Walmart Still Doesn’t Understand Amazon Prime, Kills ShippingPass Without Substitute

Walmart vs. Amazon

This is remarkable. Walmart just killed ShippingPass. And instead of replacing it with a true customer loyalty program to counter Amazon Prime the company is just making two-day shipping free of additional fees.

It is the exact wrong move to make in the face of the threat called Amazon Prime.

Recode:

The world’s largest brick-and-mortar retailer is eliminating the membership fee on its own two-day shipping program, and simultaneously lowering its free shipping order minimum from $50 to $35. More than two million items will be available for the new, free express delivery service.

Marc Lore, CEO of Walmart’s U.S. e-commerce division, said in a statement that “in today’s world of e-commerce, two-day free shipping is table stakes.” At the same time, he called the initiative “the first of many moves we will be making to enhance the customer experience and accelerate growth.” […]

With the move, Walmart is discontinuing ShippingPass, its $49-a-year two-day shipping membership, which just launched widely this past summer. Members will be refunded the $49 fee.

Yes. Fast delivery is table stakes. So, what exactly is the strategic answer here to Amazon Prime?

Here is the problem for Walmart: It bought, for a lot of money, Jet.com and Lore to get talent to lead Walmart’s e-commerce strategy. Marc Lore ha achieved great things in his career: Diapers.com, Jet.com are both things to be proud of. But both are/were companies that excelled at execution, not necessarily at strategy. (Remember Jet.com changing its membership premise within weeks after launch. Actually, that was not unlike what happened to ShippingPass just now!)

Walmart’s new move is overly focused on price, like Diapers.com and Jet were/are.

Marc Lore, after all, might not be the best choice to lead a large scale e-commerce strategy.

Here is the problem with killing ShippingPass without introducing a substitute: While ShippingPass always had a bad name (don’t focus on just shipping!) it was, at least, a start. Amazon is modelling Amazon Prime into a club program that is parts Costco and parts something much larger: A large, very large bundle of a lot of different services. For competitive analysis, Prime allows Amazon to have an orthogonal business model to many, if not all of its competitors.

It allows Amazon to introduce new services to a subset of loyal customers. It allows Amazon to build a bundle of products most other merchants can’t compete with. (Which online merchants have video streaming available for their customers?) Only someone the size of Walmart can realistically build a competing bundle.

Why would Walmart need that?

Amazon Prime is locking high-value customers to Amazon. Trying (irrationally) to recoup the sunk costs of the annual membership fees, Prime subscribers more than regular customers start shopping at Amazon. So, you want to reach those households as a brand or small merchant? You have to be present on the Amazon Marketplace, and your products better be Prime eligible.

And why would brands and merchants want to reach those households? Fortune from last year, referencing a 2015 survey:

According to Cowen’s survey of 2,500 customers in December, members of Prime—a $99 annual subscription service that offers, among other benefits, free two-day shipping—had an average household income of $69,300. That’s well above the income of Amazon shoppers in general, some 24.8% higher than Walmart shoppers’ average income, and 4% above Target’s. Such customers are likelier to be willing to spend more for quick delivery.

Cross-subsidisation within the bundle allows Amazon to offer new order methods like the Dash Buttons, which result in small package deliveries; expensive now, but a strong future moat.

How can one build that without Prime?

The sad thing here is that Walmart is one company among very few globally that are even in a position to build something like Amazon Prime.

So, no, Recode’s Jason Del Ray has it exactly backwards when he writes:

If Walmart.com is ever going to put a dent in Amazon’s dominance, this will have to be the starting point.

It is the opposite of a starting point that we’re seeing here.

More on this topic:

4 comments

  1. […] Yesterday, we saw how Walmart, in killing ShippingPass without introducing a substitute, doesn’t really seem to grasp the challenge that Amazon Prime represents to the retailer’s online strategy. […]

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  2. […] Walmart Still Doesn’t Understand Amazon Prime, Kills ShippingPass Without Substitute […]

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  3. […] Die Dynamiken sind nicht immer offensichtlich: Die Jahresgebühr von Amazon Prime macht es nicht schwerer für Amazon, sondern einfacher. Wer Prime-Kunde ist, kauft mehr bei Amazon und startet mehr Produktsuchen bei Amazon, weil man auch die Gebühr wieder „hereinbekommen will“. (Der Mensch ist eben kein homo oeconomicus.) Damit führt die Gebühr zu Exklusivität, Lockin und ganz eigenen Marktplatzdynamiken. Etwas, dass selbst große Konkurrenten wie Walmart nicht verstehen. […]

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  4. […] construct. ​ ​More on this topic: ​ * ​Amazon Prime Subscriber Growth May Be Slowing * Walmart Still Doesn’t Understand Amazon Prime, Kills ShippingPass Without Substitute * This 5 Minute Video Shows How Amazon Prime Now Delivers Orders Within 2 Hours * Jeff Bezos & […]

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