Strategic Management and Strategic Competitiveness
Costco Wholesale Corporation is a membership-based retailer offering private label as well as branded products in a range of merchandise categories including meat, deli, bakery, and produce; home furnishings, house wares, domestics; institutionally packaged as well as dry foods; motor vehicle and related products, seasonal items, toys, sports merchandise and items, beauty aids, and electronic products; food items, alcoholic and non-alcoholic beverages, and candy, to name but a few. The company additionally operates travel businesses, hearing aids centers, one-hour photo centers, optical dispensing centers, food courts, pharmacies, and gas stations in various local and international locations. With a total of 652 warehouses, 463 of them in the U.S., and the rest scattered across Australia, Korea, Taiwan, Japan, the UK, Mexico, and Canada; Costco is America's third largest retailer, and the largest membership-based warehouse entity in the world. The company faces fierce competition from BJ's Wholesale Club and Sam's club, but still manages to attract affluent and loyal customers, who return repeatedly - thanks to the thrill brought about by the constantly-changing inventory, and the discount-chic allure also referred to as the 'Costco effect'.
The Effect of Globalization and Technology Changes
Globalization translates to a higher number of both producers and consumers, increased diversity issues, higher trade volumes, a wider product variety, and of course, more intense competition. To thrive in the global market, therefore, managers have to devise ways and strategies that would enable them meet the unique interests, needs, and expectations of the different markets (Hitt, Ireland & Hoskisson, 2008). In a competitive marketplace, "only companies capable of meeting, if not exceeding, global standards typically have the capability to earn above average returns" (Hitt, Ireland & Hoskisson, 2008, p. 10).
One of the most significant benefits of the globalization of markets is reduced cost of marketing ("Global Business Environment," n.d.). To this end, a company "can make identical products for the global market and then simply design different packaging to account for the language spoken in each market" ("Global Business Environment," n.d., p. 28). Costco has employed this cost-saving strategy in its food service segment; the company's quarter pound hotdog takes the same design in all its food courts, but unlike in America, Canada, and the UK, where the hotdog is 100% beef; Australia, Mexico, and the Asian countries have theirs made of pork. This kind of saving, coupled with the fact that the company does not advertise its products have been responsible for the ever-increasing budget savings, which are a key source of competitive advantage for the company.
Like many other companies operating on a global scale, Costco uses its international sales to level uneven streams of domestic income, thereby eliminating "wide variations in sales between seasons," and subsequently steadying cash flows ("Global Business Environment," n.d., p. 29).
E-commerce is perhaps the most significant product of technology, more so for a company such as Costco, which has online sales contributing approximately 30% of collected revenue ("Global Business Environment," n.d.). In 2012, for instance, Costco collected $2 billion in revenues from its B2B online shopping site at costco.com only; and with the concept of web marketing rapidly expanding, and the internet becoming more commonplace, e-commerce will soon be the way to go. In 2005, Costco signed a deal with PhotoChannel Networks, whereby the former could offer online photo printing to its members through the PNI Digital Media Platform ("Global Business Environment," n.d.).
The company has, however, not had a smooth run in regard to technological advancement and technology changes. The same technology has been to blame for some of the highest losses the company has had to incur, with the most recent case involving a loophole that made it possible for shoppers to skirt membership fees by paying with a gift card. Differences in business regulations across countries have also posed a challenge for the company. Costco has to comply with regulations set by each of the countries it chooses...
The model specifies that a firm's performance depends more on the features of the industry within which it operates, than on the internal choices and decisions made by managers (Hitt, Ireland & Hoskisson, 2008). To this end, a firm has to locate the industry that presents the most attractive platforms for it to compete. Porter's five-force model describes the forces that determine the level, and nature of an industry's competition, and by extension, its level of attractiveness. Porter holds that an industry' profitability depends on the ease of entry; the nature of interactions among suppliers, as well as among buyers; the degree of rivalry between existing firms; and the availability of substitutes (Hitt, Ireland & Hoskisson, 2008). .
Five-Force Analysis of the Competition in the Wholesale Club Industry
Rivalry among Existing Firms: the competitive force is strong; all the three major players "offer low prices to attract members and provide them with considerable cost savings enough to cover more than the membership fees" (Calstalela, n.d., p. 1). The industry is maturing, and firms are beginning to aggressively pursue 'top-line revenue growth' via the establishment of unique stores, attracting new customers, and undercutting each other by growing shopper traffic. Switching costs are low, and members can easily switch from one club to another (Calstalela, n.d.). There is significant similarity in the merchandise offered in all the three stores; weak product differentiation fosters rivalry.
Threat Posed by Potential Entrants: the competitive force is weak; first because Sam's and Costco are established competitors, enjoying massive scale economies that cannot be easily accessed by a new firm; secondly, there are significantly large capital requirements for initial investment; and thirdly, a new comer would have to incur very high marketing and advertising costs in order to overcome the loyalty of existing firms (Calstalela, n.d.).
Supplier Bargaining Power: the competitive force ranges from weak to moderate. The bargaining power of any single supplier is limited because "no single supplier constitutes a large percentage of the merchandise that the wholesale club stock" (Calstalela, n.d., p. 1).
Buyer Bargaining Power: the competitive force is weak. Individual members are in no position to negotiate for better prices with their wholesale clubs because such clubs often have numerous members, buying in "relatively small quantities, with no single member accounting for a meaningful fraction of" the total sales (Calstalela, n.d., p. 1).
Threat Posed by Substitutes: the competitive force is strong because members do not have to shop at the warehouse clubs; they can as well make purchases from online retailers, particularly because the costs of switching from one product to another are relatively low (Calstalela, n.d.).
The industry analysis shows that due to the low switching costs, and the strong threat posed by substitute products; Costco can make above-average returns by taking advantage of its scale economies and offering standardized products at prices lower than those BJ's and Sam's; and stocking a considerable amount of differentiated products at a premium . Differentiated products are essentially those products that are not stocked by Sam's and BJ's, and which members therefore have to get from other retailers. Members would be willing to pay a price premium for such products for purposes of convenience.
The Resource-Based Model of Above-Average Returns
This model specifies that a firm's strategy selection depends primarily on the pool of resources and capabilities it possesses, and not on the structural organization of the industry within which it operates (Hitt, Ireland & Hoskisson, 2008). To this end, a firm can make above-average returns by selecting a strategy that effectively uses of "its resources and capabilities to exploit opportunities in the external environment" (Hitt, Ireland & Hoskisson, 2008). In other words, the strategies selected should enable the firm to use its unique resources to gain competitive advantage over other industry players. Resources are termed unique if they are valuable, non-substitutable, and costly to imitate (Hitt, Ireland & Hoskisson, 2008).
A SWOT analysis on Costco reveals that the company has significant strengths, including high membership retention rates; relatively low prices; strong brand, great reputation; and high employee retention. Costco, unlike Wal-Mart, which owns and runs Sam's Club, gives some of the highest paychecks and medical insurance to its employees. For this reason, Costco has one of the lowest employee turnover rates in the U.S., and has been described as one of the best places to work in. This happy-employee base is a strong resource and a fundamental source of competitive advantage for the company. The company's managers could build marketing strategies that make use of employees. The company could involve unions in…
The strategy outlines clearly the ethical position of the organization in relation to interactions between consumers and various stakeholders. This is essential in the enhancement of service and products provisions. The organization focuses on the adherence to the law through development and implementation this marketing strategy. This enhances effectiveness and efficiency of the legal interaction between consumers, shareholders, and stakeholders. The organization also pledges to take quality care of
Costco Case Costco: A Case Analysis Costco has long been a retailer of lower-priced goods. Now, the company is moving toward services like insurance, credit cards, phone plans, printing, and other options that could be accessed with a specific membership level. That level would cost users $100 per year, but testing of the options has been very positive in the majority of cases. Still, Costco has much to consider when it comes
Strategic Management Case Study on Target According to the company's profile provided by Reuter's, the Target Corporation ("Target") operates Target-brand general merchandise discount stores and an online business, Target.com (found to be slow by this researcher). The profile reports that as of November 11, 2004, Target operated 1,313 stores in 47 states; in addition, the Company maintains 22 distribution centers in 19 states. Times have been tough for Target, and
Wal-Mart Inc. Wal-Mart is an American-based multinational discount store, currently operating more than 11,000 retail outlets in 27 different countries, and serving approximately 140 million customers weekly. Headquartered in Bentonville, Arkansas, Wal-Mart grew from a small family-managed retailer in 1945 to the world's largest retailer, and was named the world's largest company by revenues in the 2014 Fortune 500 list. The company operates its retail stores in two forms: i) Sam's
Organizational Case Study -- Nutri Systems Company Background - Nutrisystem is an American company that provides weightloss products and services. Originally, the company's sales and marketing model focused on Brick and Mortar stores, in-person counseling and exercise sessions, and the sale of prepackaged supplements and food products retail. In 1999, however, largely due to the number of diets on the market and exhaustive competiton, Nutrisystem began selling online with support through
The Price-Sensitive Affluents, Wal-Mart has learned (Wal-Mart Annual Reports) is more interested in finding an exceptionally good deal and not necessarily concerned about the shopping experience. This is particularly true as one of the strongest factors influencing the execution of their strategy, the emerging global recession during this timeframe, takes hold. Again as with the Price Value Shopper and the paradoxical purchasing patterns of the Brand Aspirational segment show,