Assessing Capabilities

and Competitive
Advantage
Prepared by Group
3:
- Victoire
- Ardiana
- Marie
- Helmi
 History of Costco Wholesale
1979 1983 1993

Sol Price and his son, Robert, Costco opened its first Costco merged with
opening the first Price Club warehouse in Seattle Price Club
warehouse, as a place where 1999
small local businesses can
by James Sinegal and
obtain merchandize at Jeffrey H.Brotman.
2018 2010 Becomes
economic prices.
Costco
Wholesale
Corporation
Costco was the only national retailer Jim Sinegal steps down
in the history of USA that could from the role of CEO and
boast average annual revenue in replaced by Craig Jelinek
excess of $170 million per location.
 “To continually
Vision provide our members
with quality goods
Mission and services at the
lowest possible
Business Process Prices”

Business Model

Powerful value proposition that featured a

combination of:

• ultra-low prices on a limited selection of

nationally branded and Costco’s private-label “A
Kirkland Signature products in a wide range of place where efficient 
merchandise categories
• providing excellent product quality, and
buying and operating
• intriguing product selection included both practices give 
everyday items and ongoing special purchases Members access to 
(money-saving treasure hunt)
unmatched savings”
Question 1
Characteristics of
the Retailer
Industry
 Characteristics of Retailer Industry
Segmented industry : Focus on high volume
✔ full-line department stores
✔ specialty department stores
sales with low profit
✔ discounter/discount store margin
✔ wholesale club

Heavily dependent on customer Highly competitive market:

spending, thus one of the key ✔ high rivalry
driver is customer confidence ✔ high threat of new players
(economic indicator that ✔ high bargaining power of
measures the degree of optimism customers
that consumers feel about the ✔ high threat of substitutes
overall state of the economy and ✔ Low to medium bargaining
their personal financial situation) power of suppliers
 Characteristics of Retailer Industry
✔ Retailers normally charge
The retailer’s interface higher unit prices than a
with the customer is wholesaler
service-based ✔ A retailer’s pricing policy
is simpler than that of the
wholesaler

Competition between retailers Retailers trade with

to provide convenience in general public (whereas
terms of location of the shop, wholesalers may district
types of payment and different
the general public from
credit facilities for purchasing,
range of merchandise and purchasing from their
after-sales support warehouses)
Question 2
The Competitive
Strategy of
Costco
The Competitive Strategy of
Costco
01 02 03 04
Limited edition Shopping
Low Pricing of national environment with Strong emphasis
brand goods and the concept of on low operating
Consistently selling "treasure hunt“ costs
regional/national private label
products Attract shoppers to
branded goods at shop more by Choose locations with
prices below 85% of Costco's offering irresistible heavy traffic/suburban
traditional goods are brand deals on big-ticket areas that accessible
wholesalers and names, 15% are items or brands
other outlets Costco's brands, Choose location with
Kirkland Signatures specials low land tax costs
Product selection is Keep the treasure- Keep the design layout
Pricing strategy: hunt items
limit price markup limited to make it economical and
more efficient (lose constantly changing efficient
on certain brands to attract more
to 14%. (while 1/2 customers for 1 Goods are placed on
type than difficulty in shoppers to visit
others set 20-50% managing many Costco 2-level shelves without
markup) types of items decorations that cost
money and sales space
 The Competitive Strategy of
Costco

industry-
Market
Based on the matrix above,
Costco did a hybrid strategy

Niche
wide
Low cost differentiation
Types of competitive advantage
Question 3
The Competitive
Advantage and the
Source of Competitive
Advantage of Costco
 #3 Does Costco have a competitive advantage?
What are the sources of the competitive
advantage?
Advantages of Costco Low costs emphasis Low costs emphasis

Pricing
Keeping very low operating costs and Keeping very low operating costs and
focusing on important costs focusing on important costs
Ultra low pricing strategy

→ Get rid of: salespeople, fancy buildings, → Get rid

Product selection delivery, accounts receivable.

Wide range of products but the selection in → Locate warehouse on high trafic roads/near
each category was limited to FAST SELLING upscale suburbs
MODELS. → Intelligent loss of sales

→ Optimisation of handling and stocking

Treasure hunt merchandising

→ Shorter hours of operations (low labour

Only 20 to 25% of its products were cost)
constantly changing : appealing products that
would call for clients and be quickly sold out
→ Marketing limited to monthly coupon
mailers, weekly emails and occasional direct
mails to members and special campains for
new warehouse opening + count on “word of
mouth” to run
 Competitive Advantage and Its
Sources
Valuable Human Capital Strong Brand Name and
Employee turnover rate is low
Reputation
which means Costco able to Highly Reputable low-price
maintain a highly dedicated retailer that ranked as the second
workforce due to competitive largest retailer in both the United
wages within the industry and States and the world (behind
fair working conditions Walmart) and built a customer
friendly brand image
Strong Marketing Strategy with
Treasure-Hunt Strong Financial Conditions
Attract the customer and maintain the ✔ Continuous growth on revenue
attraction for a whole year by and number of wholesale
Strong Leadership Style
constantly changing the treasure-hunt
The founder, Jim Sinegal has a strong
membership
items
merchandising expertise. He is involved ✔ Maintain efficient operating cost
in all the segments of the company and ✔ Manage to increase its dividend
really affordable. He also able to to shareholders every year
choose highly experienced successor to ✔ Maintain its profitability ratio
ensure the future of Costco
 Competitive Advantage and Its
Sources
Strong Value Chain Strong Company Values
✔ Buy majority of its and Culture
merchandise directly from Build simple yet down-to-earth
manufacturers and using business principles that
efficient handling system embedded itself into
✔ Maintain variety of supplier to company’s culture and manner
get the best quality supplier

Attractive Customer Base

High Quality Product that differ
Customer range from middle
from other rivals
to upper class living in area
Smaller but high quality brand- near warehouse, from
Efficient Marketing Strategy
name and low cost products individual to business
(75% brand-name and 25% Minimum expenditure on
Costco private-label) marketing campaign by using only
direct marketing and treasure-
hunt strategy
Question 4
Potential
Challenges and the
Executives
Respond
 SWOT Analysis of Costco
Strength Weakness
✔ The third-largest wholesale ✔ High salary costs reduce
company in the United States and the profit
ranked seventh in the world
✔ Reputable low prices wholesale
company
S W
✔ Low price margins
✔ Minimum marketing
✔ Loyal employees (lowest employee compared to discounted
turnover) and self-service retailers
✔ Loyal customers
✔ Efficient operational activities
✔ A CEO involved in all the company O
Opportunity T Threat
✔ Aggressive competition
✔ Huge market opportunity
between competitors
overseas
✔ Political, cultural, and
✔ Huge numbers of quality
economic issues that occur
suppliers (vendors with
in stores in other countries
best quality and price ✔ People tend to buy on
offer)
Internet
Competitive Rivalry
- High competition because Costco not only competes with the wholesale business, but also traders who sell products sold by
#4 What would be the potential challenges of
Costco.
- Supply chain management that is easy to emulate allows competitors to make this competitive.
- Having a competitor who can sell cheaper can make Costco enter into business competition.
Costco?
Buyer Power
- Tech-enabled millenials are threatening the retail
industry with demands of non-store based retail
- The bargaining power of buyers is high because
everything offered by Costco is goods that can be
found in specialty stores of the product being sought
and also its competitors in the same industry.
- Low switching costs by consumers because of the
many shops that sell products offered by Costco.

Political, Cultural, and Economics Issue

- Some countries might issue policy that hinder Costco in opening its
warehouse
- Political instability in some countries causes Costco to adjust its
strategy to protect their business
- Need to provide suitable strategy to counter cultural differences
 What Should Executive Do?
Broaden the segmentation by Innovate on the customer Products and pricing
targeting the “young people” niche
experience side ✔ Keep the ultra low pricing strategy for the
✔ Invest in modern publicity to make ✔ Customer experience as a whole  regular/long term products
sure they attract new generations ✔ Put the accent on “advising” their ✔ Even less products per section (less choices helps
the consumer buy more quickly)
✔ Brush up on influencer marketing customer (maybe via technology ✔ Broaden the product choices to cover all the needs
because employing people is of the customer
expensive) ✔ Becomes the only brand providing absolutely
everything

Selling High Salary costs Low profit margin issue

✔ Drive Invest in technology: Costco will not ✔ Increase the margin only on new
Create a drive (segment of have to employ people as frequently as and valuable and fast selling
customers in a hurry = most of they do. Also keeping the same products to be able to justify it
working people) advantages but offering less job ✔ Invest in regional storehouses to
opportunities will make even more maximize storage capabilities and
people want to work there and people
✔ Delivery lower total costs that would allow
already working for Costco will be even
Offer delivery possibility by more proud.
them to keep a low margin
outsourcing it
Thank You