Porter`s Model- Case; Costco
The authors, Michael E. Porter and Victor E. Millar, use three main parts to analyze how information technology impacts this business world. First, authors mention that information technology obtains strategic significance and changes the way companies operate. The most important concept is value chain. It was comprised of company’s activities which are technologically and economically activities, and we called these are value activities. Second, authors talk about how the information technology changes character of competition. They point out information technology would effect to change industry structure, create competitive advantage, and spawn whole new businesses. Third, they provide five steps, which are assess information intensity, determine the role of information technology in industry structure, identify and rank the ways in which information technology might create competitive advantage, investigate how information technology might spawn new businesses, and develop a plan for taking advantage of information technology, for helping managers to utilize these steps to determine opportunities when information revolution happened. Company Background
Costco was founded in 1983 in Seattle, Washington. Until 2009, Costco has 566 warehouses in whole world. The company mission is “to continually provide our members with quality goods and services at the lowest possible prices”. (Costco annual report, 2009) Generic Strategies
Costco can be defined as a differentiation strategy. The purpose of Costco is providing their members the lowest possible prices and high quality products and services. They have hundreds of stores all over the world, and they sell many kinds of merchandise. The following are the factors that why Costco is differentiation strategy. 1. Membership – Costco use exclusive member services that only people who willing to pay for membership fee can enjoy the service. (Costco, 2010) It was different from other stores, such as Target and Walmart. You do not need to pay any fee for shopping at those two stores. 2. Return – Not only membership fee but also merchandise you can return if you do not satisfy them. Costco will refund your full membership fee as long as you do not like it anymore. They also guarantee the goods that you purchase in the stores with a full refund. There is an additional refund rule in televisions, projectors, computers, cameras, camcorders, IPOD/MP3 players and cellular phone. After Customers purchased those products, they should return them within 90 days, and then can get full refund. (Costco, 2010) Compare to BestBuy, they will charge 15% restocking fee for opened notebook computers, projectors, camcorders, digital cameras radar detectors, GPS navigation and in-car video systems and 10% fee for Apple® iPhones. (BestBuy, 2010) 3. Price – Costco was not provided the lowest prices to their members but provided the reasonable prices. Not like other stores, such as Target and Walmart, they will change price at uncertain time. For example, the price of one pack (12 cans) Pepsi in Target was around $2.99-$5, it depended on dose they have any sale or not. But in Costco, it always provides the same price to their members at $9 per three packs which means $3 per pack. 4. Quantity – In Costco, some kinds of merchandise were with large amount, such as food, vegetables, and beverages. You need to buy whole package instead of only buy one. Five Forces
The Five Forces model of porter is a useful business strategy tool which is used to make an analysis of the value of an industry or a company’s structure. The five forces characterize an industry or a company by considering the following characters: the threat of new entrants, the threat of substitutes, the power of buyers and suppliers and the impact of rivalry among existing competitors. In the following paragraphs, we will analyze Costco wholesale club by implementing Porter’s Five Forces...
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