By: Tiffany Lieu
Strategy of the Global Economy, Northwestern University
The domination of Walmart and Amazon in the retail economy seems so complete that it’s difficult to remember when they weren’t the leading figures in retail. The two companies have become synonymous with the lowest price for all types of products because they took advantage of an idea which began with Sears and their immersive catalog. The Retail Revolution, which Walmart and Amazon created, have made them monoliths of current times. They were able to identify a strategic position within the economy and exploited it to the peak of economic success. In creating an idea, where general goods can be obtained for the best price, they’ve changed Americans as consumers. Funneled into the idea of a “pull economy,” Americans now go seek the services of Walmart and Amazon as a default. But the forces of Walmart and Amazon have far reaching ramifications beyond the change in American consumption. The characteristics of how Amazon and Walmart compete are now mirrored in American lifestyle while also accelerating cultural diversity in America by forcing their competition into niche markets. These niche markets now play a large part in the diversity of the American economy and culture. There are many factors to be explored in explaining the success of Walmart and Amazon but to put it succinctly, they are the benefactors of strategic positioning which has allowed them to build off of a unique position within their target market. Their success and flaws have far reaching repercussions into American society, affecting how we think, live and operate on a daily basis.
The Retailing Revolution started modestly with Sears, Roebuck and Company in the early 1900’s. Richard Sears exploited the idea of “satisfaction or money-back guarantee” to its greatest extent and used his extensive mail-order catalog as the vehicle to spread his idea. The notion that you could buy products risk-free from his extensive catalog was an idea that appealed to people who were reluctant to purchase products via mail order versus in store. This risk-free approach for consumers also alleviated notions that products needed to be compared before being bought (Sears, Cheapest Supply House on Earth). The idea that a single company could be the source of many general products was the strategic position Sears took to serve the broad needs of its target catalog customers. Sears and his catalog built the foundation for today’s “pull economy,” dominated by Walmart and Amazon.
A pull economy is characterized by consumers (the market) coming to the producers, seeking out companies for a product they are looking to buy. This is opposite of a “push economy,” where companies proactively push their products, credentials and advertisements in an effort to attract new customers. America is now characterized to be a pull economy because of the access to information online. Consumers now have the ability to determine company reputations, while comparing all different products from the comforts of home. Knowing this, companies have to focus on reputation and their company message to attract consumers. Walmart and Amazon capitalized on this phenomenon effectively through their marketing/advertising strategies and their understanding of the new customer/consumer dynamic.
Both Walmart and Amazon understood the new consumer dynamic and took a strategic position in order to solidify their advantage in the market. Similar to what Sears had done with their catalog, Walmart translated the catalog into a single brick-and-mortar retail store while pushing the lowest prices possible. In pushing their advertising rhetoric with “unbeatable prices,” Walmart’s strategy was to brand as the go-to place for lowest price possible. Every piece of Walmart’s production from their supply chain to their manufacturing, all lean towards a theme of efficiency and profitability.
From the year 2000 to 2005, Walmart doubled its sales and profits (Fishman, Has Walmart Found its Soul) and reached goals with consumers, becoming synonymous with the lowest price available. In addition, Walmart discovered an identity much more valuable than having the lowest price. Through its marketing/advertising strategy, Walmart was able to consistently brand itself as the best place to shop for families everywhere. Their logo, “Save Money. Live Better” resonated with all families struggling to make ends meet. Furthermore, with the recent economic downtown, the branding effort by Walmart was magnified. By mastering their marketing/advertising strategy and consistently portraying itself as the brick-and-mortar store with the best price, Walmart also solidified its customer base — consumers who are looking for the best bargain, regardless of brand or quality.
During this period of growth in the early 2000’s, Walmart’s popularity amongst consumers was higher than ever. The negative issues Walmart faced were from policy makers and politicians. Walmart’s detractors argued from a moral perspective that its use of supply chains was immoral and insular. Walmart listened to these negative attacks and deployed new technologies and efficiencies in supply chaining that aligned with their common goal of saving money. Analyzing their waste output, Walmart transformed itself into one of the leading companies in recycling and sustainability. From recycling its packaging to using energy efficient trucks; by transforming its identity into one of the world’s leading environmentalists, Walmart appeased its critics and further aligned itself within its identity, as a cost saving company who translates its savings onto the consumer. In striving towards cost saving measures, Walmart is able to portray itself as a company who translates those savings onto the consumers, cementing itself into the current “pull economy”.
Jeff Bezos, CEO and founder of Amazon, saw a statistic in 1994 that would be the catalyst to the creation of Amazon. Bezos saw that Internet usage was growing at a rate of 2,300 percent annually. With this understanding, a year later, Bezos would frame his Amazon endeavor around the Internet and its infinite possibilities. Bezos understood that the Internet erased all geographical boundaries that traditional shopping held. Not only could a consumer browse through thousands of goods in the convenience of their home, the consumer could also purchase these goods and have it shipped directly to their home. As one of the first online retailers, Amazon was able to use the new technology effectively, laying the foundation for Amazon to master supply chaining and new consumer experiences.
Amazon did not start out as a general retail store. In its infancy, Bezos used Amazon as a bookseller because he believed that with its countless categories and genres, books would properly use the internet’s ability to computerize search and access for a consumer. Today, Bezos was obviously successful in his endeavor to make an impact with Amazon. Books were just the forerunner to Amazon’s success and mostly served as a point of contact into Amazon’s plethora of goods and services. Amazon’s success can be largely attributed to Bezos’ ability to see how the internet could be used in a developing “pull economy” while properly utilizing technology to its full extent. Amazon no longer operates solely as a bookstore but still understands its origin while marketing and advertising. Amazon stands at the forefront of electronic readers with its Kindle product. Embracing the digital age, Amazon is the leader in sales of digital books and media. With its already robust book selection, Amazon naturally transitioned into the market, bypassing the need for supply of physical books. This new form of reading is just another way Amazon has employed technology to its advantage, now taking hold of a market which can bypass publishing companies.
Amazon has mastered the digital age consumer experience and cemented its identity as the premier online retailer. Amazon is still synonymous as the first online book seller but its identity as an online retailer of many products is how they want to be positioned in this pull economy. Amazon continues to have success and growth because of how they continue to market and advertise their position as an online retailer. Newly developed fees such as Amazon Prime allow consumers to get a premium service for Amazon’s suite of products further entrenching the consumer into the Amazon family. Free two-day shipping for Prime customers may incur a cost by Amazon but the continued use of the service by the consumer is the end goal. At no store can a consumer browse through such a wide variety of products and receive feedback from other people looking for the same product. Amazon is able to provide what Walmart provides but with a wider scope of products and with digital word-of-mouth.
With such astounding success in the marketplace, Amazon and Walmart have naturally taken business from its competition, or more so, taken out the competition all together. As a brick-and-mortar store, Walmart no longer has any competition when it comes to physical retail stores. With such a premium placed on its identity as the lowest price out there, Walmart’s identity is solidified in the mind of consumers. Competition from local stores selling the same product is non-existent because those local stores cannot sell the same product at the same low-price as Walmart. If local stores attempted to do so, their profit margins would be so small that their business would not succeed. Walmart is even able to sell products at a loss, if necessary, to sustain their identity. Even at a loss, their identity in the market is still intact and their gains will remain because consumers will continue to return. Because of this, local stores have been marginalized and pushed into extreme corners of the market, if not out of it all together. This marginalization has actually affected the American economy and established a niche culture in our society. The establishment of niche markets actually feeds into the American characteristic as a diverse society. America is a niche culture because the pull economy has driven it in that direction. To be able to compete in a market where Walmart dominates general products, businesses must specialize in a certain aspect of the market so that its demographic will seek out their product. Stores like Academy Sports and Outdoors and Dick Sporting Goods specialize in a specific aspect of consumer goods, allowing them to exist in a marketplace whereas Walmart may have similar products but do not carry the same extensive inventory or expertise.
The niche culture that America is developing has affected every aspect of every economy (Anderson, The Long Tail). Not only in retail but in other active experiences as well. Amazon has taken over the book-buying marketplace, making stores like Barnes and Nobles and other local bookstores market towards the experience of reading and book buying, utilizing partnerships with coffee shops and creating lounge areas for people. As explained by Anderson, niches are in every aspect of consumerism and can be found anywhere. Niches are especially salient in America because it feeds into the diverse culture and diverse interests of American society. The establishment of niche markets incidentally becomes a strategic position that companies use to establish a foothold in the marketplace, where there may be competition from big companies like Walmart and Amazon. This is a boon for consumers as they now have numerous outlets where they can seek products.
It is obvious that consumers are the biggest benefactors of the trend towards niche marketing. Consumers are able to compare the best price and their best options all at the convenience of home. But there are far more losers than winners in this consumer empowered dynamic. The large productions of Walmart and Amazon give them expected influence in the asking price of suppliers. Because their market share of consumers is so large, suppliers are at the mercy of their asking price. In attempts to increase profits, suppliers are forced to “outsource” their products to find financial gains. The criticism of Amazon and Walmart is its negative impact on the American economy and the shift away from manufacturing. The effect placed on the American economy reverberates beyond changes in economic means. There is a ripple effect felt at every stage of supply chaining and the effects are sometimes deadly.
Being squeezed on cost, suppliers are forced to “outsource” their work and import their products from abroad (especially, China). This has deviated America away from a manufacturing economy, creating job loss and economic failures in many cities where Walmart and Amazon operate. Furthermore, in outsourcing their work and products, Walmart and Amazon are able to pay wages in foreign markets that are far below the standards of America. These low standards are accompanied by unsafe working conditions in factories, briberies to avoid national tax laws, and general deviance in working towards a single goal without moral.
A perfect example of Walmart’s deviant behavior can be seen in Bangladesh where the lack of oversight and concern of employees led to deaths when a fire broke out in a factory. Corporate Walmart feigned ignorance and stated that all its suppliers are up to standard and those that are not, will not be bought from. Walmart is also accused of bribery political officials in Mexico in an attempt to bypass zoning laws to expedite building permits for their stores. At the end of the investigation, the alleged culprits of the bribery faced no consequences. With this kind of ruthless, immoral behavior from the largest companies in the world, America and its society shows characteristics that portray the tactics of Walmart and Amazon.
Both Amazon and Walmart celebrate their ability to pass on the cheapest price to the consumer. This search for the cheapest price trickles down to the consumer as they hunt in a “pull economy” for the best bargain and the best deal, regardless of how they get it. Getting the best price is no longer of actual necessity but more of a way of life, a life action that has been normalized. This normalization of seeking the best deal has sensationalized activities such as Black Friday shopping and Technology Friday bargains. Every year people line up in order to seek out the best deal on products they may or may not even need.
This lack of understanding of need or want in American way of life is fed from the culture Walmart and Amazon have produced. Walmart and Amazon’s lack of empathy in labor costs and cost efficiencies have also spread into American’s mindset as society no longer cares about where there products come from or what they’re made of. As long as the cheapest price is attained, a common goal is accomplished. This lack of care or moral compass is a classic characteristic Walmart and Amazon has given American society. Interestingly enough, a niche market has grown that centers on resourceful marketing, clothes made from reputable sources, and food grown from local farms. This burgeoning niche market is just another great example of American variety and niche culture.
To this point, niche culture has been described as fringe markets that succeed and thrive on the markets left behind by behemoths like Walmart and Amazon. But large companies can also leverage “niche” in a variety of ways that would cater to the masses instead of fringe markets. Both Nike and Amazon have accomplished this as they can be considered “hybrid” companies who are able to simultaneously engage in niche markets while still appealing to mass culture and consumption. These two companies are able to accomplish this bridge of ideas through its use of branding and design.
As stated, Amazon started out as a book selling company and still uses books as its vehicle for consumers to step into its marketplace. Their brand has been consistent and Amazon has invested in technologies centered on bookselling, for example in their Kindle devices. But in staying consistent with its identity, Amazon spreads into niche culture through the actions of their CEO. Bezos is constantly adding to the Amazon brand, buying companies that may contribute to a niche market that Amazon can exploit (i.e. buying Zappos). Amazon appeals to the masses because of its ability to continually add to the variety of items available to consumers making it appealing to all markets at all times.
While Amazon was able to make itself a “hybrid” company more through design thinking and practice, Nike was able to use the power of branding as its tool to bridge the mass and the niche. Nike may have initially started out as a shoe designer and in fact, it still is. But in building an empire around an iconic symbol and iconic athletes, Nike has transitioned itself into ideas. Feats of heroic accomplishments from the likes of Olympians and athletes like Michael Jordan. Consumers no longer see Nike the shoe designer, they see Nike the brand and the ability to perform. This brand awareness has led to today’s athletes like Tiger Woods, Lebron James, and other worldwide icons that allow Nike to climb into niche markets that they may have never had a part of. In particular, before Tiger Woods, Nike took up almost no portion of the golfing market whereas now, they are one of the premier vendors of golf products, not because they have superior equipment but because they have brand awareness.
In mastering their advertising strategy, Walmart and Amazon have found the narrative to succeed in America. Both companies were able to build a consumer rhetoric, where all actions were seen as a benefit to consumers first and foremost. The growth of these two companies did not happen quietly as it completely changed the landscape of American economy, pushing markets into the fringes of society where niche markets began to grow to survive. But in creating numerous niche markets, American identity began to take shape and niche markets fed the diversity of American culture and way of life. Consumers are winning now but in the long run, the Retail Revolution that Walmart and Amazon created is potentially toxic for America’s economy. As exemplified by Amazon and Nike, companies with the most resources are able to stretch into niche markets. This will further push competition out of the picture leading to an ever widening lack of competition and a continued path towards a singular seller. Or in economic terms: a monopoly.