Wal-Mart is working to develop a frictionless business model that includes its physical and digital assets.

BENTONVILLE, ARK. — With the rapid emergence of alternative retail formats and more retailers investing in on-line sales platforms, Wal-Mart Stores, Inc. has chosen to be dominant in both worlds. The company expanded on its “omnichannel” strategy June 8 at the retailer’s annual management update for the investment community, and executives expressed a contrarian viewpoint to the loyalty programs many other retail and food service operators employ.

“We have to invent and be inventive as it relates to what customers don’t even yet know they want that will help them save time as well as save money,” said Doug McMillon, president and chief executive officer. “The customer experience still includes human interaction. … There’s going to be a person involved somewhere along the way and even with the digital experience that they have from us, there is a person behind that that is going to be driving it.

“So some of our language this year has evolved toward we are investing in people and technology and what I am thinking of is we’ve got to put those things together, people and technology, in a way that the experience that the customer has is surprisingly enjoyable. Whether that is a store experience and how we might innovate with the checkouts in the future or how in-stock market better, we manage inventory more effectively, or it is in the case of more of a pure e-commerce transaction or a blended transaction.”

Mr. McMillon focused on consumer access and noted the importance of having a presence where and how the consumer may want to interact with the retailer.

“There are going to be times and they want to pick it up,” he said. “There are going to be times when they want to come in a store and shop for it. There will be times they come in a store and shop and pick up something they ordered on-line. All of those lines are getting blurred and we think we are one of the retailers that has a unique opportunity to put those things together in a way where customers have new experiences and they are delighted and surprised in some cases.”

Importance of the stock-up trip

Mr. McMillon emphasized in his comments that he thinks the consumer stock-up trip is going to be relevant.

Doug McMillon, president and c.e.o. of Wal-Mart, said he thinks the consumer stock-up trip is going to be relevant.

“Customers are always going to want to save time and if you look at what has happened in the U.K. where we have had grocery home delivery and grocery pickup now for a little bit of time, relatively speaking, the store is still very important and the opportunity to use the volume from the store to do pickup and delivery and how it all fits together is a bit of a benefit from a math point of view,” he said.

Neil Ashe, president and c.e.o. of Wal-Mart’s e-commerce efforts, said that during the past three years the retailer has doubled the size of its digital business and, during that time, has introduced a new technology platform and fulfillment network. As a result, the costs of development and implementation have overshadowed results.

“Over the course of the next few years, you’ll start to see us leverage those investments as we continue to grow the top line and we continue to lower our costs to serve, so getting your packages wherever and whenever you want as well as leveraging the technology and the impact that that technology can have, both its level of investment, but, more importantly, its ability to drive impact both to the e-commerce organization as well as to the rest of the enterprise.”

Mr. Ashe added that Wal-Mart’s typical e-commerce shopper is female, young and slightly more affluent than the broad U.S. population.

“But as we have continued to add the assortment first, the better shopping experience second and now new ideas like Shipping Pass and grocery home shopping, we are starting to see us appeal to more and more a different customer than maybe we appealed to a year or two or three ago,” he said.

Data, analytics, loyalty and games

Many businesses have invested in loyalty and rewards programs as a way to capture and maintain customers, but Mr. McMillon said such endeavors will not be a part of Wal-Mart’s strategy.

“As it relates to loyalty programs, a thing that I believe deeply is that you never want to create a situation where customers think they are playing a game,” he said. “If they believe they have to shop on Wednesday or do this or that, stand on one leg and snap their fingers to get a deal, you have lost, because they are going to start shopping around even more.

“The power of Wal-Mart and the power of E.D.L.P. (everyday low price) was that people stopped making a choice about where they were going to shop because we had earned their trust, not convinced them that we could be trusted but actually earned it. And we did it with price and we did it with the in-stock and we did it with associates and service.

“So the deep concern I have about playing games with price for an individual is that you are teaching them not to trust you. That’s the opposite of what we want to do.”

But Mr. McMillon provided a clear differentiation between loyalty programs and the use of data analytics to improve the shopper’s experience.

“The world has changed as it relates to analytics and what’s possible today,” he said. “So we talk about is what we do with this massive amount of data that we have that will build trust and loyalty, surprise and delight people, but not with an old-school loyalty card and not with price but with something else. So how do you save on time or introduce them to a new item they didn’t know we carried or if they bought this, the solution should include that? How do you give them relevant communication? How do you demonstrate to them that you know them?”

Greg Foran, president and c.e.o. of Wal-Mart U.S., added, “It’s amazing how much data is available at our fingertips now and through traceable tender,” he said. “Using that data to form customer baskets, which then can drive things like dendrograms, customer decision trees, substitutability, loyalty, we like that and that forms part of our thinking.”