Amazon is Beating Wal-Mart Because it Knows its Customers

Amazon is Beating Wal-Mart Because it Knows its Customers

Last week, Wal-Mart’s stock price dropped nearly 10% after they announced their earnings.  The drop was precipitated by their lack of continued ecommerce growth.  After several great quarters of online growth, the trajectory flattened. Despite the decline in stock price, this flattening was unsurprising to many in the know – the growth was largely fueled by acquisition of companies like Jet.com rather than improvements to their core ecommerce business.

After the drop, Tien Tzuo, the CEO of high-flying Zuora wrote about Wal-Mart’s REAL ecommerce problem in an article on VentureBeat.  He believes, as I do, Wal-Mart’s online problems lie within themselves, and are not solely due to Amazon’s rise.

Tzuo states, “Amazon is beating Walmart because it knows its customers. That’s the reason. Plain and simple.” Success comes from “starting with the customer as opposed to the product sale, and wrapping both e-commerce and your retail channels around that customer experience.”

Additionally, as Tzuo states, “Walmart is a product company that still views its e-commerce efforts as a distinct channel, a separate line of business.”

Being located 15 minutes from their Bentonville corporate headquarters, my team and I have gained a unique perspective on Wal-Mart.  I know several members of their product and data analytics team, and I also know many of their ecommerce people.  I’m always amazed that these people never seem to know each other!

To further illustrate, 6 years ago, my previous ecommerce company raised $100 million in venture capital a short 10 minute drive from Wal-Mart’s corporate headquarters in Arkansas.  After raising what was at the time one of the largest ecommerce funding rounds of all time, the only contact we received from Wal-Mart came from their tiny, isolated Wal-Mart Labs department located in San Bruno, California.  As we built an email subscriber list of over 10 million customers, we solved a lot of the problems referenced above mere miles away from WMT HQ; surprisingly we never received a single invitation to meet locally.  The Labs team was blown away, but alas the left hand never knew what the right was doing.

From the outside, all these things are glaringly obvious.  I’m a member of a professional group consisting of entrepreneurs who building venture capital backed ecommerce companies approaching or exceeding 9-figures of annual revenue.  In that group, it’s a unanimous opinion that WMT is missing the boat on a very critical issue – personalization / customization of services to the individual customer.

Wal-Mart is almost certainly the greatest data-gathering company on the planet.  They’ve long used this incredible data trove to drive product decisions, likely better than any company in the history of the world.  But when it comes to crafting a custom-tailored experience catering to their individual consumers, they are abysmal.

To Wal-Mart, retail is still about creating an experience that is about the greatest good for the greatest number.  This utilitarian approach has served WMT well in the past, allowing them to create a shopping experience that was highly optimized to Wal-Mart’s average consumer.  They used, and still use,  their insane data collecting and analysis abilities to hone a better retail mousetrap for their customers in aggregate.

Ecommerce, done correctly, allows the forward-thinking retailer to create individualized, personalized experiences for each of their unique customers.  Rather than WMT utilitarian greatest good for the greatest number strategy, a better experience can be crafted for individual consumers even at WMT’s enormous scale. Wal-Mart, with their treasure trove of data on individual customers, should be able to craft a better online experience than any of its competitors, including Amazon.

But they don’t.

Here’s a super simple example.  Until recently, my family bought Tide laundry detergent at Wal-Mart on very regular intervals.  You could’ve set a clock by our Tide purchases at our local Wal-Mart.  Every other week for a couple decades.

Recently, we realized our purchase behavior was so regular that we setup a recurring subscription for the product with Amazon.  It’s magic.

Wal-Mart could have easily prevented this switch.  When checking out, the cashier could have said “John, I see that you’ve purchased Tide every 15 days for the past decade.  Can we start shipping it to your house every 15 days?”  Even better, why not send a customized, personalized email to the same effect detailing all 50 or so products where Wal-Mart could save my family time through a recurring personalized subscription?

This strategy would provide a better customer experience AND lock customers into the WMT ecosystem for decades to come. Sure, this strategy would cannibalize in-store volume, merely shifting it from one channel to another, but this internal cannibalization would be much superior to LOSING the customer altogether to Amazon’s Tide Dash Buttons linked directly to an ever-replenishing subscription.  A classic case of the Innovator’s Dilemma.

 

While this example is highly simplistic, it’s the tip of the iceberg.  There are thousands of highly actionable solutions WMT is currently missing due to their product-centric, rather than customer-centric view of retail.

This lack of customer-centric behavior isn’t their online online deficit, but it’s perhaps the most glaring deficiency. As we touched on last week, Walmart.com’s UX / UI is bad, but this problem pales in comparison to their lack of focus to deliver services tailored to the individual consumer across all their online and offline channels.

 

I’ve been critical of WMT’s online strategy for decades (sometimes right next to their corporate HQ,) continually scratching my head as to why they simply didn’t use their massive lead to crush the emerging Amazon.   If WMT would have piloted such concepts as in store pickup, last mile delivery, massive UX / UI improvements, and Jet.com-like customer personalization a decade ago, Amazon as we know it would not be as powerful today.

Over the past 24 months, Wal-Mart has made some great strides forward, trying to make up for lost time.  In addition to acquisitions, they’ve hired several members of my old team in leadership positions.  I’m hopeful that this fresh blood that solved similar problems on a smaller scale will help the company reach their incredible online potential, albeit half a decade too late.

Written by
John James, M.D. is the CEO of Engine, an upcoming ecommerce software platform currently in closed beta. I paid for medical school with an ecommerce business I founded in my dorm room over twenty years ago, and eventually raised over $100 million in venture capital running Acumen Brands. Email me -- john at engineinsights dot com.