Walmart x Google: The Customer Intimacy Challenge for Walmart

Walmart recently announced a partnership with Google to enable voice-activated shopping for Walmart products via Google Assistant and Easy Re-order via Google Express. The data this partnership provides should allow Walmart to create a more customized shopping experience for its customers at scale; in other words, deliver on the "mass customization" model Amazon has taught consumers to demand. The question remains whether Walmart can effectively integrate real time, end-consumer data into its existing supply chain infrastructure to deliver on these goals.

In August 2017, Walmart announced the launch of voice activated orders through Google Assistant for hundreds of thousands of Walmart items and the integration of Walmart’s “Easy Reorder” into Google Express, Google’s shopping service. Marc Lore, President and CEO, Walmart US eCommerce  explained the decision to team up with Google on the company blog: “[Google has] made significant investments in natural language processing and artificial intelligence to deliver a powerful voice shopping experience. We know this means being compared side-by-side with other retailers, and we think that’s the way it should be” [1].

The post presents Walmart’s current challenge and solution. The challenge: how to compete with “other retailers” like Amazon and adapt to the rapid proliferation of what McKinsey calls “mass customization” [2]. The solution: voice-activated shopping via Google Assistant, which theoretically opens a treasure trove of end-consumer data to power a more customized shopping experience.

Google As a Means to Drive “Mass Customization:” Why it Matters

E-commerce companies have an inherent advantage when it comes to mass customization given real-time demand signals from digital assets like websites and mobile. Brick-and-mortar by its nature hinders collection of and certainly easy transmission of real time end-consumer data to the rest of the supply chain. Further, brick-and-mortar mass retailers like Walmart have traditionally been tuned to shelf-driven demand with product-oriented supply chains [3]. Mass customization involves delivering personalized shopping experiences to meet individual consumer demand at scale, marrying the distribution power of big box retailers like Walmart and the intimate shopping experience of a mom-and-pop shop. Amazon mastered this game and has since taught the consumer to expect highly individualized shopping experiences for even commoditized products like soap and paper towels. Effectively delivering on this model requires transparency and seamless flows of consumer data throughout the supply chain.

Mass Retail in the Age of Customer Intimacy: Supply Chain Implications for Walmart

With Google, reduced friction between Walmart and its end consumer and the increase in quality data that comes with it should facilitate a more agile, customer-centric supply chain. Kevin O’Marah of Forbes summarizes the partnership’s potential: “with Google as the starting point for consumer demand, and Walmart as the fulfillment engine, Google/Walmart deal means that not just Amazon, but… everyone will start to transmit unfiltered end-consumer demand to the brand manufacturer… [offering] agile supply chains a chance to relate more intimately to their end-customer” [4].

Walmart can now “listen” to its customer on a far more granular level. In theory, access to this data will enable Walmart to adapt its supply chain in the following ways, which McKinsey calls Supply Chain 4.0 [5].

  • Data informs faster, more precise forecasts of customer demand that can enable quicker speed to market and reduced holding costs on excess inventory.
  • Micro-segmentation based on discrete demand signals, coupled with innovative distribution concepts like Google Express, can allow for highly customized, fast delivery.
  • More granular performance management systems can enable real-time, full stack transparency across the supply chain, which minimizes supply-chain friction.

From Announcement to Execution: Where Does Walmart Go From Here?

The Google partnership signals a step in the right direction toward mass customization with immediate access to end customer data and an innovative delivery methodology in Google Express. What remains to be seen is how Walmart executes on the partnership. Access to data is not equivalent to effectively incorporating data into existing supply chain infrastructure, a complex, timely process. Furthermore, the transition to a digitally oriented supply chain is not only an operational challenge but also a cultural one. Walmart management must make sure it has the right teams in place to drive what will undoubtedly require large cultural change to move the company toward the future.

Further Questions

  • Can Walmart depend so heavily on external partners like Google to provide its consumer data? Does this dynamic hurt Walmart’s power position [6]?
  • Does Google Assistant have enough scale to be effective? (Approximately 70% of people that own a smart speaker own one from Amazon’s Echo line [7]).
  • Walmart currently does not have exclusivity with Google, does it matter?

Sources

[1] Walmart, “Walmart, Google Partner to Make Shopping Even Easier – Here’s How,” https://blog.walmart.com/innovation/20170823/walmart-google-partner-to-make-shopping-even-easier-heres-how, accessed November 2017.

[2] Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company.

[3] O’Marah, Kevin. “Google/Walmart: The Brutal Future Of Retail Supply Chains,” Forbes, August 24, 2017, https://www.forbes.com/sites/kevinomarah/2017/08/24/googlewalmart-the-brutal-future-of-retail-supply-chains/2/#451b27fd7642, accessed November 2017.

[4] ibid.

[5] Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company.

[6] Porter, E. Michael, and J. Heppelmann, “How Smart, Connected Products Are Transforming Competition,” Harvard Business Review.

[7] Gebhart, Andrew, “Google Assistant is spreading, but it needs its own ‘Echo Dot’,” Cnet, May 20, 2017, https://www.cnet.com/news/google-assistant-is-spreading-but-google-still-needs-a-dot/, accessed November 2017.

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3 thoughts on “Walmart x Google: The Customer Intimacy Challenge for Walmart

  1. I’m not educated enough on the problem set to have a definitive view in either direction, but the assertion that brick and mortar stores have less data available than online retailers seems as though it doesn’t necessarily have to be true. Particularly in the case of Walmart, a store that must have invested in a strong point of sale system that allows it to collect all manner of data about its customers- grocery stores with rewards programs should have a similar capability.
    I am interested in fact that there is now a reasonably sized competitor to Amazon- even if they lag behind Alexa in terms of home occupancy. The last piece of the equation, in my mind at least, is Walmart figuring out the last mile of movement to the end customer. As more and more Amazon branded drivers arrive at my home, I wonder if it is too late for a legitimate challenge to Amazon’s e-market hegemony.

  2. To Lucas’s point, though Wal Mart may have strong point-of-sales data, this information likely isn’t tied to a person and the richness of his or her attributes. Whereas Wal Mart may know that person X love Colgate over Crest, and Fritos over Cheetos, Google likely knows that person X is a middle-class American from Baltimore. The magic can happen when Walmart and Google analyze their sales data and user attributes in aggregate! In fact, with the marriage of this data would likely be much more powerful than anything that Amazon has.

    To Isabel’s question about Wal Mart potentially losing power to Google, I also wonder the same thing. At first blush, this seems like a pretty symbiotic relationship. From an economic perspective, comparative advantage would suggest that Wal Mart and Google may want and need to stay in their respective swim lanes. For Google to truly replace Wal Mart, it either would need to develop a new vendor partnership network, or it would need to slash its margins and invest in brick-and-mortar stores itself. For Wal Mart to replace Google, it would need to become a consumer data behemoth. From this perspective, it’d appear that there is enough inertia to keep both players safe.

    That said, with enough sales data, there is a chance that Google, in the long run, could disintermediate Wal Mart entirely, and just work with manufacturers directly.

  3. What I find most interesting about the shift in power dynamics here is the increased leverage this gives Walmart over their suppliers (a relationship that is already tipped pretty heavily in Walmart’s favor). Walmart already has a good understanding of their consumer, and they use those insights to influence their suppliers’ product assortment, new product development, pricing, and more. If they can harness the power of even more precise customer data, just think of how much more targeted and persuasive their demands of their suppliers could become.

    Walmart’s supply chain efficiency is already such a big competitive advantage, I can only imagine how powerful they could become with the data to become even more agile. But I think one watch-out will be whether or not this can translate to improved agility across the entire supply chain. How will manufacturers, who typically rely on the scale of large, less frequent production runs, keep up with Walmart’s demands to become more dynamic and reactive to customer data? An entire supply chain can only be as quick as the slowest link in the chain, so Walmart may soon need to turn their attention upstream to enable the downstream effects they are looking for.

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