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Omnichannel battle between Amazon and Walmart: Is the focus on delivery the best strategy?

Rupinder p. jindal.

a Marketing at Milgard School of Business, University of Washington Tacoma, 1900 Commerce St., Tacoma, WA 98402, United States

Dinesh K. Gauri

b Marketing and Wal-Mart Chair in Marketing at Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR 72701, United States

c Marketing at Desautels Faculty of Management, McGill University, Montreal, Canada

d Marketing and Bensadoun Faculty Scholar at Desautels Faculty of Management, McGill University, Montreal, Canada

Associated Data

A large body of academic research has recently focused on omnichannel retailing especially on brick-and-mortar (offline) retailers adding and integrating online capabilities. Relatedly, trade press has highlighted how offline retailers have been investing heavily in the use of their existing physical retail network for quicker delivery and pick-up of online orders. Looking at the competition between Amazon and Walmart, however, we demonstrate that focusing on quicker delivery is not the best strategy for offline retailers when opening online channels to compete with online retailers. We estimate a multivariate probit model using data from a customer survey and find that offline retailers should instead focus on delivering the fundamentals of retailing to their online customers too – larger assortment, competitive prices, and purchase convenience. Further, we employ cluster analysis to show which demographics are good targets for retailers as they develop omnichannel capabilities, as well as which demographics retailers need to keep loyal to their original channels.

1. Introduction

In the past decade, trade press and academic research in marketing has highlighted the rise of omnichannel retailing. This type of retailing involves employing multiple channels and integrating activities within and across these channels to correspond with how customers shop ( Ailawadi & Farris, 2017 ). The Marketing Science Institute (MSI) has recognized omnichannel retailing as one of the five marketing research priorities for 2018–20 ( Marketing Science Institute, 2018 ). The growth of internet raised a number of challenges for brick-and-mortar retailers (denoted as offline hereon) starting with the advent of digital-first retailers (denoted as online hereon). Manufacturers started using both kinds of retailers to market their products, which resulted in offline retailers facing cross-channel competition from online retailers. Because online retailers had a lower cost structure, they were able to offer lower prices to customers. This resulted in showrooming where customers would use physical stores to inspect the merchandise but then purchase the merchandise through online stores ( Ratchford, 2019 ). To compete, offline retailers started opening online channels too. On the other hand, online retailers started realizing the importance of physical stores in retailing specific product categories (such as grocery and apparel) and started opening physical stores. Such omnichannel retailing provides customers a seamless experience across offline and online channels of the same retailer ( Bhatnagar & Ghose, 2004a ). Research has shown that this makes shoppers spend more at a retailer and increases customer loyalty ( Neslin et al., 2006 ). In this context, a lot of attention has been focused on the rivalry between Amazon and Walmart – the respective leaders in online and offline retailing – both in general merchandise and, more recently, in grocery.

According to the National Retail Federation, retail (at 2.6 trillion dollars in sales) is about one-sixth of the entire GDP of the United States. Of this, the “food and consumer products” category is the largest with nearly 1 trillion dollars in sales. According to Nielsen, online grocery sales accounted for just 5 percent of the total sales ( Nassauer, 2019c ). This share was expected to double by the year 2024 though Covid-19 pandemic has caused a spurt in online purchases by consumers ( Nassauer, 2019b ). What proportion of this pandemic-induced online purchasing persists is debatable but the bulk of sales will still be conducted offline for the foreseeable future.

Offline grocery stores in the U.S. are of various kinds. These include supermarkets such as Kroger, supercenters such as Walmart, natural food stores such as Whole Foods, limited-variety stores such as Trader Joe’s, and warehouse stores such as Costco. Online food shopping has been considered one of the last major holdouts in online retailing because items are often perishable, fragile, or heavy; and, customers prefer to see, touch, smell, and sometimes taste the products (in the form of samples) to validate their freshness and quality before purchase. Most customers shop for groceries at offline stores located close to them; in this context, delivery fees for online orders are usually high in proportion to the total bill which acts as a disincentive against their online purchase ( Griffith, 2018 ). For online retailers, relatively low margins, small average order size, and the perishable nature of products, along with high consumer price sensitivity and strict delivery preferences, raise economic and logistical challenges ( Kumar & Mittal, 2018 ). For example, customer purchases show cyclical patterns, with increased purchasing over the weekends. This implies that trucks customized for grocery delivery are likely to be under-utilized on weekdays. Also, customer density in a given locality needs to be above a certain threshold to justify the economics of sending a delivery truck ( McDonald, Christensen, Yang, & Hollingsworth, 2014 ).

Because offline retailing is expected to continue accounting for the bulk of grocery sales, there is immense interest in the activities of well-established offline grocery retailers as they try to protect their market shares by initiating and integrating their own online channels. Trade press has reported extensively on the activities of such retailers as Walmart, Target, and Kroger. Although research in retailing has identified a multitude of attributes that influence customer’s store choice behavior, these retailers seem to be focused inordinately on leveraging their physical infrastructure to provide quicker delivery of online orders as they attempt to compete with Amazon for a larger share of online shoppers.

In this article, we explore whether or not this focus on quick delivery is the best strategy for offline retailers to compete with online retailers when attracting online shoppers. We conducted an online survey to collect primary data from customers of both Amazon and Walmart to understand reasons for their patronage behavior. Using a multivariate probit choice model, we show that the key reason customers choose Amazon home delivery lies in the fundamentals of retailing – large assortment, competitive prices, and purchase convenience. Offline retailers such as Walmart should thus focus on providing these attributes in their online stores to wean away customers from online retailers such as Amazon instead of investing inordinately in their physical infrastructure to provide quicker delivery of orders. First, they need to generate an online order by being attractive, competitive, and convenient before they can demonstrate their speed of delivery. To the best of our knowledge, this is the first study to look at the relative importance of the determinants of channel or format choice in an omnichannel context that includes more than one retailer. Furthermore, we employ cluster analysis to show which demographics are good targets for retailers as they develop omnichannel capabilities and which demographics they need to keep loyal to their original channels. Our results provide meaningful and actionable insights, especially for offline retailers looking to optimize their investments in omnichannel retailing.

This article is organized as follows. In the next section, we look at recent omnichannel activities by both Amazon and Walmart. Then we consider extant research in determinants of customer patronage behavior of channels or retail stores. Next, we explain our data, measures, and model estimation technique. We follow this with the discussion of results. We conclude with managerial implications of our findings, limitations of the study, and avenues for future research.

2. Amazon vs. Walmart

Walmart started with, and continues dominating, offline retailing which still accounts for almost 90 percent of retail sales in the U.S. By contrast, Amazon started with, and continues dominating, online retailing. Although both have been aware of the challenges posed by each other, both also “stayed in their lanes” for a long time. With the increasing demand for omnichannel retailing, however, each company has been attracted to the other’s predominant channel. Towards this end, Amazon has taken steps to increase its presence in offline retailing whereas Walmart has taken steps to increase its presence in online retailing. Both retailers are integrating their new channels with existing ones. Amazon is using offline locations as pick-up and return points for online orders, whereas Walmart is using online channel to generate orders that can then be fulfilled by its vast network of stores.

2.1. Amazon: from clicks to bricks

Starting in 1994 as an online book retailer, Amazon has diversified into multiple product and service categories and is now the most dominant brand in online retailing. Its reach among U.S. online shoppers is at least ten times that of any offline retailer ( Redman, 2019 ). It offers the largest assortment of products available at competitive prices. When trying to compete with offline retailers, one of Amazon’s disadvantages however has been the delivery time, especially for certain product categories, such as groceries.

In a recent survey, 80 percent of the respondents who were Prime members indicated that their primary motivation for shopping at Amazon was fast, free shipping ( Kestenbaum, 2020 ). Amazon has been investing heavily to make next-day delivery standard for Prime members. These investments include linking together its fulfillment/distribution centers by adding smaller jets to its rented air-cargo fleet of 70 aircrafts, opening local sortation/collection centers close to large metropolitan areas, operating its own delivery vans, and even asking its own employees to deliver packages ( Cameron, 2019 ). It now operates more than 75 fulfillment centers, some of which are larger than a million square feet, and 25 sortation centers (which group goods by destination) across the U.S. ( Mims, 2018 ). Amazon has a fulfillment node within 20 miles of half of the US population, which is up from the mere 5 percent of the US population within that radius in 2015 ( Collis, Wu, Koning, & Sun, 2018 ). To increase the speed of its supply chain further, Amazon is planning to open a central air hub near Cincinnati in 2021 and regional air hubs in major population centers such as southern California and central Florida ( Troy, 2020 ). To cut costs and complications in the last-mile delivery, Amazon has acquired Zoox, an autonomous vehicle company, for $1.2 billion. It is expected to utilize Zoox’s self-driving technology to automate its distribution network ( Acosta, 2020 ).

In addition to these initiatives for faster delivery, Amazon is also increasing its brick-and-mortar presence, betting that shoppers still want to buy groceries and other consumer products at physical stores. Amazon acquired Whole Foods stores in 2017 for about $13.5 billion. The company has now started offering grocery pick-up and one-hour delivery from some Whole Foods stores and plans to expand these services to nearly all 477 stores. Amazon is planning to build Whole Foods stores in more suburbs and other areas to put more customers within range of a two-hour delivery service ( Haddon & Stevens, 2018b ). Amazon’s brick-and-mortar initiatives also include Amazon Go convenience stores, which are just 1800 square feet in area but sell a range of drinks, prepared foods and groceries ( Haddon & Stevens, 2018a ). With improvements in camera technology, Amazon extended its Go concept in early 2020 to an urban grocery store larger than ten thousand square feet ( Herrera & Tilley, 2020 ). It is also exploring purchase of smaller regional grocery chains to broaden its reach. Another kind of stores launched in 2018 are named “4-star” stores which carry such items as Amazon devices, electronics, toys, books, and home goods rated at least four stars by customers on Amazon.com. Prime members get preferential prices at these stores ( Accardi, 2020 ).

Amazon also has thousands of self-service kiosks/lockers in almost a thousand cities in the U.S. It has installed lockers at Whole Foods Markets, various convenience stores, and at thousands of apartment complexes and college dormitories throughout the country for residential package pick-up. It is also leveraging existing offline retailers’ infrastructure to expand last-mile delivery options to its online customers. For example, shoppers will be able to pick up their online purchases at specialized counters in more than 1500 Rite Aid locations by the end of the year ( Herrera, 2019a ).

2.2. Walmart: From bricks to clicks

Walmart dominates offline retailing in the U.S. with domestic annual revenue of about $332 billion in 2019 (excluding its international revenue and Sam's Club revenue). The company has a store within 10 miles of 90 percent of Americans. Walmart entered grocery sector in 1988 with the opening of its first supercenter. Since then, food and other staples have come to account for more than half of Walmart’s total revenue in the U.S., and it has become the country’s largest grocer with a 23 percent share of the market ( Hsu, 2018 ). In fact, Walmart’s revenue from grocery is more than double of Kroger’s and five times that of Amazon’s in the sector ( Nassauer, 2019a ).

Walmart is taking several initiatives to continue its hold on grocery retailing as online purchasing has gradually increased. Walmart has been aggressively pursuing click-and-collect model where customers buy an item online and pick it up at the store, usually curbside or in the parking lot. Compared with home delivery, click-and-collect is an attractive model for retailers because they can achieve higher profit margins by avoiding shipping fees ( Meyersohn, 2018 ). It offers customers the best of both conventional offline shopping and home delivery of online orders – they can make their purchases in the comfort of their home and get it faster than waiting for delivery or without waiting in a checkout line at the store. Walmart has added grocery pick-up to more than 2,000 of its approximately 4,600 stores in the past four years, and pick-up of general items to 700 stores in the past two years. It has cut the number of new store openings in favor of offering pick-up and same-day delivery options at more stores ( Haddon & Fung, 2019 ). Trade press has highlighted related moves such as partnerships with start-ups employing automated carts to fulfill grocery pick-up orders at stores ( Griffith, 2018 ), as well as restructuring store employee roles to adapt to shifting shopping habits.

In the past, Walmart resisted the more expensive model of home delivery in favor of click-and-collect but is now investing heavily in quick home delivery too ( Chin & Nassauer, 2018 ). In 2015, Walmart began opening dedicated online fulfillment centers and increased product quantities in these centers to deliver online orders more quickly. These centers are supplemented by a large number of smaller centers, as well as store shipments. This allows Walmart to put 98 percent of the U.S. population within two days of ground shipping ( Mims, 2018 ). It is also offering delivery from 800 stores, with another 800 planned this year, mostly by joining hands with firms such as DoorDash and Instacart that crowdsource drivers. It is testing employing its own store workers to make deliveries in a few locations too ( Nassauer, 2019b ). Walmart offers free next-day delivery of about 200,000 products on orders costing $35 or more in 40 of the top 50 U.S. metro areas. Through this strategy, it aims to match Amazon Prime, which is considered a key driver of Amazon’s growth and has set standards for fast shipping of online orders.

Walmart is also testing out delivery services with an eye on the future including delivering groceries directly to customers’ refrigerators. This move is in response to Amazon’s Prime Now service which drops orders (including fresh groceries from Whole Foods) on doorsteps within hours, and its in-home delivery service “Key by Amazon” which leaves fresh groceries just inside a door, garage or the trunk of a car ( Nassauer, 2019c ).

Although we have primarily looked at Walmart’s activities in expediting delivery, it is not the only offline retailer trying to compete with Amazon in getting products into customer’s hands more quickly. Other retailers are devising their own strategies too. Target, for example, is utilizing its local stores as distribution hubs, rather than developing dedicated distribution centers for online orders. Using Shipt, a delivery company it acquired in 2017, Target is able to deliver over 90 percent of its online orders within 2 days ( Mims, 2018 ). This has allowed it to keep its delivery costs low. On the other hand, Kroger, the largest supermarket chain, is building a network of automated warehouses for online grocery services ( Haddon & Fung, 2019 ) and has announced a partnership with Ocado, an online grocery company, to use its robots to pack online orders ( Griffith, 2018 ). It now offers delivery or pick-up of online orders at more than 90 percent of its stores ( Haddon, 2019a ).

3. Determinants of store and channel choice behavior

Existing research has identified several factors that influence customer choice of a channel or retail store. These can be categorized into product-related factors (e.g., product quality), store-related factors (such as product assortment, price, convenience, purchase experience, order-fulfillment time, store atmosphere, service quality, friendliness of salespeople, and store image), and customer-related demographic factors (primarily age, income, and gender) ( Blut et al., 2018 , Gensler et al., 2012 , Melis et al., 2015 , Neslin et al., 2006 , Pan and Zinkhan, 2006 ).

Research in store patronage behavior has extensively employed the theory of reasoned action (TRA) which asserts that perceptions of important attributes determine customer attitudes which in turn determine their behavior ( Fishbein & Ajzen, 1975 ). Thus, customer perceptions of these key attributes of each channel are assumed to translate into the attractiveness of each channel’s value proposition, which in turn affects customer channel choice ( Verhoef, Neslin, & Vroomen, 2007 ). We too employ this theoretical lens in our study to identify which attributes have the strongest influence on each of the customers’ choices across both offline and online channels of both retailers.

Product assortment has been identified as one of the most important determinants of customers’ channel choice ( Briesch et al., 2009 , Verhoef et al., 2007 ). It is usually measured by the extent of breadth (number of product categories), depth (number of SKUs within a category), and brand choice (number of brands) available. Research has shown that customers’ attitudes toward a retail store or website are strongly related to the assortment offered ( Srinivasan, Anderson, & Ponnavolu, 2002 ). They are also likely to evaluate selected items more positively when the assortment is more comprehensive ( Morales, Kahn, McAlister, & Broniarczyk, 2005 ). As long as it does not confuse the customers, a larger assortment is preferred because it offers more choice flexibility, reduces search costs, and enhances feelings of autonomy for the customer ( Iyengar and Lepper, 2000 , Oppewal and Koelemeijer, 2005 , Sloot et al., 2006 ). Pan and Zinkhan (2006) found that product assortment had the highest average correlation with store choice, followed by other factors such as service quality, product quality, store atmosphere, price, purchase experience, fast checkout, and friendliness of salespeople.

Price dimension has also been shown as a strong determinant of store patronage and customer satisfaction with a channel ( Gensler et al., 2012 ). Besides the price of the product and any discounts, the price dimension also includes acquisition cost, i.e., the cost a customer incurs in either traveling to the store or the cost she pays for home delivery. Customers consider price differences when choosing a store and are more likely to purchase at the channel that offers them most attractive price ( Bell et al., 1998 , Vroegrijk et al., 2013 ).

Time dimension of order fulfillment varies depending on the mode of purchase and delivery. For offline purchase, it consists of travel time and transaction time, i.e., the time required to locate the product and checkout. For home delivery of an online order, it consists of the time required to place the order and to wait for its arrival, i.e., time taken for the product to be delivered. For pick-up of an online order, it consists of the time required to place the order, travel time, and pick-up time, i.e., time required to pick up the order from dedicated pick-up area inside or outside the store. Customers are more likely to choose the channel that minimizes overall time taken ( Baker, Parasuraman, Grewal, & Voss, 2002 ).

Purchase experience is an amalgam of perceived savings in time and effort during the purchase process, including the stages of search, evaluation, and acquisition ( Gupta & Kim, 2010 ). Thus, purchase experience subsumes such attributes as store atmosphere, service quality, friendliness of salespeople, and ease of returning the product. Customer evaluations of purchase experience and service also determine customer satisfaction with both offline and online shopping experiences ( Benoit et al., 2019 , Berry et al., 2002 , Wolfinbarger and Gilly, 2003 ).

In addition to product- and store-related factors, consumer-related demographic factors are also dominant predictors of customers’ channel patronage and shopping frequency ( Pan & Zinkhan, 2006 ). Given their greater comfort with using internet for shopping, younger shoppers and those with higher levels of education may be more likely to adopt newer channels such as buy-online-pick-up-in-store (BOPIS). Income level may play a role in using home delivery formats because of the need to pay delivery fees or to purchase above a certain amount to qualify for free delivery. Household characteristics, such as the number of members who work, may influence preference for pick-up formats. Relatedly, multi-channel customer segmentation has gained attention too ( Konus, Verhoef, & Neslin, 2008 ), which can help retailers more effectively target potential patrons.

Most of these store-, product-, and customer-related attributes have been conventionally studied in offline and online retailing separately. Some attributes of choice behavior (such as service quality) are ideally comparable within-channel competition only (i.e., comparing service quality at offline channel of one retailer with service quality at offline channel of another retailer). However, other attributes (such as assortment and price) are agnostic of within-channel (within offline or within online channels) or cross-channel competition (between offline and online channels) in that they are comparable across disparate channels of different retailers ( Brynjolfsson and Smith, 2000 , Degeratu et al., 2000 ). For most of the attributes, Amazon and Walmart had conventionally taken opposite approaches as they offered different value propositions (either offline or online) to customers ( Kumar & Mittal, 2018 ). When choosing one channel over the other, customers made trade-offs according to their individual preferences. Sometimes these preferences could be mapped along demographic dimensions. In this cross-channel competitive scenario, it was easy to understand customers’ choice of Amazon or Walmart because these two retailers (with their dominant channels) clearly differed in their relative strengths on various attributes ( Verhoef et al., 2007 ). But their efforts in omnichannel retailing to become attractive to customers of each other have turned this cross-channel competition into a mix of simultaneous within-channel and cross-channel competition. Although the direction of patronage determinants’ association with each channel is conceivable, their relative strengths for each channel of each retailer are an empirical issue.

In the past few years, exploration of attributes leading to channel patronage in the context of omnichannel retailing has gathered pace. For example, Emrich, Paul, and Rudolph (2015) showed that limited-line retailers who have a high assortment depth (compared with broad-line retailers who have a high assortment breadth) are better off having the same product assortment at their offline and online stores. Broad-line retailers, on the other hand, are better off providing a larger assortment at their online channels. In grocery retailing, Melis et al. (2015) showed that shoppers adopted the online channel of their preferred offline grocer at first but with time chose an online grocer on the basis of online product assortment. A large proportion of research in this stream has focused on the effects of opening an offline (online) channel for an online (offline) retailer and has documented positive effects on overall sales ( Avery et al., 2012 , Gallino and Moreno, 2014 , Pauwels and Neslin, 2015 ). Research on the effects of integrating multiple channels to provide customers an omnichannel experience has also documented overall positive results ( Cao & Li, 2015 ).

Specifically examining the issue of delivery, Fisher, Gallino, and Xu (2019) used quasi-experimental data to show that faster delivery of online orders increased sales in both online and offline channels of an apparel retailer. They showed that each business-day reduction in delivery period increased online sales of the apparel retailer by about 1.45 percent and offline sales by about 0.61 percent. The average reduction in delivery time across various states however was just about half a day from the baseline delivery period of 7 business days. In this study, we consider competition between Amazon and Walmart both of which have much shorter delivery periods for most online orders. Consumer behavior too likely differs in purchase of apparel and grocery due to factors such as concern for freshness and quality of groceries, and feasibility of returning grocery purchases. Furthermore, we explore the relative importance of various attributes in customers’ choice behavior across online and offline channels of both retailers. We also show which demographics are good targets for them as they develop omnichannel capabilities and which demographics they need to keep loyal to their original channels. In Table 1 , we provide a summary of relevant empirical research in omnichannel retailing.

Summary of Empirical Literature on Omnichannel Retailing.

4. Methodology

We designed a survey and asked participants to report their shopping behavior at Amazon and Walmart, as well as their perceptions of the various factors discussed in the previous section. The survey was administered in early 2018 by a market research company which recruited a random population of respondents from its sample panel of consumers in the U.S. The company recruits individuals from across the U.S. using a variety of methods to obtain sample diversity, and regularly cleans the database so that it reflects a representative sample. 524 respondents completed all survey questions. We report the summary statistics in Table 2 . Among these respondents, 76 percent shop frequently (defined as more than once per month) on Amazon.com and have products delivered to home, while only 21 percent frequently use the pick-up option when shopping on Amazon.com. Regarding Walmart, 87 percent of participants shop frequently at Walmart stores; 37 percent shop frequently on Walmart.com and choose to ship to home; and 35 percent shop frequently on Walmart.com and use the pick-up option. Fig. 1 depicts an UpSet plot of the proportion of respondents who frequently use a shopping mode exclusively or various combinations of the five shopping modes.

Descriptive Statistics.

UpSet Plot – Shoppers’ Choice of Various Modes of Shopping.

36 percent of respondents are male, and the average age is around 41 years. 59 percent respondents are married, and almost two-third of the respondents have children. The largest proportion of respondents (33 percent) have college degrees and the largest proportion of respondents (35 percent) earn between 50 thousand and 100 thousand dollars per annum. Almost one-third of the respondents each report that either one or two members in the household work.

The various attributes conventionally considered influential in store choice and outlined in the previous section may be correlated. To reduce the dimensions of the ratings, we performed a principal component analysis to extract orthogonal components. We report the rotated factor loadings in Table 3 . For the 18 attributes we identified three components (with eigenvalue of 10.16, 1.73, and 0.95 respectively) that account for 71 percent of total variance. The first component – comprised of such attributes as offering pleasant shopping experience, speedy checkout, good customer service, helpful employees, and free 2-day shipping for online purchases – broadly reflects purchase experience, customer service, and product delivery. Hence, we named this component experience, service, and delivery (ESD). The second component – comprised of such attributes as offering competitive prices, a wide range of product choices, preferred brands, easy returns, and an easy-to-use website – broadly reflects product assortment, competitive price, and purchase convenience. Hence, we named this component assortment, price, and convenience (APC). The third component – comprised of such attributes as offering fresh produce, quality private-label products, quality meat and poultry, and availability of organic items – broadly reflects freshness and quality of products, as well as the ability to validate these qualities. Hence, we named this component freshness and quality validation (FQV).

Principal Component Analysis Loading Matrix.

4.2. Model specification

We propose a multivariate probit model (MVP) to explain a survey participant’s decision to shop frequently at one or more of the five options – Amazon home delivery, Amazon pick-up, Walmart in-store shopping, Walmart home delivery, and Walmart pick-up. A multivariate probit model is a flexible approach to explain the contemporaneous incidence outcomes in this situation where participants may choose more than one option (see Seetharaman et al., 2005 for a review).

We assume the utility of buying from option i(i = 1,…,5) for household h can be written as:

where h stands for participants, i stands for the five shopping options, ESD , APC , and FQV are the three principal components, and X h is a vector that includes demographic variables for household h .

The observed shopping decisions (more than once per month vs. less frequent) for option i can be written as:

We assume that the error terms of different options for a survey participant, ɛ h = {ɛ h1 , ɛ h2, …, ɛ h5 }, follow a multivariate normal distribution. That is,

where ∑ is a 5 × 5 covariance matrix. The covariance matrix allows very flexible substitution patterns and captures the co-incidences in the outcomes ( Manchanda, Ansari, & Gupta, 1999 ). For identification purposes, all diagonal elements of the covariance matrix are set to 1, and the covariance matrix is essentially estimated as a correlation matrix. We estimated the model using simulated maximum likelihood implemented by Stata CMP module ( Roodman, 2011 ).

4.3. Results

4.3.1. estimation results from multivariate probit model.

We report the estimation results in Table 4 and present them for each choice available to the customers. We have standardized the coefficients (covariates only) to infer the strength of each attribute in forming a customer’s preference for each choice.

Estimates of Multivariate Probit model (MVP).

Notes: All tests are two-tailed.

Coefficients are standardized.

Income category “Less than $25 k” is the base category for income, and education level “High school or less” is the base category for education.

Home delivery of online orders placed at Amazon.com seems to be preferred the most by customers who place high importance on APC, i.e., product assortment, price competitiveness, and purchase convenience (β std  = 0.39; p < 0.01). Amazon home delivery is preferred second most by customers who place high importance on ESD, i.e., purchase experience, customer service, and product delivery (β std  = 0.21; p < 0.01). It is interesting to note that the choice of home delivery mode is driven more by APC than by ESD. FQV, i.e., Product freshness and quality validation understandably drives customers to Amazon home delivery to a much smaller extent (β std  = 0.16; p < 0.05). This is driven partly by the fact that it is difficult to validate quality for a product that is going to be delivered. Comparing the three attributes, APC is almost twice as effective as ESD and almost two and a half times as effective as FQV. In terms of customer demographics, this mode is preferred by males (β std  = 0.21; p < 0.01), younger customers (β std  = −0.29; p < 0.01), customers with a master’s degree or higher (β std  = 0.25; p < 0.05), customers earning between 50,000 and 100,000 dollars per year (β std  = 0.20; p < 0.05), and customers earning between 100,000 and 150,000 dollars per year (β std  = 0.20; p < 0.05).

Picking up one’s Amazon orders at one of the stores or pick-up points provided by Amazon seems to be preferred primarily by customers who place high importance on FQV (β std  = 0.46; p < 0.01). It is also preferred by customers who place importance on ESD, though not to the same extent (β std  = 0.20; p < 0.01). Choice of this mode does not seem to be associated with the level of importance customers place on APC (β std  = −0.11; n.s.). Understandably, those customers who consider purchase convenience important are less likely to choose picking up their own purchase. This could also be partly driven by Prime members who qualify for free delivery and may not want to expend time and money involved in pick-up, which effectively increases the price for them. Comparing the attributes, FQV is more than twice as effective as ESD, whereas APC is not effective at all. In terms of customer demographics, this mode is preferred by male customers (β std  = 0.23; p < 0.01), younger customers (β std  = −0.43; p < 0.01), customers with adult children (β std  = 0.14; p < 0.10), and customers earning more than 150,000 dollars (β std  = 0.23; p < 0.01). Preference for this mode among households with adult children may be driven partly by the availability of additional adults to pick up online orders.

Offline purchasing in-store at Walmart seems to be preferred the most by those customers who place high importance on FQV (β std  = 0.32; p < 0.01). This finding is self-explanatory – purchasing products at a store in person provides the best opportunity to validate freshness and quality. However, it is not associated with importance customers place on ESD (β std  = 0.04; n.s.) nor on APC (β std  = 0.13; n.s.). Other than giving shoppers an opportunity to validate freshness and quality of products, Walmart does not seem able to attract customers on any other attribute. In terms of customer demographics, this mode is preferred by married customers (β std  = 0.17; p < 0.10) but less preferred by customers with college degrees (β std  = −0.20; p < 0.10). Surprisingly, shopping at Walmart stores is not significantly associated with any other demographic variable, which implies that no customer demographic segment has offline shopping at Walmart as its favorite mode.

Home delivery of online orders placed at Walmart.com seems to be preferred by customers who place high importance on ESD (β std  = 0.26; p < 0.01). It is also preferred, though to a slightly lower extent, by customers who value APC (β std  = 0.23; p < 0.01). Choice of this mode does not seem to be associated with the level of importance customers place on FQV (β std  = 0.07; n.s.). In terms of customer demographics, this mode is preferred by males (β std  = 0.13; p < 0.05), younger customers (β std  = −0.31; p < 0.01), and customers who have children between ages 5 and 17 (β std  = 0.11; p < 0.10).

Picking up online Walmart orders at one of the stores seems to be preferred by customers who place high importance on ESD (β std  = 0.37; p < 0.01). It is preferred second most by customers who place importance on APC (β std  = 0.16; p < 0.05). Valuing FQV also drives customers to Walmart pick-up, though not to the same extent (β std  = 0.14; p < 0.05). Comparing the three attributes, ESD is more than twice as effective as APC and more than two and a half times as effective as FQV. In terms of customer demographics, this mode is preferred by males (β std  = 0.13; p < 0.10), younger customers (β std  = −0.26; p < 0.01), and customers earning more than 150,000 dollars (β std  = 0.14; p < 0.10).

Home delivery of online Amazon orders and in-store shopping at Walmart are the original formats of these two retailers and are in a way a study in contrasts. Results broadly suggest that shoppers prefer Amazon home delivery primarily because they think they get better product assortment, competitive prices, and purchase convenience; other factors influence Amazon shoppers too, though not to the same extent. In-store Walmart shoppers mainly shop there because they think they can validate product freshness and quality; they do not seem to be motivated by any other factor. To cut into each other’s market share in these formats they need to counter their rival’s main attraction for the customers, i.e., Amazon needs to provide an opportunity for product freshness and quality validation while Walmart needs to provide a stronger motivation for customers who value assortment, price, and convenience.

By expanding into pick-up of online orders from various kinds of pick-up points including Whole Foods stores, Amazon seems to have successfully achieved its objective. The influence of freshness and quality validation is the main driving factor for customers choosing Amazon pick-up and is almost fifty percent more than the influence on customers choosing Walmart in-store shopping. Hence, between its two formats Amazon seems to provide incentives for most customers.

By expanding home delivery of online orders and pick-up of online orders from its stores, Walmart seems to have addressed the insufficiencies of purchase experience, customer service, and product delivery associated with the retailer’s in-store shopping. Customers who place higher importance on experience, service, and delivery are more likely to choose Walmart’s newer formats, though pick-up more so than home delivery. Trade press validates Walmart’s vast investments to provide experience, service, and faster delivery especially through pick-up of online orders for the past few years. However, these new formats do not seem to have fully addressed the key reason Amazon home delivery shoppers use Amazon – product assortment, competitive prices, and purchase convenience; such customers are still more likely to choose Amazon home delivery. The effect of these attributes on customers choosing Walmart delivery is more than forty percent less than its effect on customers choosing Amazon delivery. The attributes’ effect on customers choosing Walmart pick-up is less than half of the effect on customers choosing Amazon delivery. This is especially ironic given Walmart’s Everyday Low Prices (EDLP) strategy and its slogan of “Always low prices” since inception. Hence, the key challenge for Walmart is to deliver a larger assortment at competitive prices while making shopping convenient for customers. This challenge is distinct from that of delivering purchase experience and quick delivery, which has been a focus for Walmart over the past few years. A piece of validating empirical evidence: Walmart’s online assortment of stock keeping units (SKUs) is only ten percent of Amazon.com’s assortment, which is more than half a billion. Walmart needs to actively enlarge its online assortment in order to effectively cut into Amazon’s market share. Although it professes “Always low prices,” empirical evidence has also shown that Walmart’s prices are not always the lowest ( Profitero, 2018 ).

In terms of attracting specific demographic segments, Amazon home delivery appears popular among males, younger customers, customers with higher education, and customers with a middle-to-high income. By expanding into pick-up, Amazon not only seems to have retained males and younger customers but has also attracted households with the highest levels of income and households with adult children at home, perhaps because the number of members in the household who can pick up online orders is higher. On the other hand, there is no particular demographic group that appears to be strongly attracted to Walmart in-store shopping. By providing home delivery and pick-up of online orders, Walmart seems to have attracted more males and younger customers, who form the core customer base for Amazon home delivery. Thus, it seems that at least to some extent Walmart has succeeded in attracting Amazon customers with its newer channels. Walmart home delivery also seems to have attracted households with school-going children, which could perhaps be because they appreciate their purchases home-delivered due to paucity of time. Walmart pick-up seems to have attracted households with highest levels of income. However, this segment seems to prefer pick-up option at Amazon too. Thus, compared with Amazon, Walmart still needs to do more to attract customers with higher levels of education and income to its newer formats.

Overall, Amazon seems to have had greater success at adopting omnichannel retailing than Walmart. Walmart should focus more on offering larger online product assortment, competitive prices, and purchase convenience in addition to making investments in customer experience and faster delivery. Additionally, it should increase its efforts in attempting to gain the more educated and higher income shoppers that Amazon currently attracts.

4.3.2. Segmentation analysis

Ailawadi and Farris (2017, p. 133) suggest that “segmenting consumers not just based on their preferences for different channels but based on the attributes or reasons for those preferences is important. Segmentation schemes that show whether and how the importance of convenience- and price-based attributes correlate in different segments can give suppliers insight into how they need to control the availability, presentation, and pricing of their brands online. And they can give retailers insights into how they can differentiate to appeal to important segments while controlling costs on aspects that are less important to the segments.” Multichannel customer segmentation has frequently been identified as a key consumer behavior issue for designing effective multichannel strategies ( Bhatnagar and Ghose, 2004a , Bhatnagar and Ghose, 2004b , Ganesh et al., 2010 , Konus et al., 2008 , Namin and Dehdashti, 2019 ).

To further understand the differences in customer needs, we conducted a segmentation analysis on the extracted principal components using K-means clustering. A three-cluster solution provides clear distinction between respondents’ shopping choices, and we report the results in Table 5 , Table 6 . Approximately 13 percent of respondents seem loyal solely to Amazon home delivery, driven primarily by better product assortment, competitive prices, and purchase convenience available at Amazon, as well as by better purchase experience, customer service, and product delivery provided by the retailer. This cluster also has very low perception of Walmart on all the three key factors. Unmarried customers, customers with children 18 years and older, those with college degrees, and customers earning between 50 thousand and 100 thousand dollars seem to be relatively better represented in this cluster.

Segmentation Analysis: Cluster Analysis Results.

Segmentation Analysis: Comparison of Variable Means across Clusters.

Approximately 29 percent of the respondents seem to have embraced omnichannel retailing unmindful of which retailer it is. They may choose one retailer or channel over another to meet their specific needs at the time of purchase ( Kumar & Mittal, 2018 ). As expected, they seem to rate both Amazon and Walmart high on purchase experience, customer service, and product delivery, as well as on product freshness and quality validation. Younger customers, as well as customers with legally minor children, with higher education, with higher levels of income, and double-income households are relatively better represented in this cluster.

Approximately 58 percent of the respondents seem hesitant to utilize new formats introduced by their preferred retailers. A larger proportion of these respondents shop in-store at Walmart and seem to be doing so for the ability to validate freshness and quality of product. A smaller proportion use Amazon home delivery for reasons of purchase experience, customer service, and product delivery, as well as product assortment, competitive price, and purchase convenience. Female customers, as well as customers with relatively lower levels of education and income seem to be better represented in this cluster.

Overall, as these retailers invest in newer formats, the ideal potential customers for those formats are highly educated married young people (with or without young children) with high incomes, especially with both members of the household working. This desirable profile is widely validated in popular press too. At the same time, Amazon needs to hold on to college-educated singles with a middle-to-high level of income, a demographic that seems to form their loyal customer segment. Finally, female customers with lower levels of education or income appear averse to trying out new formats from both retailers. Hence, both retailers will do well to hold onto this core set of their customers.

5. Discussion

Offline retailers may be making a mistake in the way they are trying to compete with Amazon. Most of their recent investments and activities are focused on quicker delivery of online orders. This focus is understandable given their ready network of delivery and pick-up points in the form of thousands of physical stores. But what they need to examine is why a customer will shop at their online store in the first place if the best they can do is match Amazon on delivery. Offline retailers are focused on gaining parity in distribution of online orders—but what about the assortment and price of products they are making available online and the convenience with which customers can shop for those products? Most offline retailers’ online assortment is a fraction of what is available at Amazon. For example, compared to 536 million SKUs available on Amazon.com in 2016, Walmart.com had only 38 million SKUs ( Collis et al., 2018 ). Some offline retailers, including Walmart, have tried to charge higher prices online than they do in their stores. Is that an attractive proposition to compete with online retailers?

Teixeira (2019) argues that the misplaced focus may be based on offline retailers’ assumption that their industry is being disrupted by technology and innovation of online retailers. He contends that although technological in nature the roots of this disruption lie in better customer value. The recession in 2008 enhanced the importance of price and value for the customer, but traditional grocers kept increasing prices at historical levels to maintain their gross margins. This harmed their value perception. Customers started seeing higher value in online retailers, given their larger assortments and lower prices. Amazon calls it the “flywheel” effect: more product selection and growth leads to lower costs and prices, which gives customers reasons to keep shopping at Amazon ( Haddon & Stevens, 2018b ). Offline retailers need to recognize this phenomenon, otherwise their investments in technology to ensure quicker delivery of online orders will only further raise their costs. If these costs are then passed onto customers in the form of higher prices, these investments will ultimately worsen their value perception ( Gomes, 2019 ). In a survey conducted by Forrester, the price of an item was the biggest reason shoppers favored a particular retailer; expedited shipping drove purchase decisions for less than 10 percent of the respondents ( Smith, 2019 ).

Offline retailers need to understand and leverage their comparative advantages ( Gomes, 2019 ). They should invest in tracking their supply chain in real time to get a better sense of what, and how much of it, is where and when. Evidence suggests that faster delivery may not be as important for customers as “certain” delivery, i.e., meeting the promised delivery date ( Kumar & Mittal, 2018 ). In an analysis of its online business, REI Inc. found that “if we can provide four-day or less service for our customers consistently, we’re retaining them and getting wallet share” ( Smith, 2019 ). When Amazon missed its two-day delivery promise to several of its Prime customers on Prime Day in 2019 it led to such reactions as “If you can’t fulfill it, don’t promise it.” Amazon explained the high traffic of customers through price: “People are not focused on speed, they are focused on deals.” This validates the primary importance of pricing in customers’ patronage behavior. ( Herrera, 2019b ). Tracking their inventory in real-time would allow offline retailers to fulfill their promised delivery dates.

Most grocers lack the ability of real-time tracking – 15 percent of consumer products listed on U.S. online ordering services are out of stock when it comes to fulfilling them ( Haddon, 2019b ). These items are not in the nearest stores fulfilling a delivery order, which forces employees to make necessary substitutions in the order, but these substitutions are not always optimal. At Instacart, the largest third-party grocery-delivery service, incomplete orders are the second most frequent source of customer dissatisfaction, after high price. Mishandling substitutions often lead to returns and refunds which decrease an online order’s profitability ( Haddon, 2019b ).

In conclusion, Walmart perhaps has the best physical distribution and retail network in the world. Instead of imitating Amazon, which offers a different value proposition to its customers, Walmart should invest in this competitive advantage. It has moved away from focusing on its brand identity as a retailer providing everyday low prices. It should invest in and leverage its core competencies both offline and online and make it convenient for shoppers to make purchases ( Yohn, 2017 ).

5.1. Managerial implications

Although based on competition between Amazon and Walmart, the key results of this study have managerial implications for all retailers pursuing omnichannel strategies. Online retailers’ key limitation is that shoppers cannot validate freshness and quality at the time of purchase. They can overcome this limitation by offering pick-up of online orders in customers’ vicinity. Pick-up option seems to especially attract high very income customers too. Offline retailers need to ensure that their online assortment and prices are competitive with major online retailers and the purchase experience is convenient for the shoppers. These are the key attributes that attract shoppers, especially younger shoppers, to online channels. It may be overrated for them to invest inordinately in quicker delivery, as evidence suggests that delivering on a “promised” date is as effective as, if not better than, quicker delivery.

In general, omnichannel retailers would be advised to target younger double-income households with higher levels of education and income, as they seem the most receptive to addition of newer channels by retailers. However, when targeting these segments of customers by adding newer channels, retailers need to continue providing benefits for their existing customers to maintain their loyalty. These customers likely have lower levels of education and income, which again highlights the critical need to offer greater assortments at competitive prices while making the purchase process convenient to attract all different kinds of customers.

5.2. Limitations and future research

Although this study contributes to our understanding of strategies omnichannel retailers can utilize to compete more effectively, there are some limitations. First is the issue of generalizability. Our analysis is based on customers’ patronage of two retailers only – Amazon and Walmart. As such results may be biased by certain unobservable dimensions of competition between these two specific retailers. Future research should consider other major offline and online retailers too. Second, the retailing sector is undergoing changes and developments at a fast pace especially after the economy was hit by Covid-19 pandemic at the beginning of year 2020. As such, results based on data collected more than a year ago may not fully hold now or in the future. Third, we have not considered the relative cost or capacity issues involved in terms of providing various attributes to the customers. Future research should consider these issues as well in omnichannel retailing. Fourth, we collected information only about the frequency with which customers shop at each of the channels – more frequently than once a month or not. We did not collect how they divided their budget between these different channels, which could have provided a more insightful outcome variable to validate the relative effects of various attributes. Fifth, our results suggest that by expanding into various kinds of pick-up points, Amazon seems to have addressed the freshness and quality validation issue. Picking up an order however is not a direct validation of product freshness; after all, one cannot validate the freshness or quality unless one unpacks the order. Thus, there could be a number of reasons why customers perceive picked up orders to be high on freshness or quality. For example, picking up an order may cut down the transit time from the time of packing to the time one acquires the product, or picking up one’s order at Whole Foods store may psychologically bestow “freshness” on the order. Future research should explore the reasons for this customer perception. Finally, we utilized cross-sectional data of consumer perceptions, but arguably longitudinal data could better capture the dynamic effects of retailers’ omnichannel strategies.

Acknowledgement

The last author was supported by the Social Sciences and Humanities Research Council of Canada (SSHRC-435-2018-0631).

Appendix A Supplementary data to this article can be found online at https://doi.org/10.1016/j.jbusres.2020.08.053 .

Appendix A. Supplementary material

The following are the Supplementary data to this article:

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Please note you do not have access to teaching notes, customer reactions to growing walmart plus: exploring the challenges of walmart’s online shopping subscription service going head-to-head with amazon prime.

Strategic Direction

ISSN : 0258-0543

Article publication date: 29 November 2021

Issue publication date: 3 January 2022

This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies.

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This research paper concentrates on Walmart's launch of the mobile app shopping delivery subscription service, Walmart Plus. Discounted gas gives it an edge over Amazon Prime, yet Walmart Plus lacks the streaming services of Amazon Prime. After a relatively slow start in consistently growing the service across all demographics, Walmart Plus leaders are advised to seriously consider going organic, leveraging the powerful reach of social media influencers, and integrating online with Walmart-owned Sam's Club.

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• Walmart Plus
• Subscription service
• Subscription strategy
• Communication strategy
• Customer value model
• Online shopping

(2022), "Customer reactions to growing Walmart Plus: Exploring the challenges of Walmart’s online shopping subscription service going head-to-head with Amazon Prime", Strategic Direction , Vol. 38 No. 1, pp. 29-31. https://doi.org/10.1108/SD-11-2021-0137

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International market entry, modes of market entry, business strategy and market strategy, reasons for market entry, challenges experienced in the international market, conclusion and recommendations, recommendations, reference list.

Walmart is a private limited company that operates within the services sector. Since its establishment in 1962, Walmart has been focused on impacting the lives of consumers positively. It is estimated that the firm serves more than 200 million consumers every week through mobile devices, online and through retail outlets. In an effort to market its products to a large number of customers, the firm has adopted internationalization strategy.

Currently, Walmart operates in 27 different countries under 69 banners. Three quarters of its operations in the international market are under different banner other than Walmart. The firm has managed to develop a strong human resource base of 2.2 million worldwide. In 2012, the firm’s sales amounted to $444 (Walmart para. 1).

In an effort to attain its profit maximization objective, Walmart deals with a wide range of consumer products such as general merchandise. The firm also deals with provision of a wide range of services. In the international market, Walmart offers a wide range of generic products and household products. The firm has achieved this through incorporation of the concept of product diversification.

The wide range of products and services that the firm deals with have significantly contributed towards its financial success. The objective of this paper is to conduct a comprehensive analysis on Walmart’s operations in the international market. This is attained by identifying what motivated the firm to enter into the international market, the challenges faced and the degree of success it has attained. The paper also illustrates a number of recommendations on what the firm could have done differently in order to improve its performance.

Entering the international market is one of the ways through which firms can achieve their profit maximization objective. However, firms face major challenges in their internationalization strategy. One of the major sources of these challenges is associated the business risk in the host country. Consequently, it is paramount for a firm to conduct a comprehensive country analysis in order to determine the degree of market risk. Additionally, the research will play an important role in determining the probability of succeeding.

Decision to enter the various international markets was motivated by a number of factors. The first reason that motivated the firm’s management team to consider entering the market is the intense competition in the domestic market. Over the years, the US retail sector has continued to experience an increment in the intensity of competition.

This has led to a decline in the sectors’ profitability potential. In an effort to attain its profit maximization objective, Walmart’s management team made a decision to venture into the international market. Walmart’s management team perceived that venturing into the international market would provide an opportunity for the firm to expand its operations (Walmart para. 2).

In an effort to succeed in the international market, Walmart has adopted an aggressive market entry strategy. The objective of adopting this strategy is to enable the firm attain a high economies of scale. Considering the size of Walmart’s operation, the firm has been able to attain higher economies of scale (Rocha & Luis 68). Walmart has entered different international markets such as Canada, Brazil and Japan.

It is paramount for a firm to determine the most appropriate mode of entry in order to succeed. There are different modes of entry that Walmart has adopted in its internalization effort. Some of these modes of entry include acquisition, mergers, partnership/joint ventures or starting green-field operations through foreign direct investment.

In 1994, Walmart’s management team identified Canada as a market with a high market potential. After conducting a comprehensive market analysis, the firm’s management team decided to adopt acquisition mode of market entry. The acquisition strategy targeted Woolco Discount Stores which are owned by Woolworth Corporation.

In its operation, Woolworth Corporation had managed to establish an effective network of Woolco stores in Canada. By 1994, the firm had a network of 142 discount stores. Walmart acquired 120 of Woolco stores. Over the past 18 years, Walmart has been very efficient in its Canadian market. Its success has arisen from establishment of new stores and remodeling the existing stores.

Walmart ventured into the Brazilian retail sector in 1995. The firm adopted joint-venture mode of market entry when venturing into the Brazilian market (Rocha & Luis 61). The firm’s management team identified Lojas Americanas as the potential joint-venture partners. Decision to select Lojas Americanas as its joint-venture partner arose from identification of the firm’s strength with regard to distribution and marketing.

In its operation, Lojas Americanas has managed to establish itself as the largest discount store in Brazil. The firm is owned by Garantia Group (Rocha & Luis 61). As a result of its strength with regard to retailing, Walmart has managed to be the dominant of the joint venture. It controls 60% of the total joint venture.

As a result of the competitive nature of the Brazilian retail industry, the firm is increasingly adopting acquisition mode of market entry. From 1995, the firm has undertaken two major acquisitions. The acquisitions entailed that of Bompreco’s and Sonaes. In 2004 Walmart purchased 116 stores that were owned by Bompreco. In 2005, the firm acquired Sonae’s Distribution Group.

Through these acquisitions, the firm has managed to improve its competitive advantage hence attaining a higher competitiveness. As a result of its aggressive expansion strategy, the firm has managed to grow from being a 2-brand firm to a 9-brand firm. Additionally, the firm has established multiple formats.

As a result of the competitive nature of the Brazilian market, the firm has incorporated organic growth as one of its market leadership strategy. This has been has been attained by building new retail outlets from scratch in all the 18 federal districts in Brazil (Walmart para. 1).

In line with its commitment to attaining its profit maximization objective, Walmart’s management team made a decision to enter the Asian market, the firm identified Japan as one of the Asian markets with the highest market potential. After a thorough market research, the firm entered the Japanese market in 2002. In its market entry, the firm adopted the concept of partnership.

On 15 th March 2002, the firm entered into a partnership agreement with Seiyu Limited. Walmart purchased 6.1% of Seiyu Limited Share in an effort to gain foothold. Decision to adopt partnership market strategy arose from the fact that the Japanese market has been very challenging.

Most foreign firms which have ventured into the industry have failed. By partnering with Seiyu Limited, the firm was able to avoid possible challenges that would have caused it to fail. Partnering with Seiyu significantly increased Walmart’s change of success.

Formulation and implementation of an effective business strategy is vital in the success of every organization. The business strategy adopted determines the success of the firm in its performance relative to other firms.

To effectively position itself in the Canadian market, Walmart adopted the low-cost strategy. This strategy entails offering goods and services to customers at the lowest cost possible relative to its competitors. The low cost may emanate from a number of factors such as improved operational efficiency.

Adoption of a low-cost strategy is a challenge to most firms. This arises from the fact that the firm should have a strong capital base in addition to providing a wide range of products so as to meet the customer’s needs.

The firm has implemented the low cost strategy by offering its products and services at a low cost relative to other firms in the supply chain. In its Canadian market, Walmart intends to be the price leader in the retail sector.

To increase its customer base, Walmart has adopted low cost strategy as its business strategy. Decision to adopt this strategy in Brazil was motivated by the need to attain a high level of international sales growth. The firm has implemented the low cost strategy by offering its products and services at a relatively low price level compared to its competitors. By adopting this strategy, it is the firm’s objective that it will sufficiently differentiate itself from its competitors.

Walmart has continuously adopted the low cost strategy as its business and marketing strategy. When entering the Japanese market, the firm adopted the same strategy. Over the years, the firm has continuously offered its products at a relatively low price point compared to its competitors. Some of the firm’s main competitors in Japan include 7-Eleven Japan Company Limited and Ito-Yokado Company Limited.

As a result of the intense competition in the Canadian retail industry, Walmart has incorporated the market leadership as its market strategy. Decision to adopt this strategy has emanated from the need to derive a high competitive advantage relative to its competitors by being a one-stop shopping destination. To achieve this, Walmart has focused on two main aspects which include physical expansion and gaining sufficient market share.

In 2012, Walmart has allocated $ 753 for its expansion purposes. The budgetary allocation has been effected prior to entry of Target Corporation, a US based company into Canada. In its expansion to the Canadian market, Target Corporation intends to establish approximately 135 stores. However, the rapid expansion being undertaken by Walmart will contribute towards the firm countering the competition that will emanate from Target’s entry.

The resultant effect is that Walmart will improve its competitive edge. In addition to establishing new stores in various locations in Canada, the firm will also undertake remodeling of its existing stores. Through this investment, Wamart will have increased its retail stores to more than 375 retail outlets by January 2013 (McKinnon para. 1). Currently, Walmart is ranked as the fastest growing firm in the retail sector with regard to general-merchandize and grocery sector (Walmart, 2020).

Similarly, Walmart has adopted market leadership strategy. The firm has attained this by adopting different formats such as establishment of supercenters and Sam’s Club sores. Upon its entry, Walmart had only established 5 retail outlets, 2 Supercenters and 3 Sam’s Clubs. However, the firm has over the years embarked on a rapid expansion campaign. Currently, the firm operates more than 512 units.

To meet its customer’s demand, the firm has adopted the concept of product mix. It is estimated that the firm supplies more than offers more than 50,000 consumer products such as food products, apparels and sporting products. This has made the firm to be a unique retailer in the Brazilian market because there is no other retailer who offers such a wide range of products in the country.

There are different reasons that motivated Walmart to venture into the international market. One of the factors that the firm’s management team considered in venturing in the Brazilian and Canadian market is that the market was not saturated. Consequently, the firm would have been in position to increase its market share hence attaining its high sales objective (Rocha & Luis 61).

Decision to venture into the Japanese and the Canadian markets arose from the fact that the country has a substantial population (McKinnon para. 1). Consequently, the size of the market was relatively high. Additionally, the firm’s entry into Brazil and Japan was also necessitated by the high rate of economic growth being experienced in Japan and Brazil. Currently, Brazil is one of the countries has is considered to be an emerging economy in within the Latin America (Rocha & Luis 61).

Over the years, the three economies have continued to experience substantial economic growth. As a result, the consumers have experienced an increment in their purchasing power. Walmart identified the increment in consumer purchasing power in these economies as an opportunity to increase its sales revenue.

Operating in the international market presents numerous challenges that organizations have to deal with. In its Japanese market, Walmart has continued to face numerous cultural challenges. The culture of a country has a significant impact on the consumer’s purchasing patterns. Consequently, it is vital for firms intending to venture into the international market to conduct a comprehensive cultural analysis. This will aid in determining the degree of fit. Conducting cultural analysis is also vital because it enables a firm’s management team to adjust its business and market strategies ().

In its Brazilian market, Walmart did not have sufficient knowledge regarding the tastes and preferences of the customers. In Brazil, Walmart established a number of Sam’s Clubs. However, Brazilian consumers have not adopted the culture of paying for membership fees. Additionally, they have not adopted the culture of purchasing in large volumes. In order to fit in this culture, Walmart was faced with a major challenge of ensuring that it fit in the Brazilian culture (Rocha & Luis 68).

The firm’s management team expected that the Japanese would adapt Walmart’s culture. This is a major challenge because firms are required to adapt into the foreign culture in their internationalization strategy. The Japanese have a unique culture. Consequently, it was paramount for Walmart to customize its stores in accordance with the Japanese culture.

The Japanese are not used to purchasing their supplies from large stores. Additionally, purchasing fresh produce rather than packaged products is a culture that is strongly entrenched within the Japanese culture. However, Walmart has not adequately specialized in the provision of fresh product.

In an effort to attract a large number of customers, Walmart has continuously adopted low cost strategy as its business strategy. However, Japanese interpret high price to mean high quality. Therefore, most Japanese perceive high price to translate to value for their money. This is well illustrated by the fact that the Japanese purchase 40% of the total global luxury products annually. These cultural misunderstandings have adversely affected Walmart’s ability to succeed in the Japanese market.

Despite its effort to venture the Japanese market through Seiyu Limited, Walmart has not been successful. This is due to the fact that Seiyu has drastically been overtaken by its competitors in the Japanese market such as 7-Eleven Company Limited. Over the years, these firms have continued to adhere to Japanese culture which has significantly contributed towards their success.

The firm’s success in the international market is well illustrated by the fact that it has managed to establish numerous retail outlets. Additionally, the firm has continued to sustain a large human resource base of more than 2.2 million employees. This shows that Wal-Mart has adopted effective human resource management strategies.

The analysis has shown that Walmart has been very committed towards attaining success in the international market. This is well illustrated by the fact that it has incorporated different modes of international market entry. Decision to adopt different mode of market entry arose from recognition of the fact that markets vary across countries.

Additionally, its success in these markets is well illustrated by the fact that it has continued to dominate the retail sector. Despite this, existence of cultural differences is one of the major challenges that Walmart faced in its internationalization efforts.

To succeed in the international market, it is paramount for the firm to take into account the following.

• The firm should conduct a comprehensive market research in order to understand the prevailing market conditions. The research should focus on both the consumers and the competitors.
• Walmart should undertake a comprehensive cultural analysis prior to venturing the international market. Its failure in conducting cultural analysis is illustrated by the challenges it is facing in Japan. This will play an important role with regard to formulation of business and market strategy. For example, identification of cultural differences affecting the consumer’s purchasing patterns should inform the firm on the most appropriate business and market strategy to adopt.
• The firm’s management team should continuously review its business and market strategies in order to determine their success. Such reviews will play an important role in the firm’s success because it will be able to adjust appropriately.
• The firm should not adopt its low cost strategy in all the market it enters. However, it is vital for the firm to incorporate other strategies such as differentiation.

McKinnon, Judy. Walmart to invest $753 million to expand Canadian operations . 2012. Web.

Rocha, Angela and Dib Luis . “The entry of Walmart in Brazil and the competitive responses of multinational and domestic firms”. International Journal of Retail and Distribution Management. 30. 2(2002): 61-74. Emerald. Web.

Walmart: Our locations, Canada 2020. Web.

Walmart: Our story 2020 . Web.

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The research literature on wal-mart: some frowns, some smiley faces.

January 1, 2008

Someone unfamiliar with the Wal-Mart controversy might reasonably assume that very obvious macro effects sprout to life when Wal-Mart opens its doors in town. How else could one rationalize the ferocity, the righteousness of the opinion that surrounds the firm?

In fact, it's the exact opposite; much of the debate and controversy likely get their fervor from the fact that nobody knows—for sure—who's right about Wal-Mart's effect on local communities.

Despite a considerable amount of research, a definitive consensus about Wal-Mart's effect on local communities is hard to declare. And it's not for lack of effort. Arguably, no firm in the history of commerce has been more scrutinized. Business schools routinely analyze successful firms to discover their secrets of success. But Wal-Mart is one of the few businesses routinely, even energetically, put under the microscope to look for its dark side, to determine whether its genes are compatible with a community's DNA.

That's not to say there are no conclusions whatsoever from the research. In fact, there are conclusions both damning and supportive of Wal-Mart. This is the likely source of the debate's din: When there is doubt or disagreement, talk louder.

Similar to the results reached by this fedgazette analysis, empirical research on the economic effects of Wal-Mart tend to be modest in both directions. The balance of academic research probably favors Wal-Mart on the whole, but not by a lot, and not in all measures.

What follows is a summary of some of the major and recent work done on the local economic effects of Wal-Mart on measures similarly used in this fedgazette  analysis—jobs, firms, wages and poverty. One additional measure—beyond the scope of our study but very relevant to the debate over local effects—is also discussed here: consumer welfare.

Jobs: Wal-Mart's effect on employment is instructive of much of the debate. In a widely cited study (1) first published in 2004, Emek Basker found that about 100 jobs were gained in small retail over the short term, falling to 50 in the long run as smaller employers folded or contracted. Outside of retail, another 20 jobs were lost in wholesale trade, thanks to Wal-Mart's vertical integration. A study (2) one year later by Michael J. Hicks showed a similar employment uptick of about 50 jobs in Pennsylvania counties where Wal-Mart opened new stores in 2002. His study also found that Wal-Mart's entrance was associated with a significant decline in retail job turnover.

Researchers David Neumark, Junfu Zhang and Stephen Ciccarella disagreed with those results in a 2005 study (3) published by the National Bureau of Economic Research (NBER). The trio found that a Wal-Mart store opening reduced county-level retail employment by about 150 workers, with each Wal-Mart worker replacing approximately 1.4 retail workers and lowering average retail employment in a county by 2.7 percent.

Then a return volley came a year later in a working paper (4) by Scott Drewianka and Dain Johnson, which found that Wal-Mart raised local retail and possibly even nonretail employment. Still other studies have pointed out that Wal-Mart likely induces greater efficiency and productivity in surviving firms, meaning that although employment among such firms might decline because of Wal-Mart, they might also be more competitive than in pre-Wal-Mart days.

The fedgazette analysis found slightly positive employment effects in counties with a Wal-Mart. About the most that can be said about Wal-Mart's effect on jobs is that it is small—even by the standards of counties with modest populations—which itself might be a useful point, given the current rhetoric on both sides.

Firms: Much research attention is also given to Wal-Mart's supposed demolition of existing businesses in a community. The evidence suggests that, indeed, retail competitors suffer when Wal-Mart enters the local market.

In 2005, Panle Jia (5) , looked at the effect of Wal-Mart and Kmart on discount retailers and found that entry by either store made about 50 percent of discount stores "either unprofitable or unable to recover their sunk cost." That sounds like a lot, but represented only two or three firms per county because of the study's narrow focus on discount firms. Basker's 2004 study widened the lens to look at all small retail establishments and found a closure rate of about 2 percent (or about four of 200 firms on average).

Few studies look at the effect on establishments outside the retail sector. Though stories of business closures are rife, anecdotal evidence is also gathering of new firms capitalizing on Wal-Mart's ability to bring traffic to town. Two studies completed in 2006 suggested that Wal-Mart might have a positive influence on firm creation within a county. Drewianka and Johnson found a small but consistently positive effect on the number of establishments. "Few of the estimates are either large or statistically significant, but it is striking that the pattern is so pervasive." (The fedgazette analysis found a similarly small, but persistently positive, effect on the number of firms.)

Russell S. Sobel and Andrea M. Dean (6) examined the rate of self-employment, the number of small employer establishments and the profitability of small businesses using both time series and cross-sectional data. Their work found "no statistically significant long-run impact on the overall size and profitability of the small business sector in the United States."

Sobel and Dean acknowledged, and then rebutted, the common notion that long-established, locally owned businesses get replaced by "lesser" small businesses. But they pointed out that both revenue and net income for small businesses have continued to rise. They wrote, "While the entry of a specific Wal-Mart store might cause some individual small, 'mom and pop' businesses to fail, our results suggest that these failures are completely offset by the entry of other new small businesses somewhere else in the economy."

But even for surviving firms, Wal-Mart's presence is believed to cut into revenues. A 2002 study (7) by Kenneth E. Stone, Georgeanne Artz and Albert Myles looked at sales trends in Mississippi counties with and without a Wal-Mart supercenter. It found that total sales in host counties increased by small but notable amounts, while nonhost counties experienced a decline of similar degree. Some individual sales categories, like general merchandise, saw much larger shifts.

Wages: To borrow one of Wal-Mart's own advertising phrases, the company is widely perceived to always have the lowest wages and is regularly accused of pulling down overall wages. There's not much evidence of either, in part because the matter has not been studied very thoroughly, according to some.

A 2007 working paper (8) from the Institute for Research on Labor and Employment, housed at the University of California, Berkeley, pointed out that to date "there is little academic work on how the company's expansion may have transformed the retail wage structure."

Its authors, Arindrajit Dube, T. William Lester and Barry Eidlin, looked into the matter and concluded that one new Wal-Mart reduced retail earnings per worker by 0.5 percent at the county level, and 10 new Wal-Marts reduced earnings between 0.5 percent and 2 percent at the state level, most of it in retail subsectors and grocery. However, the wage effect was evident only in metro counties. Nonmetro counties showed no evidence of wage reduction, which the authors argued was likely the result of lower average wages in general in rural areas. (The fedgazette study looked exclusively at nonmetro counties and found small but positive effects on retail earnings per job.)

Neumark et al. found that Wal-Mart's presence leads to a decline in a county's retail earnings of 1.3 percent, but they pointed out that there is no evidence of reduced retail earnings per worker. Drewianka and Johnson found that supercenters were associated with a 1 percent decrease in wages.

But that's not the final word. Hicks (2005) found no effect on existing employee wages in the retail sector. However, new hires in the retail sector saw a roughly 50-cents-an-hour increase in total compensation in the quarter Wal-Mart entered, coupled with a finding showing that retail employee turnover also declined with Wal-Mart's entry. A 1999 study (9) by Hicks and Kristy Wilburn also uncovered an increase in retail wages in 14 West Virginia counties studied.

A major gap in the research regarding wages has to do with workers' previous wages and work intensity (full- or part-time) compared with Wal-Mart jobs. Critics regularly rail at the company for paying low wages. But it's hard to fathom how the company could attract the necessary labor—250 to 400 workers for supercenters—if compensation paid by the retailer was not on par with job opportunities elsewhere, including applicants' existing jobs, where relevant. This is particularly so given little evidence of wide-scale loss of either competing jobs or firms when Wal-Mart enters the local market.

However, as Basker pointed out in a 2007 study (10) , there is some anecdotal evidence that Wal-Mart can push wages down where the retail sector is unionized or otherwise highly compensated—mostly in larger urban markets—because firms sometimes have to seek concessions from higher-paid employees to compete with Wal-Mart's lower cost structure. But the retail sector is also one of the least unionized and lowest-paying sectors of the economy, which means these wage confrontations may be more exception than rule.

Poverty: Despite the repeated attention paid to Wal-Mart and wages, very little focus has been placed on the related issue of poverty. Virtually the only study in the research literature is a 2004 paper (13) by Stephan J. Goetz and Hema Swaminathan. The authors looked at counties with Wal-Mart stores and concluded that counties with more initial stores (in 1987) and those with more store additions (through 1998) experienced greater increases (or smaller decreases) in family poverty rates over this period. (Findings from the fedgazette analysis were similar regarding poverty trends in the Ninth District.)

Consumer welfare: The one area of research with unequivocal findings is Wal-Mart's effect on consumer prices. In general, Wal-Mart prices—not on all individual items, but on baskets of common items—are substantially lower than competitors' prices. The firm also tends to induce smaller, but notable, price declines at competing stores. That translates into enhanced welfare for shoppers. (One note: The definition of "competitor" is not uniform across studies, which leads to different comparison groups; most often, price studies focus on grocery or discount stores.)

A 2003 investigation by Retail Forward, a private international retail consultant, found that prices at Wal-Mart were on average about 15 percent lower than the competition, in part because of its buyer power and lower wage scale. Two additional studies (11) by Basker (as author or co-author) since 2005 used different methodologies and found consistently lower prices at Wal-Mart (upward of 10 percent), as well as slightly lower prices at competitors.

A 2005 NBER working paper (12) by Jerry Hausman and Ephraim Leibtag found that prices at Wal-Mart were 15 percent to 25 percent lower than at traditional supermarkets. That turns into real savings. Average households saw their annual welfare increase about $780 (within the range of annual savings estimated by Wal-Mart itself, of between $500 and $1,200). The poorest households saw their welfare increase by a lower amount ($530) according to the authors, mostly because they spent less on food overall. But the savings had an outsized positive effect on poor households because their budgets were much smaller to begin with. "We find the benefits to be substantial. ... Low income households benefit the most."

Check out: The final results

So, where does all of this leave the argument about Wal-Mart's effect on local communities? Mostly right back where we started, with both sides anchored, in part because of comparatively thin evidence supporting and refuting various positions.

Dube et al. point out that few studies directly measured the effect of Wal-Mart (or big-box stores generally) on employment, wages and working conditions in the retail sector. Studies on these matters to date "produce ambiguous results and have many limitations."

And Basker added in her 2007 report, "Wal-Mart is the largest company in the world, yet little is known about its economic impact."

Maybe this tug-of-war that's going (mostly) nowhere is itself representative of Wal-Mart's full effect: The firm's positive and negative effects are mostly a wash and, at the end of the day, Wal-Mart is just a successful business, neither benevolent enough to put on a pedestal nor evil enough to shame to the economic margins.

Drewianka and Johnson's study concluded that Wal-Mart is "a fairly benign force," and they admitted to some perplexity over the debate itself. Their findings were generally favorable to Wal-Mart, but they uncovered unfavorable results as well. But they stressed that "the great majority" of estimated effects were tiny—a fraction of 1 percent in most cases. To which they concluded: "[E]stimates of this magnitude do not seem to justify the rancor of the debate. Perhaps it can be justified on other grounds, but if so it would seem wise to redirect the discussion in that direction."

Condensed Bibliography

1 . Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion Emek Basker, University of Missouri, January 2004

2 . What Do Quarterly Workforce Dynamics Tell Us About Wal-Mart? Evidence from New Stores in Pennsylvania Michael J. Hicks, 2005 Air Force Institute of Technology and Marshall University

3 . THE EFFECTS OF WAL-MART ON LOCAL LABOR MARKETS David Neumark, Junfu Zhang, Stephen Ciccarella, 2005

4 . Wal-Mart and Local Labor Markets, 1990—2004 Scott Drewianka and Dain Johnson, 2006

5. What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry Panle Jia, 2005

6 . Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self Employment and Small Establishments in the United States Russell S. Sobel, Andrea M. Dean

7 . The Economic Impact Of Wal-Mart Supercenters On Existing Businesses In Mississippi Kenneth E. Stone, Georgeanne Artz, Albert Myles, 2002

8. Firm Entry and Wages: Impact of Wal-Mart Growth on Earnings Throughout the Retail Sector Arindrajit Dube, T. William Lester, Barry Eidlin, 2007

9 . The Locational Impact of Wal-Mart Entrance: A Panel Study of the Retail Trade Sector in West Virginia Michael J. Hicks, Kristy Wilburn, 1999

10. The Causes and Consequences of Wal-Mart's Growth Emek Basker, 2007

11 . Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices Emek Basker, 2005      The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry Into The Supermarket Industry Michael Noel, Emek Basker, 2007

12 . Consumer Benefits From Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart Jerry Hausman, Ephraim Leibtag, 2005

13 . Wal-Mart and County-Wide Poverty Stephan J. Goetz and Hema Swaminathan, 2004

See also related fedgazette article: Thomas J. Holmes on Wal-Mart's location strategy , March 2006. Holmes describes Wal-Mart's location strategy and possible implications for the Ninth District.

• Regional Economy

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.

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The Best Toilet Paper

By Nancy Redd

Nancy Redd is a writer who covers health and grooming. She has tested dozens of hair dryers, toothbrushes, and pairs of period underwear.

The average American uses an astounding 141 rolls of toilet paper a year . If you’re going through that much tissue, we think it’s worth settling on a brand you actively like (you could also consider cutting back, with the help of a bidet ). Over the course of 10 months, we tushy-tested 36 varieties of toilet paper. And we concluded that Unilever’s Seventh Generation 100% Recycled Extra Soft & Strong Bath Tissue and Procter & Gamble’s Charmin Ultra Strong are the most likely to please the most people. Amazon’s Presto! Ultra-Soft Toilet Paper , our budget pick, is great for folks looking for soft-enough toilet paper that costs less.

Everything we recommend

Seventh Generation 100% Recycled Extra Soft & Strong Bath Tissue

The best sustainable toilet paper.

Seventh Generation 100% Recycled toilet paper is a soft, strong, low-lint offering. And it’s economically as well as environmentally friendly.

Buying Options

Charmin Ultra Strong

The best traditionally produced toilet paper.

One of the plushest of the toilet papers we tested, the strong, soft, low-lint Charmin Ultra Strong left all other traditional toilet papers … behind.

Budget pick

Amazon Presto Ultra-Soft Toilet Paper

A reliable budget toilet paper.

Amazon Presto! Ultra-Soft Toilet Paper is a tad lintier and almost imperceptibly rougher than our top picks. But our testers liked it best of all the lower-cost toilet papers we tested.

How we picked

We looked for toilet paper that felt cushy on our tushies.

Many toilet papers leave crumbles and dust on bottoms and bathroom floors—yuck.

Toilet paper that maintains its composition during wiping is critical: No one likes rips.

If a toilet paper brand is hard to find, it doesn’t matter if it’s great.

Seventh Generation 100% Recycled Extra Soft & Strong Bath Tissue is made with 100% recycled materials, but you’d never know it by the look and feel of this soft, sturdy, and lint-free toilet paper. Its price is on a par with that of traditional papers, and it was unanimously liked by testers.

Charmin Ultra Strong is a strong, low-lint, readily available toilet paper that’s slightly plusher than the Seventh Generation paper. But the Charmin paper is usually more expensive than our Seventh Generation pick, and it’s not made from sustainable or recycled materials. Of the traditional toilet papers we tested, this one was judged to be the most durable and comfortable to use.

Amazon Presto! Ultra-Soft Toilet Paper is soft and serviceable, especially for the price. Unlike our Seventh Generation pick, this one is not made from recycled materials, nor is it super-plush or extra-strong like our pick from Charmin. But Amazon’s paper gets the job done well: It’s not scratchy, doesn’t rip too easily, and doesn’t leave much lint behind.

The research

Why you should trust us, how we picked and tested, what is sustainable toilet paper, what about bamboo toilet paper, our pick: seventh generation 100% recycled extra soft & strong bath tissue, flaws but not dealbreakers, our pick: charmin ultra strong, budget pick: amazon’s presto ultra-soft toilet paper, what to look forward to, other good toilet papers, what about bidets, what about “flushable” wipes, the competition.

Wirecutter has been testing toilet paper for nearly a decade. Combined, the previous author of this guide (Kevin Purdy) and I (Nancy Redd) have spent more than 50 hours reading about and researching the paper-manufacturing industry, paper recycling, toilet paper sustainability, and how paper products are produced—and dissolved.

In 2021 and early 2022, I personally compared 36 toilet papers at home, also taking into account feedback from my husband and two kids. After I narrowed the field considerably, I recruited nine additional Wirecutter staffers and their family members. Some of them compared top sustainable brands side by side; others compared only the top-two sustainable options with favorite traditional toilet papers. All testers ranked toilet papers in terms of softness, strength, and lint levels.

I also interviewed two industry experts: Shelley Vinyard , from the Natural Resources Defense Council, a not-for-profit environmental group, and Chris McLaren , chief marketing officer at the US Forest Stewardship Council.

As Wirecutter’s senior staff writer for health, I’m not new to bathroom-related comparison testing, having written guides to tampons , toilet stools , period underwear , and portable pee funnels .

We’ve been recommending toilet papers for nearly a decade. But after the great toilet paper shortage of 2020 —and with more consumer interest and tremendous strides in the number and quality of sustainable toilet papers available—we decided to give this guide a complete overhaul. Beginning in summer 2021, we called in 36 types of toilet paper from all of the major manufacturers. These included our three existing picks (from Charmin and Cottonelle), several smaller brands, and store-brand (generic) options.

Eleven of the 36 toilet papers we tried were made from what the toilet paper industry calls “ sustainable materials ,” like recycled paper. The rest were traditional toilet papers, made from trees cut down specifically to be ground into pulp for making toilet paper. We did test some three-ply toilet papers and one-ply toilet papers. But most of the papers we tested—and all of our eventual picks—were two-ply (two thin layers of paper lightly pressed or glued together).

Our initial testing examined various factors for each entrant:

Comfort: We judged softness subjectively during wiping. Our blind tushy testing had initial testers (my family members and me) rating all 36 toilet papers on a scale of 1 (those that felt like sandpaper or looked transparent like facial tissue) to 10 (opaque toilet papers that felt obscenely plush).

Lint factor: I wiped the sheets on velvet to test how much lint or dust was left behind, dismissing toilet papers that shed large amounts of residue.

Sturdiness: I poked and pulled sheets in multiple directions and with varying levels of pressure to test strength and “rippiness,” noting the ones that held up.

Once the testing pool was whittled down considerably, I sent rolls to nine additional staffers, who judged each toilet paper without knowledge of which had performed best in the first round of testing. Several testers were sent the papers sans packaging, so they were unaware of the brand or whether a roll was made from recycled paper, bamboo, or traditional trees. The staffers (and, in some cases, their families) ranked the contenders in terms of softness, lintiness, and strength. After those results came in, I also considered secondary factors, including:

• Certification: Toilet papers that bear a certification label from the Forest Stewardship Council (FSC) have been evaluated by the organization and found to be manufactured with responsibly sourced fibers. Though there are other certifications available, such as from the Swiss Programme for the Endorsement of Forest Certification (PEFC, which certifies our budget pick), FSC is considered by environmental leaders (such as the World Wildlife Fund ) to have the most rigorous universal standards. Although we didn’t consider FSC certification to be a requirement, we did weigh papers with FSC certification more favorably.
• Additives: Most toilet papers have “proprietary” formulas of chemicals and conditioners that companies typically won’t disclose. We asked the manufacturers of our top picks whether their toilet paper contained any animal ingredients or byproducts (because some do), and we also asked about what they use to purify and whiten their toilet papers. In 1998, the US Environmental Protection Agency (EPA) began requiring most paper mills to limit elemental chlorine from being used in toilet paper production, due to carcinogenic concerns. Today almost all toilet papers are still purified and whitened using chlorine-based disinfectants and other undisclosed chemicals. Our Seventh Generation pick’s manufacturing process is completely free of chlorine. But its toilet paper is made from recycled papers that may have once been bleached, so it can’t be considered totally chlorine-free (which is most ideal ). The use of additives did not make or break our toilet paper picks, but they did inform our evaluation.
• Availability: I searched stores (online and in person) regularly to check fluctuations in price and availability, noting whether brands were frequently out of stock.

Until our March 2022 update, we recommended only toilet papers made from virgin wood pulp—also referred to as “traditional” toilet paper—because none of the environmentally friendlier toilet papers we’d tested came close in softness and strength. Since our original testing for this guide began, nearly a decade ago, there have been tremendous strides in the area of “sustainable” toilet paper. Sustainable toilet paper is made from either recycled fibers or from more environmentally friendly primary sources, such as responsibly sourced bamboo. We found several of the sustainable toilet papers we tested in 2021 and 2022 to be comparable in comfort and strength to traditional toilet papers, as well as comparatively much less dusty.

With growing concerns about climate change and deforestation , there is an increasing push to eliminate the “tree to toilet pipeline,” which is the cutting down of forests full of trees just to make toilet paper, said Shelley Vinyard, co-author of the Natural Resources Defense Council’s The Issue With Tissue (PDF) report. Since 2019, the NRDC —a not-for-profit environmental group—has evaluated dozens of toilet papers and ranked them, taking into consideration factors such as whether potentially carcinogenic chlorine is used to purify or whiten the fibers and the type of certifications held by the fiber suppliers to demonstrate their commitment to responsible sourcing. The latest report ranked toilet paper made from recycled fibers higher than toilet paper made from other sustainable materials, such as bamboo. “What we want most is circular solutions to avoid sending waste to the landfill, so, with toilet paper, that means post-consumer recycled content is the gold standard,” Vinyard said.

Chris McLaren, chief marketing officer at the US Forest Stewardship Council, agreed with Vinyard’s assessment, with the caveat that it’s not always possible to incorporate circular solutions because there isn’t as much used paper to recycle as there once was. “The digitalization of society (such as online media instead of newspapers and magazines) has caused there to be fewer recycled papers to utilize in the making of sustainable paper products,” he explained. McLaren said this issue of sustainability goes far beyond toilet paper, and that without enough recycled paper to use, some toilet paper will always need to come from new materials “to keep up with demand.” FSC certification is one way to ensure that, as McLaren put it, “forests are well-managed to stay healthy."

The toilet paper you decide to use is obviously a personal choice. Seventh Generation’s 100% Recycled Extra Soft & Strong is FSC-certified to be made from 100% recycled materials. Charmin Ultra Strong has a lesser type of FSC certification that guarantees at least 70% of materials are from FSC-approved forests; the other 30% of materials are considered acceptable but are not FSC-certified. Amazon Presto! Ultra-Soft is not FSC-certified, but it is PEFC -certified (an industry certification considered to have less-rigorous standards than those of FSC). As of February 2022, the PEFC certification does not appear anywhere on Presto! Ultra-Soft’s new packaging, though an Amazon spokesperson confirmed it was PEFC-certified.

Bamboo has become an increasingly popular alternative source material for toilet paper, and we tested several bamboo brands for this guide, including Betterway , Who Gives A Crap , and No. 2. Toilet paper made from bamboo is often promoted as an eco-friendly solution since bamboo grows so quickly and can be easily replenished, unlike a boreal forest . But bamboo toilet paper isn’t necessarily better for the environment, and it’s generally more expensive and not as soft as other papers.

When bamboo toilet paper is FSC-certified to be sourced responsibly—that is, ecosystems aren’t being wiped out and forests aren’t being clear-cut to plant homogenous swaths of bamboo—it is a great alternative option, McLaren and Vinyard both said. But few bamboo toilet paper companies have pursued certification. Two exceptions are Betterway and Cloud Paper , which are both FSC-certified to source 100% of their bamboo from suppliers committed to responsibly managing their crops and surrounding environments.

Seventh Generation 100% Recycled Extra Soft & Strong Bath Tissue is the cubic zirconia of toilet paper: With close scrutiny, an astute toilet-paper user might notice something’s different. But we think the average person would be hard-pressed to guess that this one is formulated with 100% recycled paper, instead of traditional virgin tree pulp. This soft, supple, nearly lint-free toilet paper is manufactured without bleach or any animal byproducts. And it was a true diamond in the rough among our testing pool of 11 environmentally friendly toilet papers.

Although we found many of the sustainable bath tissues we tested to be scratchy, Seventh Generation’s toilet paper is not. It also held its own against traditional toilet papers in softness and strength—testers found it to be durable and dependable, with no reports of accidental ripping during use. During the velvet rub tests to check for crumbling, pilling, and lint, the paper remained intact and left behind almost no residue.

Like traditional toilet paper (but unlike many of its sustainable competitors), Seventh Generation’s Extra Soft & Strong toilet paper is white in color. Yet this is due only to the color of the recycled papers used to make it; there is no chlorine used in the manufacturing process. This toilet paper is two-ply, and both sides are soft, but only one side features an embossed pattern (which is meant to help with wiping, though its usefulness is debatable). Seventh Generation says this paper is safe for septic systems and low-flush-volume toilets, and that no animal ingredients or byproducts are used in the manufacturing process.

Seventh Generation toilet paper is readily available in stores and online. Its largest offering, a 24-pack (240 sheets per roll), is normally about $22, or 0.38¢ ($0.0038) per sheet. Since it’s often on sale for less, Seventh Generation toilet paper is one of the most economical of the sustainable papers, and it’s similar (or even cheaper) in price to many traditional toilet papers.

Princess and the Pee types may notice that Seventh Generation is slightly less soft and a tad less strong than Charmin, our traditional toilet paper pick. However, one of our testers of sustainable toilet paper didn’t even realize that it was a recycled option, mistaking the Seventh Generation paper as a “control” traditional roll.

Price: about 0.38¢ ($0.0038) per sheet (depending on pack size and store sales)

Options: four, 12, or 24 rolls (240 sheets per roll)

Manufactured in: USA and Canada

FSC certification: Yes, certified to be 100% recycled.

Chlorine used in processing: No. Only hydrogen peroxide is used for the purification process. However, the recycled office paper and newspaper used may have been initially processed with chlorine, so the toilet paper cannot be called totally chlorine-free.

Ingredients: recycled paper fibers, hydrogen peroxide, “proprietary ingredients to control microbial growth and to aid in the wet strength of the product,” according to a Seventh Generation spokesperson (the company says this paper contains no animal ingredients or byproducts)

Of the 36 toilet papers we tested, the supple Charmin Ultra Strong stood out as the one with the best combination of strength and softness, with the added bonus of being low-lint and crumble-free. As bathroom tissue goes, our testers found this one to be foolproof—it tackled the toughest of toilet trips with nary a breakthrough finger rip, but it also felt pampering on our most delicate body parts. Our velvet rub tests found that Charmin Ultra Strong left behind very little lint, with no pilling or crumbling.

Charmin Ultra Strong is two-ply, and though only one side features an embossed pattern (like the Seventh Generation toilet paper), our testers confirmed that both sides felt super-soft. A Charmin spokesperson told us that it’s safe for septic systems and low-flush-volume toilets.

This toilet paper is available almost everywhere bathroom tissue is sold, in-store and online, and it has rarely been out of stock.

This traditional toilet paper is formulated from virgin tree pulp, but it is FSC-certified to have the majority of its materials sourced responsibly. It is manufactured using a purification/whitening process that is elemental chlorine-free but not totally chlorine-free.

When not on sale, Charmin Ultra Strong is slightly more expensive per sheet than Seventh Generation’s paper. The largest pack you can buy is a Mega roll 30-pack (264 sheets per roll) for about $31.50, or 0.39¢ ($0.0039) per sheet. That’s more than our other picks cost, but this paper is often on sale, and manufacturer coupons abound.

Charmin could not confirm whether animal ingredients or byproducts are used in the manufacturing process.

Price: about 0.39¢ ($0.0039) per sheet (depending on pack size and store sales)

Options: six, 12, 18, 24, or 30 Mega rolls (264 sheets per roll); eight, 12, or 18 Super Mega rolls (396 sheets per roll)

Manufactured in: USA

FSC certification: Yes, certified to be FSC-Mix, meaning at least 70% of the tree fibers used are responsibly sourced.

Chlorine used in processing: Yes. The purification/whitening process is elemental chlorine-free, but not totally chlorine-free.

Ingredients: wood pulp, water-based adhesive, and proprietary conditioners (a spokesperson for Charmin said it may contain animal ingredients or byproducts)

Although it isn’t quite as soft as our top picks from Seventh Generation and Charmin , Amazon’s Presto! Ultra-Soft Toilet Paper is a reliable traditional toilet paper that’s comfortable to use. However, it comes only in a large box of 24 rolls (four packages of six), so this may not work well for people with very limited storage space. At around 0.31¢ ($0.0031) per sheet, Presto! paper costs at least 25% less than our top picks—and using Amazon’s Subscribe & Save service could bring the price down by an additional 5% to 15%.

In our velvet rub test, we found Amazon Presto! left behind more lint than our other picks—but not too much. It also did not pill or rip easily while wiping. Most testers noticed only that it was less soft than our other picks, when they were asked to compare them side by side. The Amazon paper is two-ply, and both sides are soft (though, as with our other picks, only one side features the embossed pattern). Amazon says this tissue is safe for septic systems and low-flow toilets.

Amazon! Presto is rarely out of stock, but you can purchase it only online (on Amazon, of course). And it can be purchased only in a set of 24 Mega rolls (308 sheets per roll). This is a traditional toilet paper that is formulated from virgin tree pulp, and it is not FSC-certified. The pulp used to make the toilet paper is purified/whitened through a process that utilizes chlorine dioxide, making it elemental chlorine-free but not totally chlorine-free. Amazon confirmed that no animal ingredients or byproducts are used in the manufacturing process.

Price: about 0.31¢ ($0.0031) per sheet (less if you use Amazon’s Subscribe & Save service)

Options: Amazon’s Presto! Ultra-Soft comes in only one size: 24 Mega rolls (308 sheets per roll)

FSC certification: No, though it is certified by the Programme for the Endorsement of Forest Certification (PEFC).

Chlorine used in processing: Yes. The purification/whitening process uses chlorine dioxide and thus is elemental chlorine-free, but it is not totally chlorine-free.

Ingredients: wood pulp and proprietary process chemicals “to help deliver properties like wet strength to the product,” according to an Amazon spokesperson (a spokesperson for Amazon said it contained no animal ingredients or byproducts)

We’re currently testing the premium version of celebrity-backed Cloud Paper, a well-liked, if slightly expensive, 100% FSC-certified bamboo toilet paper bleached using a TCF (totally chlorine free) method.

If you’re looking for a budget toilet paper and prefer to shop in-store: Walmart’s Great Value Ultra Strong and Target’s Up & Up Premium Ultra Soft are both extremely similar to our budget pick, Amazon’s Presto! Ultra-Soft . In fact, until late 2021, all three products had the same manufacturer license from the Sustainable Forestry Initiative on their packaging, as did other toilet paper made by white-label company First Quality Enterprises Inc. Although Presto! Ultra-Soft changed its packaging to omit this license number, the new packaging links to www.prestopaperpatents.com , which discusses First Quality Tissue at length. If you find either of these on sale, they’re both a good inexpensive option. But we found that Amazon’s Presto! Ultra-Soft was generally less expensive.

If you want a super-soft toilet paper and don’t mind a little butt dandruff: Cottonelle Ultra ComfortCare (our previous top pick) and the brand’s Ultra GentleCare (an aloe-infused cult favorite) are the softest toilet papers we’ve tested. However, they are also the dustiest and lintiest of all the papers we’ve tested, shedding tiny little lint bits and other residue everywhere the toilet paper touches, from bathroom cabinets to human bottoms. These are still super-comfy, super-cushy, and super-sturdy choices if you’re okay with tp residue.

If you’d prefer a toilet paper made of bamboo: Testers liked Betterway , which is soft (for bamboo toilet paper) and FSC-certified to have 100% of its fibers sourced responsibly (the best of the certifications available to bamboo papers). It comes at a higher cost than our picks, however, and it feels a lot rougher.

As an alternative to toilet paper, or as a means to reduce the amount of toilet paper you use, consider the bidet . A bidet is, essentially, a powerful water fountain in your toilet that’s meant to spray your bottom clean, hands-free, with only a square or two of toilet paper needed to dry off. (Some bidets even incorporate a bum-drying fan, potentially cutting out the need for toilet paper altogether.) Bidets have been a bathroom-hygiene staple in many parts of the world, such as Japan and Italy, for decades, and they’re gaining popularity in the US. Wirecutter testers have found bidets to be life-changing devices that can be more economical in the long run and cut your toilet paper needs by at least half. “We’re not saying people should throw out their toilet paper,” Shelley Vinyard said. “But bidets take much less water to use than the water required to make a roll of toilet paper, and they save money.”

Don’t buy wipes, unless you’re willing to put used wipes in your bathroom trash can or maintain a separate can for them. By flushing them down your toilet, you’re passing on a huge problem to your sewer system, as evidenced by sewer crises in New York City and London , and recurring problems in Miami , Ottawa , and Lake Charles, Louisiana , among other cities. For those who think they need to use wipes, we suggest they consider a bidet instead.

Sustainable toilet paper

Bamboo No. 2 Toilet Paper rolls come individually wrapped in colorful, Instagram-worthy tissue, and the packaging doesn’t use any plastic. But this toilet paper is not FSC-certified, and it’s also not as soft as our sustainable pick .

​​ Who Gives A Crap Premium Bamboo Toilet Paper also comes individually wrapped in pretty, plastic-free packaging. But it’s not as soft as our sustainable pick, nor is it FSC-certified.

Caboo Bamboo Bath Tissue was polarizing. Some testers thought it was perfectly serviceable, but others found it to be rough and not strong enough.

Tushy’s bamboo toilet paper also comes individually wrapped in pretty, plastic-free packaging, but it is very thin and scratchy.

Reel Tree-Free bamboo toilet paper feels rough compared to other bamboo toilet papers we tried.

PlantPaper bamboo toilet paper is FSC-certified, but it’s also rough and thin, and it ripped too easily.

Who Gives A Crap 100% Recycled Toilet Paper is extremely popular among sustainability-minded butt wipers, and it comes individually wrapped in attractive, plastic-free packaging. But it felt rough to us.

Neither Whole Foods’ 365 Sustainably Soft recycled toilet paper nor its 100% recycled toilet paper felt as strong or as comfortable to use as our picks.

A spokesperson from Seventh Generation told us its Natural Unbleached Bathroom Tissue (also made from recycled paper) had been discontinued.

Traditional toilet paper

Aria Premium Earth Friendly Bath Tissue scored very high in comfort among test tushies, but it’s expensive and dusty.

Neither Amazon’s Presto! Ultra-Strong nor its thicker three-ply option were worth the additional expense over our budget pick , the same brand’s Ultra-Soft.

Costco’s Kirkland Signature was the widest toilet paper in our test pool (the rolls often don’t fit on regular holders). But that was the most impressive feature of this otherwise-mediocre paper. It was neither the softest nor the strongest in our testing pool, and it was rather dusty. This was surprising given the longstanding reputation of this toilet paper; diehard Costco toilet paper users on Reddit theorize that pandemic-related supply-chain issues have caused the company’s bath tissues to devolve.

Charmin Essentials Strong and Charmin Essentials Soft felt scratchy and seemed to require a lot more paper to finish the task than our picks.

When directly compared with our top picks, Charmin Ultra Soft , Quilted Northern Ultra Soft & Strong , and Quilted Northern Ultra Plush were not ultra-soft, ultra-plush, or ultra-anything to our testers.

Charmin Ultra Gentle and Scott ComfortPlus were linty and ripped too easily.

Scott 1000 was translucent and easily ripped.

Great Value’s Soft & Strong , Walmart’s Cascades , Cottonelle Ultra CleanCare , Virtue , and  Angel Soft were not as soft or sturdy as our picks.

Amazon Solimo , Kirkland Signature Ultra Soft , Scott Extra Soft , Scott Naturals Tube-Free, and White Cloud Ultra Strong & Soft were tested (and dismissed) in an earlier round of testing. They have since been discontinued.

—additional reporting by Kevin Purdy

This guide was edited by Ellen Lee and Kalee Thompson.

Emily Flitter, My Tireless Quest for a Tubeless Wipe , The New York Times , February 28, 2020

Olivia Young, Eco-Friendly Toilet Paper: Bamboo vs. Recycled , Treehugger.com , December 6, 2021

Shelley Vinyard, co-author of The Issue With Tissue report (PDF) , phone interview , December 1, 2021

Chris McLaren, chief marketing officer at the US Forest Stewardship Council , phone interview , February 9, 2022

Meet your guide

Nancy Redd is a senior staff writer covering health and grooming at Wirecutter. She is a GLAAD Award–nominated on-air host and a New York Times best-selling author. Her latest nonfiction book, The Real Body Manual , is a visual health and wellness guide for young adults of all genders. Her other books include Bedtime Bonnet and Pregnancy, OMG!

Further reading

There’s a Toilet Paper Calculator That Cuts Through ‘Mega’ and ‘Jumbo’ Marketing Claims

by Elissa Sanci

Frustrated by confusing toilet paper marketing language, these amateur deal finders created a calculator to help sort the deals from the duds.

The Best Toilet Seat Risers

by Anna Wenner

If you or a loved one find it hard to stand up after using the toilet, it may be time to add one of these toilet seat risers to the bathroom.

Out of Toilet Paper? You Have Other Options. Just Don’t Flush Them!

by Doug Mahoney

Here’s how to handle TP scarcity without ruining your local water treatment systems.

Are Bidets Better for You Than Toilet Paper?

by Shannon Palus

Bidets are often marketed for their so-called medical benefits. They’ll clean your butt, sure. Can they—and should they—really do any more than that?

The state of AI in early 2024: Gen AI adoption spikes and starts to generate value

If 2023 was the year the world discovered generative AI (gen AI) , 2024 is the year organizations truly began using—and deriving business value from—this new technology. In the latest McKinsey Global Survey  on AI, 65 percent of respondents report that their organizations are regularly using gen AI, nearly double the percentage from our previous survey just ten months ago. Respondents’ expectations for gen AI’s impact remain as high as they were last year , with three-quarters predicting that gen AI will lead to significant or disruptive change in their industries in the years ahead.

About the authors

This article is a collaborative effort by Alex Singla , Alexander Sukharevsky , Lareina Yee , and Michael Chui , with Bryce Hall , representing views from QuantumBlack, AI by McKinsey, and McKinsey Digital.

Organizations are already seeing material benefits from gen AI use, reporting both cost decreases and revenue jumps in the business units deploying the technology. The survey also provides insights into the kinds of risks presented by gen AI—most notably, inaccuracy—as well as the emerging practices of top performers to mitigate those challenges and capture value.

AI adoption surges

Interest in generative AI has also brightened the spotlight on a broader set of AI capabilities. For the past six years, AI adoption by respondents’ organizations has hovered at about 50 percent. This year, the survey finds that adoption has jumped to 72 percent (Exhibit 1). And the interest is truly global in scope. Our 2023 survey found that AI adoption did not reach 66 percent in any region; however, this year more than two-thirds of respondents in nearly every region say their organizations are using AI. 1 Organizations based in Central and South America are the exception, with 58 percent of respondents working for organizations based in Central and South America reporting AI adoption. Looking by industry, the biggest increase in adoption can be found in professional services. 2 Includes respondents working for organizations focused on human resources, legal services, management consulting, market research, R&D, tax preparation, and training.

Also, responses suggest that companies are now using AI in more parts of the business. Half of respondents say their organizations have adopted AI in two or more business functions, up from less than a third of respondents in 2023 (Exhibit 2).

Gen AI adoption is most common in the functions where it can create the most value

Most respondents now report that their organizations—and they as individuals—are using gen AI. Sixty-five percent of respondents say their organizations are regularly using gen AI in at least one business function, up from one-third last year. The average organization using gen AI is doing so in two functions, most often in marketing and sales and in product and service development—two functions in which previous research  determined that gen AI adoption could generate the most value 3 “ The economic potential of generative AI: The next productivity frontier ,” McKinsey, June 14, 2023. —as well as in IT (Exhibit 3). The biggest increase from 2023 is found in marketing and sales, where reported adoption has more than doubled. Yet across functions, only two use cases, both within marketing and sales, are reported by 15 percent or more of respondents.

Gen AI also is weaving its way into respondents’ personal lives. Compared with 2023, respondents are much more likely to be using gen AI at work and even more likely to be using gen AI both at work and in their personal lives (Exhibit 4). The survey finds upticks in gen AI use across all regions, with the largest increases in Asia–Pacific and Greater China. Respondents at the highest seniority levels, meanwhile, show larger jumps in the use of gen Al tools for work and outside of work compared with their midlevel-management peers. Looking at specific industries, respondents working in energy and materials and in professional services report the largest increase in gen AI use.

Investments in gen AI and analytical AI are beginning to create value

The latest survey also shows how different industries are budgeting for gen AI. Responses suggest that, in many industries, organizations are about equally as likely to be investing more than 5 percent of their digital budgets in gen AI as they are in nongenerative, analytical-AI solutions (Exhibit 5). Yet in most industries, larger shares of respondents report that their organizations spend more than 20 percent on analytical AI than on gen AI. Looking ahead, most respondents—67 percent—expect their organizations to invest more in AI over the next three years.

Where are those investments paying off? For the first time, our latest survey explored the value created by gen AI use by business function. The function in which the largest share of respondents report seeing cost decreases is human resources. Respondents most commonly report meaningful revenue increases (of more than 5 percent) in supply chain and inventory management (Exhibit 6). For analytical AI, respondents most often report seeing cost benefits in service operations—in line with what we found last year —as well as meaningful revenue increases from AI use in marketing and sales.

Inaccuracy: The most recognized and experienced risk of gen AI use

As businesses begin to see the benefits of gen AI, they’re also recognizing the diverse risks associated with the technology. These can range from data management risks such as data privacy, bias, or intellectual property (IP) infringement to model management risks, which tend to focus on inaccurate output or lack of explainability. A third big risk category is security and incorrect use.

Respondents to the latest survey are more likely than they were last year to say their organizations consider inaccuracy and IP infringement to be relevant to their use of gen AI, and about half continue to view cybersecurity as a risk (Exhibit 7).

Conversely, respondents are less likely than they were last year to say their organizations consider workforce and labor displacement to be relevant risks and are not increasing efforts to mitigate them.

In fact, inaccuracy— which can affect use cases across the gen AI value chain , ranging from customer journeys and summarization to coding and creative content—is the only risk that respondents are significantly more likely than last year to say their organizations are actively working to mitigate.

Some organizations have already experienced negative consequences from the use of gen AI, with 44 percent of respondents saying their organizations have experienced at least one consequence (Exhibit 8). Respondents most often report inaccuracy as a risk that has affected their organizations, followed by cybersecurity and explainability.

Our previous research has found that there are several elements of governance that can help in scaling gen AI use responsibly, yet few respondents report having these risk-related practices in place. 4 “ Implementing generative AI with speed and safety ,” McKinsey Quarterly , March 13, 2024. For example, just 18 percent say their organizations have an enterprise-wide council or board with the authority to make decisions involving responsible AI governance, and only one-third say gen AI risk awareness and risk mitigation controls are required skill sets for technical talent.

Bringing gen AI capabilities to bear

The latest survey also sought to understand how, and how quickly, organizations are deploying these new gen AI tools. We have found three archetypes for implementing gen AI solutions : takers use off-the-shelf, publicly available solutions; shapers customize those tools with proprietary data and systems; and makers develop their own foundation models from scratch. 5 “ Technology’s generational moment with generative AI: A CIO and CTO guide ,” McKinsey, July 11, 2023. Across most industries, the survey results suggest that organizations are finding off-the-shelf offerings applicable to their business needs—though many are pursuing opportunities to customize models or even develop their own (Exhibit 9). About half of reported gen AI uses within respondents’ business functions are utilizing off-the-shelf, publicly available models or tools, with little or no customization. Respondents in energy and materials, technology, and media and telecommunications are more likely to report significant customization or tuning of publicly available models or developing their own proprietary models to address specific business needs.

Respondents most often report that their organizations required one to four months from the start of a project to put gen AI into production, though the time it takes varies by business function (Exhibit 10). It also depends upon the approach for acquiring those capabilities. Not surprisingly, reported uses of highly customized or proprietary models are 1.5 times more likely than off-the-shelf, publicly available models to take five months or more to implement.

Gen AI high performers are excelling despite facing challenges

Gen AI is a new technology, and organizations are still early in the journey of pursuing its opportunities and scaling it across functions. So it’s little surprise that only a small subset of respondents (46 out of 876) report that a meaningful share of their organizations’ EBIT can be attributed to their deployment of gen AI. Still, these gen AI leaders are worth examining closely. These, after all, are the early movers, who already attribute more than 10 percent of their organizations’ EBIT to their use of gen AI. Forty-two percent of these high performers say more than 20 percent of their EBIT is attributable to their use of nongenerative, analytical AI, and they span industries and regions—though most are at organizations with less than $1 billion in annual revenue. The AI-related practices at these organizations can offer guidance to those looking to create value from gen AI adoption at their own organizations.

To start, gen AI high performers are using gen AI in more business functions—an average of three functions, while others average two. They, like other organizations, are most likely to use gen AI in marketing and sales and product or service development, but they’re much more likely than others to use gen AI solutions in risk, legal, and compliance; in strategy and corporate finance; and in supply chain and inventory management. They’re more than three times as likely as others to be using gen AI in activities ranging from processing of accounting documents and risk assessment to R&D testing and pricing and promotions. While, overall, about half of reported gen AI applications within business functions are utilizing publicly available models or tools, gen AI high performers are less likely to use those off-the-shelf options than to either implement significantly customized versions of those tools or to develop their own proprietary foundation models.

What else are these high performers doing differently? For one thing, they are paying more attention to gen-AI-related risks. Perhaps because they are further along on their journeys, they are more likely than others to say their organizations have experienced every negative consequence from gen AI we asked about, from cybersecurity and personal privacy to explainability and IP infringement. Given that, they are more likely than others to report that their organizations consider those risks, as well as regulatory compliance, environmental impacts, and political stability, to be relevant to their gen AI use, and they say they take steps to mitigate more risks than others do.

Gen AI high performers are also much more likely to say their organizations follow a set of risk-related best practices (Exhibit 11). For example, they are nearly twice as likely as others to involve the legal function and embed risk reviews early on in the development of gen AI solutions—that is, to “ shift left .” They’re also much more likely than others to employ a wide range of other best practices, from strategy-related practices to those related to scaling.

In addition to experiencing the risks of gen AI adoption, high performers have encountered other challenges that can serve as warnings to others (Exhibit 12). Seventy percent say they have experienced difficulties with data, including defining processes for data governance, developing the ability to quickly integrate data into AI models, and an insufficient amount of training data, highlighting the essential role that data play in capturing value. High performers are also more likely than others to report experiencing challenges with their operating models, such as implementing agile ways of working and effective sprint performance management.

About the research

The online survey was in the field from February 22 to March 5, 2024, and garnered responses from 1,363 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. Of those respondents, 981 said their organizations had adopted AI in at least one business function, and 878 said their organizations were regularly using gen AI in at least one function. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP.

Alex Singla and Alexander Sukharevsky  are global coleaders of QuantumBlack, AI by McKinsey, and senior partners in McKinsey’s Chicago and London offices, respectively; Lareina Yee  is a senior partner in the Bay Area office, where Michael Chui , a McKinsey Global Institute partner, is a partner; and Bryce Hall  is an associate partner in the Washington, DC, office.

They wish to thank Kaitlin Noe, Larry Kanter, Mallika Jhamb, and Shinjini Srivastava for their contributions to this work.

This article was edited by Heather Hanselman, a senior editor in McKinsey’s Atlanta office.

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June 4, 2024

Winning papers announced for 2024 Population Health Library Research Awards

This award was created in 2017 in partnership with the University of Washington Libraries and is open to undergraduates from all three UW campuses. The projects submitted were completed for either UW course credit or for the Undergraduate Research Program.

The key factors for choosing awardees included the innovativeness of their research hypothesis, the quality of their writing and how well they connected their work to the theme of population health. The following section describes the four awardees, their majors, the titles of their projects and summaries of their projects.

Lindsay Lucenko (Law, Societies, and Justice), "Gender Dynamics in King County Drug Diversion Court: Exploring Experiences and Perspectives"

This research explores the experiences of men and women in the King County Drug Diversion Court, a rehabilitative program for drug-related offenses. Participants undergo a five-phase program with the potential for charge dismissal, but concerns about coercion persist. Participants must maintain sobriety, undergo frequent tests, attend support meetings, communicate with case managers, find employment, and fulfill familial duties.

The study investigates how gender influences these obligations’ fulfillment, especially considering the court’s predominantly male population. Through nine semi-structured interviews, I examined participants’ experiences with the criminal justice system, focusing on gender impacts. Findings reveal nuanced gendered experiences, informing justice system reform. By combining qualitative interviews and existing research, this study sheds light on gender dynamics within the court, contributing to policy and practice for a fairer criminal justice system.

Evelyn Erickson (Chemical Engineering), "Tandem dechlorination and hydrogenolysis of waste PVC plastic into value added chemicals "

Plastic waste is a serious problem with detrimental environmental impacts, within this mixed plastics pose a significant challenge in depolymerization. My project focuses on polyvinyl chloride (PVC), a particularly difficult plastic to break down due to the chlorine atom. Chlorine can poison catalysts and release harmful by products like hydrochloric acid or chlorine gas.

I have been working to dechlorinate PVC and then further break down this waste plastic to form value added products. Once dechlorinated PVC becomes a hydrocarbon and can be treated similar to other waste plastics like polyethylene and polypropylene. This tandem dechlorination and depolymerization occur in a single step through a strong amine base and ruthenium catalyst helping to activate the reaction.

Richer Zhao (Pre-science - Biochemistry), "What are the health outcomes of phytochemical supplements versus fruits and vegetables?"

This research stems from concerns about the efficiency of modern diets, which increasingly rely on supplements rather than natural food sources. I analyzed data and reviewed information to compare the effectiveness of phytochemical supplements and whole fruits and vegetables. The study emphasized that while phytochemicals are used in various therapies, their individual effects cannot be compared to the combined benefits of whole foods based on current scientific developments. I have placed the results in a booklet to be printed and disseminated in the future to enable more people to plan their diets wisely and incorporate phytochemicals flexibly into their daily routines.

Nede Ovbiebo (Public Health-Global Health, Biochemistry), "An Evaluation of Agricultural Safety and Health in Pesticide Application Technology"

The use of pesticides in the Pacific Northwest is essential in the process of safeguarding public health, most notably by mitigating pests, protecting our food supply, and aiding in produce distribution. However, long-term exposure to pesticides can result in illness for those handling the substances as well as their families. Newer methods, such as aerial drone spraying involve the use of emerging technologies that are poised to change the landscape of the agricultural industry and health outcomes of farmworkers.

This project will be assessing thoughts regarding adoption of these technologies. Through the creation of an electronic survey, I will be obtaining a variety of responses from individuals involved in the application of pesticides on farms. I will then analyze responses both quantitatively and qualitatively. The main objective of my research project is to capture the attitudes of the pesticide application technologies to inform policy, regulations, and decision-making regarding their uses.

Please visit our funding page to learn more about these awards.

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Population health is a broad concept encompassing not only the elimination of diseases and injuries, but also the intersecting and overlapping factors that influence health.

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