Costco Organizational Theory and Behavior

Costco Organizational Theory and Behavior
1. What is Costco’s competitive advantage?
Costco is incessantly outperforming corporations such as Target and Wal-Mart. The company has reported great and impressive financial results from one financial quarter to the next whereas Target and Wal-Mart are dealing with a lull in business. All of this comes down to Costco’s competitive advantages. One of these competitive advantages is the focus on driving sales (Lutz, 2014). Whereas its rivals spend significant amounts in marketing, Costco does not go to great extents in advertising but rather retails a limited number of items. In spite of the company’s massive store volume, it has been renowned for selling a fraction of the brands in rival companies. The key competitive advantage in this lies in the fact that retailing fewer items leads to an increase in sales volumes and aids in driving discounts. Furthermore, Costco’s concentration on driving sales aids in elucidating why the company offers better remunerations and benefits compared to competitors (Lutz, 2014).
Costco’s competitive advantage is also found in the value gained from membership. The warehouse club's members pay for the pleasure of shopping there and that generates a hard-to-break hoop that profits the company. Essentially, paying for membership reinforces the consumer’s linkages to the brand whereas the underlying value proposition either leads to an increase in usage levels or generates guilt on leaving. As a result, this gives rise to a competitive advantage for Costco that solely a small number of other retailers can rival with (Kline, 2017). Costco dies offer consumers low prices, and joining, particularly being part of the Executive Membership, is an ideal approach to save money for numerous individuals. Once the chain has a client, there is a high probability of holding on to him or her, for the reason that there is appeal in the promise of what it offers, and the amplified future savings it signifies (Kline, 2017).
The more an individual partakes in shopping at Costco, the greater he or she will see the value in the membership at the warehouse. However, even if a consumer does not sufficiently shop to obtain $55 or $110 in value, he or she may opt to renew for the reason that the burden for not saving money falls on the individual and not the retailing company. For a competing retailer chain to break this cycle enjoyed by Costco, it would have to offer the same prices devoid of charging a membership fee and at the same time spending funds to communicate that it was doing that. It is challenging for other companies to undertake this approach for the reason that most of the profit generated by Costco, approximately 75 percent, emanates from membership fees (Kline, 2017). The inference of this is that any rival matching the prices set by Costco and at the same time spending to market its brand devoid of taking in membership revenue, would be a losing proposition (Kline, 2017).
In conclusion, the key generic strategy for Costco’s competitive advantage is cost leadership and this takes into account low costs mirrored through low prices. Imperatively, consumers have an expectation of generating substantial savings when they shop for products from Coscto. To ensure that it has a competitive advantage over rivals, Costco also partially makes use of broad differentiation as its secondary generic strategy. Imperatively, this makes the business be noticeable on the basis of particular features. For instance, Costco differentiates based on value or quality by means of Kirkland Signature, which is the business’s house brand. As a result, the wide-ranging differentiation generic strategy gives rise to competitive advantage and permits Costco to compete based on quality, in addition to low prices centered on the cost leadership generic strategy (Young, 2017).
2. What is Costco’s “best practices”?
Best practices can be delineated as a set of guiding principles, ethics or conceptions that signify the most efficacious or practical course of action and generate optimal outcomes. Costco’s best practices are also perceived in its supply chain. The company runs a tight operation with exceedingly low overhead, which facilitates the passing on of substantial savings to its consumers and members. The company’s supply chain differs from the conventional supply chin for the reason that it has lesser steps with lesser individuals involved in the merchandise, which at the end of the day reduces cost (Dyck and Neubert, 2008). An additional best practice is that Costco partakes in helping small local businesses. In particular, the company makes it a point to attract consumers in the expanses they are in by having suppliers that cater there. If such businesses meet Costco’s standards, they can sign contracts to become suppliers for different Costco locations within the region. The prospect for small business affiliations is mutually beneficial in that Costco is able to source for products locally, reduces costs, the businesses become increasingly well-known and the consumers appreciate the ease in accessibility to products (Ingram, 2015).
In addition, there is the continued adherence to the company code of ethics. Costco is pointed out as one of the most ethical corporations in the world and its business model is deemed not easily replaceable for other kinds of businesses. Wages is one of the numerous aspects to consider in corporations’ best practice. In particular, Costco has a tendency to offer remuneration that is approximately 40 percent higher and offers more comprehensive health and retirement benefits as compared to rival companies such as Target and Wal-Mart, which amounts in significant cost savings in employee turnover expenses. In addition, Costco battles layoffs, makes an investment in training its personnel and grants them significant independence to resolve problems (Ethics Unwrapped, 2018).



References
Dyck, B., & Neubert, M. (2008). Management: Current practices and new directions. Cengage Learning.
Ingram, P. (2015). Use Costco's supply chain best practices to save your business money. Retrieved 15 October, 2018 from: https://www.investcalgaryregion.ca/blog/use-costcos-supply-chain-best-practices-to-save-your-business-money
Kline, D. B. (2017). What Is Costco's Competitive Advantage? The Motley Fool. Retrieved 15 October, 2018 from: https://www.fool.com/investing/2017/03/17/what-is-costcos-competitive-advantage.aspx
Lutz, A. (2014). Costco's Simple Strategy For Outperforming Wal-Mart And Target. Business Insider. Retrieved 15 October, 2018 from: https://www.businessinsider.com/costcos-simple-strategy-2014-9?IR=T
Young, J. (2017). Costco Wholesale’s Generic and Intensive Growth Strategies. Panmore Institute. Retrieved 15 October, 2018 from: http://panmore.com/costco-wholesale-generic-intensive-growth-strategies
Ethics Unwrapped. (2018). The Costco Model. Retrieved 15 October, 2018 from: https://ethicsunwrapped.utexas.edu/case-study/the-costco-model