The Two Battlegrounds of E-commerce: Digital and Supply Chain – Lessons from Amazon and Jet.com

Digital Strategy, Risk Management

The Two Battlegrounds of E-commerce: Digital and Supply Chain – Lessons from Amazon and Jet.com

9 Aug , 2016  

Walmart recently announced that it is purchasing Jet.com for some $3.3 billion dollars. For Jet.com, which was founded in January of 2014, it is a remarkable return in a short period of time. The purchase shows that the battleground for E-commerce is being fought on digital convenience and value to customers. E-commerce has two-fronts: the app that the connects that customer to the firm and the supply chain that executes. The digital platform (a mobile app or website) provides convenience and transparency. The supply chain executes and delivers the promise.

Digital Dominance: Winning at the App

Walmart has invested heavily in its E-commerce business, but it has not developed the following or loyalty of Amazon in its E-commerce business. In fact, I have purchased items on Amazon to find they were sourced and sent via Walmart. So, Walmart is doing something well in the distribution, but it is not creating the conversation with the customer to be the main channel for digital purchases. Amazon has won that battle, and the Walmart brand might not be attractive to all shoppers.

Purchasing Jet.com gives Walmart a fresh start, if it wants to leverage the Jet.com brand. It also can provide an opportunity for a new conversation and value proposition with the customer. In Jet.com, customers are encouraged to purchase more items that come from the same warehouse and to purchase in larger quantities. It is a lesson in maximizing the fixed cost of shipping to reduce unit costs overall. Its approach to pricing is driven by a transparency in the costs to deliver items. That leads to their motto, “Prices Drop as You Shop.” Prices are driven by algorithms that calculate the marginal unit price dynamically. Customers can get great prices, which is part of Walmart’s message to customers, but they can do it in a way that prioritizes value over convenience.  To me, value is the unit price and convenience is the transactional cost or other delay or friction in receiving the order. Even retail has a cost for shoppers. Going to a Costco or Walmart involves time and to a busy urbanite without a car, the costs to shop are material. Convenience overcomes those costs. For many sundries and non-critical items, I see the benefit to shoppers in providing the Jet.com message of emphasizing value over convenience. However, competing with the giant from Seattle, Amazon, is hard. Amazon can provide convenience in sourcing most anything desired, and they are working hard to manage and execute the “last mile” of delivery with a fleet of Amazon trucks. Amazon’s value proposition is convenience – it arrives right at my door.

Analytical Focus at the App: The digital battle involves understanding customers through Big Data and Analytics. But mobile devices are not great for ordering. E-commerce should move from pull to push. Creating offers that can be accepted with 2 or 3 clicks in the key But the offers must be compelling and that is where analytics play a big role in digital battlefield of E-commerce.

Positioning and Branding Opportunities for Walmart: Will Walmart be the brand that defines the house or will it assemble a house of brands? I think, Jet.com offers a great opportunity to win customers that are otherwise unlikely to shop at a Walmart for a host of reservations, so I’d keep Jet.com for the digital ordering site and E-commerce brand. It can also allow a new and different interaction with customers. Walmart is where you shop. Jet.com is where we help shop for you. Consider a push model that lets users know the that there is Tide in the location distribution center and available at a super price or that the truck will be in your neighborhood on Tuesday. It is a great way to move from pull to push in the proposition to users.

Operations Really Matter: Winning in the Supply Chain

Even though Jet.com has competed for the value shopper, there is a powerful opportunity for convenience (and value). With its 5229 stores in the US, Walmart has amazing retail coverage and distribution centers near all major urban areas. Leveraging the local distribution centers already in place for Walmart stores is an attractive opportunity to up the convenience game. I doubt that people will want to go to a Walmart store to pick up an order (many retailers have struggled to integrate online and retail), but an Uber driver or other local delivery service can deliver customers products from a host of Walmart facilities to Jet.com customers. The opportunity to link local stores, nearby distribution centers, and national distribution centers, provides a lot of creative paths for delivery goods at low prices and in new forms of convenience. Walmart might well consider an investment to provide delivery service at the last mile, as in a fleet of local trucks or something like Instacart, especially in urban areas. Building on the Jet.com model for operating for value, it could allow you to pick delivery on certain days, such as when the delivery vans are visiting your neighborhood or perhaps at certain times, when you are home.

Last Mile Advice to Walmart: Add a “last mile” delivery service to your E-commerce network, but provide scheduling and other features that allow customers to control or specify when delivery occurs (and the cost). It would allow a powerful play on value and convenience.

The digital battle is being fought by offering value and convenience. With its strength in logistics, Walmart has an interesting opportunity to grow its E-commerce business with Jet.com.

In related and nearly simultaneous news, Amazon announced that it is buying jets – a fleet of 40 Boeing 767 aircraft to deliver its goods to customers, allowing it more control over the supply chain of product delivery.

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About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University.

His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies. You can find him at @RussWalker1492 and russellwalkerphd.com

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Russell Walker helps companies develop strategies to manage Risk and harness value through Analytics and Big Data. As Clinical Professor at the Kellogg School of Management of Northwestern University, Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. He founded and teaches the popular Analytical Consulting Lab and Risk Lab, experiential classes, which bring Kellogg MBAs together with real-world projects in Analytics and risk evaluation. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Risk Management, and International Business Strategy. Russell Walker can be reached at: russell-walker@kellogg.northwestern.edu @RussWalker1492 russellwalkerphd.com



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