Critical Analysis Of Wal-mart’s 'pickup Discounts' Incentive

Wal-Mart Stores, Inc. is an American multinational retailing corporation that operates as a chain of hypermarkets, discount department stores, and grocery stores. Headquartered in Bentonville, Arkansas, the company was founded by Sam Walton in 1962 and incorporated on October 31, 1969. During October, reporters from Reuters informed “that Wal-Mart Stores, Inc. will offer 'pickup discounts' to U.S. shoppers on items they order online and pick up in-store, as it revamps its e-commerce offerings at a faster pace to close the gap with larger rival Amazon.com Inc”. In the attempt to turn Walmart stores into the giant vending machines, Wal-Mart Stores, Inc. have to answer several questions: What is the opportunity Walmart must forgo to perform the new project? What is the opportunity cost? Is the decision rational? And how they would change the customer behavior by the incentives?

First, trade-off is the term to explain a technique of reducing or forgoing one or more desirable outcomes in exchange for increasing or obtaining other desirable outcomes. In order to develop the ‘online order and picked up in stores’ which cost them 3 billion for Jet.com’s acquisition and a lot of efforts, Walmart must forgo the opportunity to save the money or using the money for other plans such as foreign investment. Walmart also must forgo a number of customers who have habit to shop at store if Walmart wants to change their model from store based to ‘vending-machine’.

Second, the opportunity cost of any item is whatever must be given up to obtain it cost. To offer 'pickup discounts' to U.S. shoppers on items they order online and pick up in-store, firstly, Walmart spent over $3 billion to purchase Jet.com, an e-commerce start-up to improve the online order system. “Wal-Mart has been investing in e-commerce for the past 15 years, but it still lags far behind its Seattle-based rival”. The cost for acquisition of the internet retailer Jet.com will help Walmart achieves their goal faster. Beside the investment for online system, Walmart also given up a part of their revenue. For example, Walmart will sell “a Vizio 70-inch 4K Ultra HD television priced at $1,698 for store pick up will qualify for an additional discount of $50”. The opportunity cost to change the customer habit from buy a TV at Walmart store to online website is $50 in the revenue. In large scale, the loss would be significant.

Although the cost for the project is not small, Walmart top leaders believe the decision of launching this system is a rational decision because the benefit they get from the deal is exceed the cost. While the cost of the deal is $3 billion and the decrease in the revenue, the potential of this new business in the future is higher than the cost by three main points. Firstly, more and more people nowadays choose to buy their stuff online. They want save time to go to store, which they could increase the time for other personal business or entertainment. If Walmart has more the incentives which can respond to the requirements from market, the revenue from this segment would be exceeded the cost of acquisition. Second, “Wal-Mart is able to offer these discounts as it is able to eliminate delivery costs by leveraging its fleet of more than 6,700 trucks to deliver products from warehouses to stores”. Finally, “the change is expected to improve the retailer's competitive advantage by making its 4,700 U.S. stores more relevant to shoppers in a digital age”.

Walmart’s action can also bring two main incentives to the customer include low price and convenience. As Wal-Mart will offer pickup discounts on 10,000 items at April 19 and on more than 1 million products by June, the customer will enjoy the low price and the demand for these products will increase. With the convenience, the customer can get the product immediately in that day without the shipping process as Amazon. It is also the solution for the customer who want to shop at Walmart in the holidays but do not want to wait in the line of people.

However, the lower price and convenience for customers are also the goals of Walmart to reduce the deadweight loss and promote the monopolistic competition in retail market. Although Walmart has strength to supply good or service to the market at the smaller cost than other firms in store-based segment, there are still millions of customers who have the demand for a cheaper price. Meanwhile, the supply price of Walmart’s rival, Amazon, meet these demands because they can reduce the storage cost by selling product from third party. Amazon’s strategy is successful by exploited the deadweight loss of Walmart. Therefore, Walmart’s acquisition with Jet.com and launching online system are considered the price discrimination strategy of Walmart to reduce the deadweight loss. By this move, Walmart will consolidate its number one position in the retail market and prevent the other firm to enter the market. In conclusion, Walmart have to face the trade-off and opportunity cost when launching the ‘online orders and picked up at store’, however, it would not too risky for the world's largest company by revenue, according to the Fortune Global 500 list in 2016. Meanwhile, as soon as the project complete, Walmart will increase the ability to compete with Amazon Inc. the online selling segment and the customer will receive more benefits from the competition.