If there are three companies that have had the most profound impact on US consumers shopping habits, these would be Amazon, Sears and Walmart. The three companies redefined how consumers do their shopping and their perception of product costs and pricing. The three companies came at different points of the last century and half. They introduced many innovations that changed the retail industry as they took advantage of technology available at the time.
All about Costs
“Increase efficiency. Reduce costs. Reduce prices. Attract more shoppers. Attract more shoppers. Gain market share.” These are the principles that have driven Walmart to success. These are the same principles that had also driven Sears and Amazon to their own success. These principles have helped guide the three companies to domination of their industries at their height. The three companies’ application of these principles is as varied as the period to where they belonged and to the technologies available during that period.
Richard Warren Sears, founder of Sears Roebuck and Co., completely committed himself to helping customers find the best products that could be sold by catalogue at the best prices. This was his primary commitment; his desire for profit and wealth was only secondary. It was not an original idea but surely a very big challenge. Buying from catalogues did not seem to be a wise option for the customers. For one thing, a customer cannot compare products and prices. He or she will have to make a decision based on the advertising copy provided in the catalogue and in his or her trust on the vendor. The customer must also realize that the cost of buying from catalogues, all things considered, is actually lower. Sears, the man and also the company, owes his success to overcoming this challenge.
Sears overcame the problem with an innovative offer: Money back guarantee. In making this offer, Sears was able to develop customer trust. To further reassure the customer, he encouraged them to ask banks to withhold payment to Sears until they have received the product.
Sears also took advantage of the low cost of the postal system. Delivering products by mail was much lower than having the company to deliver the products.
Perhaps, the most important impact of Sears to the retail market is to have established uniform pricing everywhere in the country. In rural areas, local stores can price goods in whatever way they want. Rural customers end up buying goods at much higher prices. Sears gave rural customers an alternative source through the catalogue. They were thus able to buy products at the same price anywhere in the country through the catalogue.
Walmart pushed the whole idea of low pricing for the customers further. It aimed for the lowest pricing anywhere. It succeeded in doing this when it had built huge economies of scale and became the industry leader. It did not introduce new ways of selling goods. It just offered the lowest price in a no-frills shopping environment. The lowest price strategy allowed the company to continuously grow, allowing it to expand to practically everywhere in the US.
Walmart was able to accomplish this because of its size and dominance of the market. It accounted for a huge share of many suppliers’ sales, even foreign suppliers in China. To left out by Walmart would have adverse effects on these suppliers’ sales. It could demand from these suppliers the lowest prices possible. It had a huge computerized database that determined trends and patterns. Technology helped it determine how to extract the most suppliers.
Some former employees of Walmart argue that not everything at Walmart is the lowest prices. Only those products at the front of the store are truly the lowest prices. This is a strategy that Walmart employs to give the lowest price impression. Since consumers are there already, they purchase other goods. Sometimes, they end up buying higher cost items because of brand preference.
Walmart’s most important impact on consumers is perhaps on their change of pricing perceptions and to some degree shopping habits. Many consumers are now always looking for the lowest price available. This drives Walmart’s growth as customers shift shopping from their usual stores to Walmart.
Combining the strategy of Sears and Walmart, Amazon pushed the limits of bringing down costs and prices. Like Sears, it used a new approach to selling. Instead of catalogues, it used an online store on the internet. It did not invent the concept but it did use it well. It also used postal service and other door-to-door delivery. It took advantage of loopholes in tax laws to bring the cost of books down further.
With a policy to hire the best graduates in the technical field, Amazon had kept itself ahead of competition and has come out with many innovations and inventions that kept itself ahead of competition.
What Walmart did to the retail industry, Amazon did to the bookselling industry. More than that, Amazon changed consumer habits with their innovations. It taught consumers to shop online. It also redefined the way consumers read books—through the use of a touch screen tablet, instead of print.
Push and Pull Economics
The quest for lower and lower prices correspondingly led to the quest for lower and lower costs. This search has a push and pull factor. For example, high labor costs in the US are a push factor for companies to source elsewhere. Even if there is this push factor, nothing will happen necessarily happen if there is not a pull factor somewhere. Minimum wages are protected by law. With globalization, new technology, and higher standards of manufacturing worldwide, a very strong pull factor emerged. Companies can now outsource anywhere in the world. The cost of labor in other countries like China, Bangladesh, India, Vietnam, and others is dramatically lower than in the US. Farming out manufacturing in these countries can drive down a company’s overall costs and achieve the objective of having the lowest price. This pull factor is particularly strong for Walmart because it would have huge impact on its total sales. Because of its size and economies, Walmart demanded its major suppliers to outsource outside the US some of its manufacturing activities. After the bigger suppliers have outsourced, it encouraged practically all its suppliers to do the same. Some suppliers on their own outsourced to those countries because of the attractiveness of labor and many other costs. Because of its size, Walmart itself became magnet to pull Chinese manufacturers. Walmart sources some of its products directly from China.
The same principles apply to customers. Most consumer products at groceries and supermarkets are products that consumers do not think much about. Consumers will buy these because many are necessities. Without significant differences from the prices and value for money, there is no push for the customer to look elsewhere. The emergence of Walmart and the perception that it sells the lowest-priced products pulled customers away from traditional outlets and shifter to Walmart.
This push and pull economics can actually be blocked by legislation. Amazon was not allowed to assert its pricing scheme in Germany because of certain laws in the country that fixes the prices that would go to the publisher and to the writer. Both the writer and the publisher are protected in the laws of Germany.
Low Pricing Has Its Price
While customers benefitted from low prices, the quest for lowest pricing has had serious repercussions on labor and on local retail industries. Walmart’s entry into small communities led to the demise of the retail industry in that area. Customers shift to Walmart and the local retail stores end up with no customers. Employees get laid off. They seek jobs at Walmart and they get very low compensation if ever they get hired. Rank and file employees receive hardly any benefits like health care. As most of them earn only the minimum wage, they could not afford any additional expense except for their day to day survival. As a result, they have to resort to welfare. Worse, Walmart encourages them to do that.
The quest for the lowest cost possible has led also to worse exploitation of workers in other countries. It seems that people are no longer perceived as humans but merely as factors of production, units of cost. To keep costs down, safety measures are taken for granted. One hundred twelve people died in a fire that razed a factory in Bangladesh. Although Walmart denied that the factory was a supplier, documents from the site indicate otherwise. Apparently, Walmart deliberately did not allow safety measures to be undertaken as an investigation showed . Other companies that followed Walmart’s lead in cutting costs seem to have suffered similar tragedies as another building in Bangladesh collapsed due to negligence .
Abuses do not come always in the form of low pay. Amazon overworked its programmers and other people at the supervisory and managerial level. Employees were practically asked to give up their family life in the quest for making the next breakthrough. Again, the ultimate goal for this is the lowest cost and fastest delivery for customers. Amazon seems to treat its employees as property owned by the company. They demand almost all of their time to be devoted to the company.
Conclusion: Winners and Losers
The pursuit of the lowest cost possible has both winners and losers. Customers can be considered as winners as they were after all the object of all these developments. Whether these benefits are worth all the cost—especially with regard to bad treatment of workers—is another matter.
A fringe benefit of all of this pursuit seems to be environmental sustainability. The pursuit of lower cost has led to less wasteful practices. Operations have improved, eliminating much of the harmful contents. These accomplishments are loudly touted, especially by Amazon. Again, the question is: Has enough been done to make all the costs worth it?
The biggest winners in all of these are the owners of the company. Jeff Bezos, though leading a modest life, is in the top 50 of the richest men in the USA . The Walton family is among the richest in the family, as much as 40% of the country’s wealth.
The biggest losers are many workers around the world and society in general. All these discounting did not seem to have improved people’s living standards. Worse, it seems to have contributed to the inequality in the country as more people got displaced or forced to accept poverty level compensation.
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