Strategic Analysis of Costco Wholesale

IGU mission is to provide a diverse student body with a career-related education based on scholarly, innovative and practical approaches to meet and exceed emerging global challenges. On the other hand, the vision is to ensure every human being, especially those who are socially, economically, and physically underprivileged, with life-long learning opportunities for their intellectual, professional, spiritual and leadership development, and growth (“IGlobal University, 2018”). The mission and vision are well thought out and in line with the institution’s ultimate objective. It guides them in the crafting and implementation of policies relevant to guarantee the realization of their goal (”IGlobal University, 2018”). Additionally, it positively and directly influences the society. It is through the tackling of significant societal challenges by impacting learners with the necessary and relevant skills. Furthermore, it alleviates poverty by uplifting those from underprivileged backgrounds and giving them an opportunity to realize their dreams.

Practical Examples of Strategies

An example of a corporate strategy is the alliance between Microsoft and Nokia in the year 2011. In the deal, Nokia was to produce phones running on Windows 7 a route to ensure their future in the smartphone market. In the business strategy, a real-world example would be the turnaround by Domino’s Pizza that required all areas to pull together to achieve a simple, understandable goal (Agrawal, 2016). In the functional strategy, an example would be the announcement by Swiss Life Group a change of its Information Technology practical strategy priorities. The objective was to scale down the number of IT projects to lower costs through re-prioritization.

DQ 2

1. Chief Components of Costco’s Business Model

            Costco’s business model relies on high volume sales and rapid inventory (Courtemanche & Carden, 2014). The strategy is possible through offering customers products at low prices. The business model is appropriate as it combines low rates with rapid inventory turnover. As a result, the company can sell inventory before payment is due which enables the saving of money from the ability to accept manufacturer discounts from early payment.

2. Chief Elements of Costco Strategy

            The primary strategy involves selling products at a low price. The company sells a wide range of products at discounted prices. It is in comparison to other retailers and warehouses such as Walmart and Amazon. Moreover, Costco offers 4,000 products compared to the 150,000 by supercenter of Walmart. The company’s dominant strategy is the pricing approach. By increasing the number of items count and ensuring their quality, Costco can attract more clients and efficiently manage its stores. There are also additional services such as gas stations, and pharmacies. The other efficient strategy is the treasure hunting shopping approach.

3. Assessment of the Strengths and Competitive Pressures from Rivals

Competition from the other firms is high and aggressive. All the three companies provide products at lower prices and of high quality. Despite BJ’s wholesale and Sam’s Club having relatively lower profit margin and fewer clients in comparison to Costco, there are some aspects that Costco needs to put into consideration in developing a competitive and sustainable business (Courtemanche & Carden, 2014). First, rivalry intensifies when it becomes easy for the clients to switch brands. Despite the three companies offering discounted prices, clients can quickly change membership to secure the best deal. Second, competition builds up when competitors diversify their strategies and approaches to fit long-term directions. Besides, the three firms use comparable marketing techniques, hence, the need for establishing more relationships and partnerships to solidify their positions (Peteraf, Gamble & Thompson, 2014). Third, competition from the three companies increases when product differentiation becomes difficult to notice. Product diversity of the three enterprises is low thereby enabling customers to find similar products from any store at comparable prices.

4. Strength of Competitive Pressures Entering the North America Wholesale Club Market

The wholesale club faces a weak threat from the entry of new firms mainly due to the high costs and economies of scale (Farabi, 2012). New entrants would be at a disadvantage as they would be unable to achieve the expected economies of scale, thus, charge more to cover up their costs. As a result, their competitive advantage would diminish as low prices play a significant role in the industry. Additionally, the three companies have a strong brand presence and loyalty which are difficult to challenge.

5. Pressures from Substitutes for Shopping at Wholesale Clubs

There is a possible threat of product substitutes that the wholesale club industry faces. First, there is an availability of numerous alternatives from other retailers such as Walmart and Amazon at discounted prices. They sell similar products since the provision of low differentiated products allows the availability of substitutes. Thus, products from substitute retailers and wholesale clubs are comparable. The clients are comfortable switching among the possible retailers as no additional costs are in place beside the other benefits such as convenience of selecting store location.

References

Agrawal, H. O. (2016). An approach to business strategy. In Handbook of Research on Promotional Strategies and Consumer Influence in the Service Sector (pp. 154-182). IGI Global.

Babafemi, I. D. (2015). Corporate strategy, planning and performance evaluation: A survey of literature. Journal of Management, 3(1), 43-49.

Courtemanche, C., & Carden, A. (2014). Competing with Costco and Sam’s Club: Warehouse club entry and grocery prices. Southern Economic Journal, 80(3), 565-585.

Farabi, Y. (2012). Competition among the North American Warehouse clubs: Costco Wholesale vs Sam’s Club vs BJ’s Wholesale.

IGlobal University. (n.d). Retrieved January 23, 2018 from http://www.igu.edu.

Peteraf, M., Gamble, J., & Thompson Jr, A. (2014). Essentials of strategic management: The quest for competitive advantage. McGraw-Hill Education.