Walmart takes a brilliant step to better compete with Amazon

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Walmart (NYSE: WMT) plans to announce its own membership program later this month in its most direct assault to date on Amazon.com (NASDAQ: AMZN). The subscription loyalty plan, which should be called Walmart +, will cost customers $ 98 a year, according to a Vox report.

In a strategy similar to the one successfully used by Amazon Prime, the program should offer a number of benefits designed to entice customers to shop more often once they become members. This will include same-day delivery of groceries and other merchandise, increased access to delivery slots, discounts for fuel purchased at Walmart service stations and early access to promotional prices and product offerings . Additional benefits may come at a later date.

Image source: Getty Images.

Sheltered by the pandemic

The retailer originally planned to launch Walmart + in March or April, but the COVID-19 pandemic scuttled plans for the previous unveiling. Walmart has not yet publicly confirmed its plans, so it’s unclear whether the program will be given at a national launch or at smaller regional debuts before being rolled out across the country.

Rumors have been around for a while, with reports emerging in February hinting at Walmart plans. It would also mean a flip-flop for Walmart, which has long prided itself on “free delivery without membership fees.”

Follow a successful model

There is no doubt that Amazon Prime has largely succeeded in helping the company consolidate its position as a leader in electronic commerce. Once a member has subscribed, they want to be sure they get their money’s worth. As a result, a customer is more likely to search for a product on Amazon after becoming a Prime member. The result is not only an increase in the number of visits but an increase in overall spending. The success of this strategy is well documented.

Prime customers spend an average of $ 1,400 per year, compared to only $ 600 per year for non-Prime buyers, according to a study by Consumer Intelligence Research Partners. By modeling its program after Prime, Walmart could see a sharp increase in its sales revenue, as well as collecting annual membership fees. For the background, Amazon generated more than $ 19 billion in subscription services in 2019, the majority of which came from Prime memberships.

Increased customer loyalty and engagement

Loyalty programs like Prime tend to lock customers into longer term relationships, as Prime has proven time and time again. Once signed up for a free Prime trial, 64% of customers will become paid members – and they tend to stay for the long term. About 93% of customers continue their Prime membership after one year, and 98% remain on subscriber lists after two years.

The decision to set the price of Walmart + at $ 98 is a brilliant tactical game, as membership is significantly lower than the $ 119 per year that customers pay for Amazon Prime. By reducing the cost of its biggest rival, Walmart is drawing attention to its value proposition, which could potentially drive customers away from Amazon Prime, while encouraging repeat Walmart buyers to sign up.

Image source: Walmart.

Points to remember for investors

This decision is not without risk, and it will be an expensive undertaking. Amazon spent nearly $ 38 billion on shipments last year, up 37% from the $ 28 billion it incurred in 2018. Walmart will have its work cut out for it, especially if he intends to keep pace with Amazon, which has developed a certain level of expertise in delivery and realization.

If Walmart + can replicate something close to Prime’s success in terms of customer retention and increased spending, this move could easily propel Walmart to the next level of competition with Prime.



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