Costco Case Questions

Powerful Essays
Costco Case Questions
09/26/2013
Question 1:
Competition in the North American wholesale club industry is high, with Costco being its leader at 56% of the market share. Main ways to compete are lower prices, more efficient operations, and reduced labor and overhead costs as well. Some of the clubs do the bare minimum in advertising while others, like BJ’s, spend more money on it (special Christmas radio advertisement and such). Out of the five competitive forces, the strongest is the rivalry between the competitors, because all of the players in this market attempt to offer high-quality products at lower prices. According to Figure 3.3, one of the reasons for rivalry amongst competitors to be strong is a relatively low cost to buyers to switch brands, and also if buyer demand is growing slowly, both of which are true in this case. All competitors in this industry are focusing on low margins on the products and high volumes of sales.
Suppliers do have some power and influence on the wholesale club members, especially in the case with Costco, which buys some of its goods on the gray market and is known to sell some big-ticket items, but with globalization happening and more and more of suppliers being available around the world, they do not present a reason for concern as high as the rivalry between market players.
Customers are always looking for lower prices and higher quality of merchandise, which Costco has been excellent at providing. BJ’s strategy is to give a better customer service and to become a convenient “one-stop-shop” with its optical health centers, photo centers, etc. However, customers don’t have much power in the case of wholesale club industry because there are not many alternatives they can turn to and because the current terms of the biggest players on the market are very good (there are low prices on high-quality goods).
Threat of new entrants is low because all of the wholesale clubs have economies of scale (according to Figure 3.5).

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