Wal-Mart venues, but it’s worth noting that three of the items – bar soap, pain killers and eye make-up remover – were out of stock at the supercenter. Cottonswabs were out of stock at Walmart.com.

In the general merchandise sub-basket, Walmart.com is 11% more expensive than the supercenter. Amazon is 7% more expensive than the supercenter, however, it was 4% less expensive than Walmart.com, according to the study.

Zybowski said contrary to popular assumptions, Amazon is not the price leader online, nor does it want to be. The results of this study reinforce the importance of Amazon’s price­matching policy to maintain shoppers’ trust in the Amazon value proposition – low prices on vast selection and fast delivery. She said Wal-Mart maintains its price leadership position, offering a lower basket price at the supercenter and on Walmart.com. Between the online stores, Walmart.com’s basket was lower for grocery and consumables, while Amazon led in general merchandise.

Kantar said Amazon is reframing shoppers’ expectations of value and convenience. Price is a piece of the value proposition, not the end game. Amazon provides a wide selection plus convenient ways to purchase and receive product, while automating price matching to earn trust from shoppers.

Neil Ashe, president of Walmart Global eCommerce, said in May that, “we view ourselves as an online player competing with online players.” 
He added that Walmart.com elevated its dynamic pricing capabilities in the past year to be a lower­price option than in­channel competitors. In doing so, the retailer is not intent on aligning prices between its stores and online.

Kantar notes as Wal-Mart is focused on Amazon, they expect to see price volatility increase as it asserts price leadership online, particularly in general merchandise.

SUPPLIER TAKE-AWAY
Kantar expects there are supplier implications to the competitive pricing between Wal-Mart and Amazon.

“As Amazon is reframing the value conversation, with new types of auto-replenish shopping occasions … suppliers should anticipate that Wal-Mart will further assert its direct price leadership position, perhaps through real­time ‘See for Yourself’ price comparisons versus online competitors.

Kantar also expects Wal-Mart to add targeted conveniences, such as list reminders through its mobile applications.

“We suggest that suppliers should communicate internally the implications of Walmart.com’s expanding efforts to drive its price position,” the study notes.

Kantar offered the following insights for Wal-Mart suppliers:

Elevation of dynamic pricing: As Wal-Mart adjusts prices to match online competitors, examine which of your product items may be considered key value indicators versus Amazon, proactively suggesting where the retailer should target its efforts.

Further leveraging Marketplace: Given the retailer’s plans to expand its online assortment, anticipate whether your category would be a candidate for marketplace expansion. Identify the concerns and considerations associated with other website’s marketplace listings to be prepared for its rollout.

For Amazon suppliers Kantar gave the following observations:

Match & Switch: The dynamic pricing environment is not going away. The end result is often at odds with Amazon’s simultaneous objective to grow profit margins, but its characterized as “match & switch”—a strategy that both HEB and Target employ to establish reputation as low price on everything they sell that is widely available.

Auto Replenishment: As consumer adoption grows and more consumable items become eligible for auto replenishment, it is possible that Amazon will have the best available price. There is ample room for more brands to become eligible for auto-replenishment which helps to lock in repeat purchases. It’s important to remember this often requires creating new ship-in-own-container packaging to improve distribution efficiencies and margin.