Walmart, Amazon Prime and How to Win Customer Loyalty

Recently, Walmart announced that it was scrapping its two-year old $49/year shipping membership known as ShippingPass. With a ShippingPass membership, Walmart customers could get two-day shipping on millions of product that Walmart sells. In its place, Walmart is now offering free two-day shipping to all customers with purchase orders of $35 or more. When announcing the launch of this new service, new Walmart ecommerce CEO Marc Lore (formerly CEO of Walmart-acquired of Jet.com) gave a rather interesting explanation:

We are hoping to build loyalty on the fact that you are able to get free two-day shipping…without a membership. This day and age, two-day shipping is just table stakes.”

This explanation is interesting for a number of reasons, most importantly that Walmart is facing intense pressure from Amazon’s ecommerce and distribution prowess. This pressure can be best summed up as, “Can Amazon get to a level of convenience and selection that makes Walmart’s physical stores and proximity a nonfactor at best and a liability at worst?” While Walmart has flirted with same day delivery in the past, leveraging partnerships with Uber and Lyft, Amazon is making 2-hour and even 1-hour delivery an everyday experience and expectation in select cities with Amazon Prime Now. Not to mention Prime Now offers a staggering selection of 50 million items to Walmart’s two million.

Table Stakes Do Not Make A Strategy

In light of Amazon’s continued development of the Prime Service and its growing user base (now at an estimated 66 million users), Lore’s explanation of the new Walmart loyalty strategy doesn’t add up. Calling free two-day shipping “table stakes” and then creating an entire strategy around it doesn’t make much sense. If consumers consider a feature or service table stakes for doing business, they perceive it as a right and an expectation. It’s not a wedge to build a business or lasting customer relationship.

Loyalty programs work on the basis of additional benefits to the customer relationship beyond the cost of doing business that are later realized. To counter, you might say, “But, I’m saving a $99/year going with Walmart." That’s an expected outcome for the trade-off of not using Prime services. This is where the folks at Walmart are making a strategic mistake assessing Amazon Prime’s value proposition around customer loyalty. The value of Prime services compound on each other, from 2-day shipping to 1/2 hour delivery to Prime video (and accompanying Amazon Channels for premium cable) to Amazon Music and a host of other services. The combination of these services provide additional benefits to customers beyond two-day shipping, that are realized later.

A great customer loyalty program is meant to create massive lock-in (due to additional value) that customers voluntarily opt-in to.

Free Doesn’t Equal Loyalty

Walmart is free to create a loyalty program based on free two-day shipping, just don’t expect it to create much loyalty, given the lack of additional benefits and value. One of the most common mistakes that I see in technology companies, especially early-stage startups, is the insistence on giving away products/service for free as way to grow demand and loyalty. Contrary to popular belief, consumers are more than happy to pay for services that enrich their lives and help them accomplish their goals. Consumers will also recognize a sucker’s bet and take a free product if offered.

Competing on price is only a viable strategy when you have a competitive cost advantage over the competition in another service that is highly-valued.That has been Amazon’s playbook with Amazon ecommmerce, Amazon Prime and now Amazon Web Services. Walmart saw the playbook, but learned the wrong lessons. Here’s a tip for Walmart folks trying to make serious go at Amazon: focus on providing a differentiated and highly valuable mobile commerce experience for consumer demographics that Amazon hasn’t penetrated. That would be folks at the the low end (overserved by current offerings), who have an internet access via smartphones (typically Android), but not PC. These folks are already more likely to shop at Walmart over Target given their proximity to Walmart stores. Walmart would be better served focusing on these consumers and building loyalty amongst them with great services.

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