COTSCO Competitive Advantage (Case Study Sample)

COTSCO Competitive Advantage
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Abstract
Costco Wholesale is one of the largest retail sales corporations in the United States that is going rapidly and the most profitable among its competitors. The company has a large customer base and an impressive market presence (Murray, 2010). Therefore, the company creates a distinct image and enhances growth despite the retail market having competitors' pressures. The company's basic strategies focus on high-quality products offered at a low price, quality customer service, and the company's organizational structure. The main competitors of Costco are Walmart and Target. They offer varieties and some lower-priced items. However, Costco follows a different strategy to retail as one has to buy membership card to shop there and renew it annually unlike Walmart which is an open retail shop.
Recently, the company has been investing in technology ways to increase e-commerce sales and build up its competitive advantage. The company's market is mainly based in the United States and Canada as it has not pursued a strategy to expand its market globally. Also, the company is facing great competition from the rise of Amazon (Murray, 2010).
This paper discusses in detail the competitive advantage of Costco based on the Industrial-Organizational Economics (IOE) perspective and Intensive growth strategies. It shall also analyze the Core Competencies of Costco and their link or relationship to the Vision and Mission statement of the organization.
Competitive Advantage Based on Industrial Organizational Economics
The Industrial-Organizational Economics approach focuses on external factors that determine the competitive advantage of the company (Spencer and Anthony, 2012).
PESTEL Analysis
Political Factors
Costco tries as much as possible to separate itself from any political beliefs and views. For example, in 2020, the company terminated its contract with My Pillow Company and got rid of all its products as the CEO was under a lot of controversies for supporting Donald Trump (Rahman, 2020). Due to the pandemic, the company has faced challenges in terms of shipment and freight. It has been tough to deal with ports where the companies' operations are due to Covid 19 policies that the governments have enacted.
Economic Factors
Fortunately, despite the pandemic, Costco has managed to maintain its growth in sales revenue. Since the outbreak of Covid 19, most people gave priority to foodstuffs, appliances, and other home goods that Costco mainly supplies. According to Rahman (2020), between 2019-2020, the sales growth has increased by 14% in the US and 14.3% globally. The e-commerce approach has also benefited the company as most people have opted for online shopping thus raising sales by 80.3%. Additionally, due to covid 19, their stock price fell by 12%due to the slow growth (Rahman, 2020). Being an international player, the company has faced regulations such as trade wars with countries like China.
Socio-Cultural Factors
Costco has managed to establish a brand for itself hence gaining so many people who believe in it. The company is very smart with its expansion strategies and considers different cultural and traditional values when entering a new market. A good example is their store in Shanghai which was a huge success where people are not used to mass buying (Mak et al., 2014). The company has excellent people-centric policies, offering low prices and better wages than any other retailer.
Technological factors
Costco has excellent technology-related services that enable the company to offer online shopping and delivery services, thus increasing e-commerce growth than any other company. The company has never been out of any inventory for a long time. Currently, the company has launched a digital kiosk for people to purchase apple products. They have also introduced pick-up services for groceries in some of the stores in Mexico. This service allows consumers to order whatever they need online and have them delivered the same day.
Legal Factors
In 2020, Costco was sued for not paying employees who had worked overtime that is against the law (Rahman, 2020). The company also had a legal battle with Tiffany & Co because of selling their branded diamond rings in their store without consent. This act was considered trademark theft.
Environmental Factors
In the next 4years, the company has a strategic plan for environmental, social, and governance activities. Rahman (2020) states that the company also plan to reduce improper emission of carbon dioxide to the lowest amount possible to enhance its impact on the environment.
Through this analysis, we can tell that Costco has a competitive advantage in all factors considered. The only sector the company requires to improve is how it impacts the environment. The company has an action plan that is underway.
Porter Five Analysis
Costco faces external factors with a varying intensity which changes with time. This analysis shows the challenges that the company faces linked to the five forces.
Competitive Rivalry
The retail industry has a large and varied number of firms where most of them offer low costs. The industry is saturated and many firms compete against each other hence making the competition stiff. Thus, competition is one of Costco's concerns.
Consumers Bargaining Power
The company ensures that it satisfies its customers. However, the industry has the strong bargaining power of buyers. It is high because of low switching costs and high-quality products. Also, the availability of substitutes is high and these customers go to other retailers makes the bargaining power high (Murray, 2010). Therefore, the company must consider the strong buyers bargaining power as the main challenge.
Suppliers Bargaining Power
In Costco's case, the supplier bargaining power is weak due to a large number of suppliers. No single supplier can impose its demand on big firms like Costco. The supply of the products is high. Therefore, any action from a single supplier cannot impact the total supply in the company. Most suppliers also have minimal control over the sale and distribution of their products in their stores. This force is the least concern of Costco.
Threats of Substitutes
Most products in the retail industry are similar. For example, food-related products are all the same. Considering it is also a low switching cost industry, consumers can transfer from one store to another, purchasing the same products at the same price or lower. They still get satisfied hence making the threat of substitutes very high.
The threat of New Entrants
Low switching cost gives new entrants a chance to succeed in the retail industry. However, it is difficult for new entrants to compete with established companies such as Costco due to the economic scale. Also, the moderate cost of starting the business is a barrier to the new entrants.
SWOT Analysis
The SWOT analysis focuses on strengths of the company, its weaknesses, opportunities, and threats (Murray, 2010).
Strengths of Costco
Costco maintains a low-price strategy and has high-quality products that are available at low-profit margins. Also, the company has a large loyal customer base due to its unique membership business model. Its operational cost is always low as the company does not waste money on advertising (Kanjanapradit et al., 2017). In addition, its brand is already well known. In addition, the company is highly profitable. Even in this pandemic, the company is still experiencing high growth in sales. Costco employees are well paid and enjoy various benefits. Lastly, it has a high distribution turnover.
Weaknesses
Compared to other retailers, the individual's product choice is limited even though the company offers a wide variety of products. The company experienced a high cost of transportation. Its investment in development and research is lower compared to other retails. Additionally, the company only concentrates on US and Canada markets hence lacking an international presence. Lastly, Costco has limited e-commerce services hence lacking a good customer base.
Opportunities
As a top brand, the company can be expanding its operations in developing countries to create new markets and a customer base. Costco should also increase its e-commerce services as most people nowadays rely on online shopping. Rahman (2020) urges that digital marketing helps in reaching out to potential customers and can increase e-commerce sales. During this pandemic, most people are making healthy choices. Thus, the company should start making healthy products.
Threats
The main threat of Costco is competition from rivals such as Amazon and Walmart and other online platforms. The growth of this industry reduces its profitability. The company hires a third party to protect its data. This approach is insecure as the data can be leaked or altered. Other threats include price war which plays a role in luring customers into business and, controversy because the company had once termed the bible as fiction. This act offended a lot of people when the picture went viral (Spencer and Anthnoy, 2014.
Intensive Growth Strategies
Costco has focused on several intensive growth strategies that focus on the establishment of new markets and the innovation of new products. These strategies aim to broaden the market share for the company to maintain relevancy, maximize profit and en...