Question

1. What are the chief components of Costco’s business model?
2. What are the chief elements of Costco’s strategy?
3. Draw a representative five-forces diagram for the North American wholesale club industry.
4. What is your assessment of the strength of competitive pressures stemming from rivalry among Costco, Sam’s Club, and BJ’s Wholesale?

Answer 1

1. Costco’s business model is classified as a rapid inventory turnover by generating high sales volumes. The company implemented their revenue through membership by offerings their member low price product of the national selection plus their private brand also.Costco’s business model is a great appealing because they built a strong relationship with their customers by offering them a good quality merchandise with low price. Costco earned customer loyalty, the number of the membership keep increasing, and they have expanding internationally. They built a strong relationship towards their suppliers because of their rapid inventory turnover, Costco would be able to sell their merchandises before the payment is dues, so they would be able to take a discount form the manufacture for making an early payment. Costco have a strong relationship toward their employees because most of their employees want to work with them until they’ve reach their retirement.

2. Costco’s strategy is built on the principle strategy of low prices, limited selection, and a treasure-hunt shopping environment. Costco uses their brand Kirkland, which is designed to be equal or better quality than national brands. Treasure-Hunt merchandising consists of a constantly changing selection of luxury items on the floor enticing shoppers to spend more than they might otherwise by offering irresistible deals. Costco’s buyers purchase these items from wholesalers which enables them to offer discounts to their customers.

4.Rivalry among firms is extremely high and it is a strong competitive force. Within these three firms, they provide all low prices and high quality products in the wholesale industry. Although both Sam’s Club and BJ’s Wholesale Club exhibit lower profit margins and fewer members than Costco, there are many factors Costco needs to understand in the process of developing a sustainable competitive advantage in the industry. These factors also affect the degree of rivalry. First, rivalry increases as it becomes less costly for buyers to switch brands. Even though all three companies offer low-prices and extensive member benefits, the switching costs in the industry are considerably low. Membership fees are very similar form club to club. In large business areas with stores of two or more of the 3 competitors, it is easy for customers to switch their memberships from one club to another. Customers may make a decision whichever club had the best deals. After an annual membership is over for a customer, Costco needs to come out a way to keep those customers from switching to one of the other existing competitors who offer many of the similar products and similar pricing strategy. Second, rivalry increases as the products of rival sellers become less strongly differentiated. Product differentiation is low among Costco, Sam’s Club, and BJ’s Wholesale Club, which makes it possible for consumers to find exactly what they want at any of these three stores for similar prices. Third, rivalry becomes more intense as the diversity of competitors increases in terms of long-term directions, objectives, strategies, and countries of origin. All three companies use the similar aggressive tactics to occupy new locations and attract new members. Their annual revenue growth is higher and higher. With this revenue growth they aim to attain, more of their stores can be built which can aid in the pushing of the other companies out of the market. Costco has already established a lot of new relationships and partnerships with other companies. It really helps the company consolidate its own position. At the same time, Costco should set more incentive goals to get more annual revenues to maintain their current market and customers or even expand their existing market to acquire more potential customers.

3.

Substitutes for Shopping at Wholesale Clubs Competitive pressures coming from the market attempts of other kinds of retailers to win buyer patronage away from wholesale clubs Rivalry among Wholesale Club Competitors Competitive pressures stemming Suppliers to Wholesale Clubs from Competitive pressures stemming from the bargaining power of wholesale club members Members of Wholesale Clubs Competitive pressures created by the jockeying of wholesale club rivals for better market position and competitive advantage supplier bargaining power Competitive pressures coming from the threat of entry of new rivals Threat of New Entry into the Wholesale Club Industry In North America