Cosco - Organizational Level of Analysis - Case Study Example

Introduction

Costco Wholesale Corporation and its subsidiaries started its operations in the year 1983. The first shop was established in Seattle City in the State of Washington DC. The corporation is engaged in warehouse membership operations in the United States among other countries such as Spain, Australia, Japan, Mexico, Canada and the U.K. Costco Wholesale Corporation additionally has majority-owned holdings in Korea, as well as Taiwan. According to Cascio (2006), Costco has an organizational strategy of offering its member's reduced prices on private-label elements and a limited selection of nationally branded items in a variety of retail categories. This strategy usually produces rapid inventory turnover through high sales volumes. In addition, the company achieves operating efficiencies through reduced handling of goods, efficient distribution and volume purchasing, which allows the organization to carry out its operations profitably at less gross margins as opposed to retail supercenters, supermarkets, mass merchandisers and traditional wholesalers.

The organization specializes in selling food (packaged dry food), ancillaries and other stores (food courts, pharmacies and gas stations), softlines (home furnishings, clothing lines), fresh food, hardlines (beauty aids, electronics, and major appliances) and sundries (cleaning supplies, beverages and, tobacco). Through using a membership structure, as well as strict and efficient control of its exits and entries to its various stores, the organization has ensured minimal stock losses as compared to other hypermarkets and discount retailers. The organization has approximately 196,000 staff members towards the beginning of the second quarter of the year 2015. The company is headquartered at Issaquah in the state of Washington D.C.

Specific Business Model

As aforementioned, Costco Wholesale Corporation uses a "members only" store club organizational framework. This structure entails the sale of merchandise to individuals listed members with the organization upon payment of a membership fee. The members are thus granted access to merchandise at a lower price rate in all the stores operated by the corporation (Greenhouse, 2005). Nevertheless, individuals who are not members are allowed to use the company's cash cards for shopping in any of the organization's outlets.

Costco Wholesale Corporation Strategy involves cost leadership. The cost leadership strategy involves the maintenance of low prices. This strategy is used by other big organizations such as Wal-Mart. To differentiate the organization from other traditional retailers, the company combines cost leadership and the membership warehouse club enterprise business framework. This business strategy empowers the organization to follow through with its vision and mission. The cost leadership strategy also aligns the company's operations for further future sustainability.

Costco Wholesale Corporation SWOT Analysis

Over the past few years, Costco Wholesale Corporation has been ranked only second to Wal-Mart Stores regarding annual revenues. The organization's success is attributed to the company's capability of striking a balance between the external and the internal factors, which makes it profitable. The external and internal factors are laid out in the following SWOT analysis for the company. The SWOT analysis assesses the weaknesses and strengths (internal strategic factors) and the opportunities and threats (external strategic factors) that are specifically significant to the organization. Costco Wholesale Corporation's SWOT analysis will give important insight into the most pertinent factors and elements that the organization needs to incorporate while formulating its strategies.

Strengths

One of the company's main strength is its authority in pricing. The organization's philosophy involves providing its listed members with goods of high quality at prices that are competitively low. The organization does not concentrate its operations on price maximization in the short term, rather, concentrates on maintaining an opinion among its listed members of "pricing authority." The pricing authority strategy ensures repeated sales because the customers believe that the prices they get are most competitive within the market. The organization additionally uses its gas business to bring members to the organizations stores.

Whereas the business enterprise has a significantly lower margin than the competitors, it commands bigger volumes of various products that have higher margins. The high sales volumes come as a result of what is referred to as brand loyalty. By constantly purchasing items at a lower price, Costco Wholesale Corporation clients become loyal to the brand because of the price and the high-quality products on offer. This strategy enables the organization to increase its market share significantly, as well as the customer base over the years.

Another area that Costco Wholesale Corporation has immense strength relates to efficiency levels. The price authority strategy helps the organization command huge sales turnovers. It, therefore, means that the company handles many goods and services on a daily basis, an aspect that has made it possible for the company to develop efficient mechanisms for their supply chains. These highly efficient mass movements of goods reduce certain variable costs.

Weaknesses

Costco Wholesale Corporation has a strong presence in the North American market. Similarly, the company has a notable absence in other bigger markets such as in Africa and Eastern Europe. About 90% of the company's sales were as a result of its activities in Canada and the US in the year 2014. Reports indicate that Costco Wholesale Corporation is heavily dependent on the California market, which represented approximately 35% of the total sales for the corporation in 2015. Therefore, a reduction in economic activity in these highly dependent markets may affect the organization's normal flow of business.

Costco Wholesale Corporation's main customer base comprises the baby boomers. Although it sells its products to all customers within the different age groups, the larger part comprises the older generation who identified with the brand during its inception. The downside of the baby boomers being the larger customer base is that as people become older, they tend to shop less, more so for what they need.

Costco's strategy of low prices for members only has ensured constant high volumes. However, this strategy also shuts out many more customers, thereby limiting the customer numbers significantly. This strategy may also make non-Costco shoppers feel unwanted and unwelcome within their premises. Costco also has its specified range of merchandise. Lack of a wide variety may also discourage customers and lose clients to competitor firms (Ashworth, 2012).

Opportunities

Building on its strong brand, Costco Wholesale Corporation can venture into new markets, particularly in East Asia, East Europe, Russia, Southern America and East and South African markets whose, outlook and prospects in the next few years look promising. Expanding into these new and untapped markets can give the company the leverage it needs, beating the competition in exploring new territory. In this way, the company can increase its sales and revenue base significantly.

The organization can take advantage of the younger generation shopping trends and invest in products that will attract them. These new brand of shoppers aged between 19 and 34 should be incorporated into the organization's sales strategies, and should, therefore, assist the company in driving the long-term earnings and sales. In addition, the company can integrate the technological advancements to their advantage, by investing in e-commerce platforms and websites, which would pull more shoppers.

Threats

One of the biggest threats that the company faces comes from its competitors. The industry of discount warehousing services is highly competitive, with some firms offering competitive services and prices. For instance, within the company's main market of Canada and the US, there are other companies that have implemented a similar business model. They include BJ's Wholesale Club and Sam's Club (Courtemanche & Carden, 2014). So strong is their competitiveness that Costco has had to revamp its strategy a couple of times in the past few years, introducing new features in their value chain.

Internationally, the organization competes against other similar establishments, for instance, regional, national and international retailers and wholesalers, online retailers, department and convenient stores, supercenters, supermarkets, hypermarkets as well as specialty stores. Most of these establishments do not ask for membership, and therefore, clients will enter and exit at will. These shops additionally sell an extensive range of products, unlike Costco, which deals with a limited range of products. These limitations pose a great threat of losing customers to the competitors in the market.

Recommendations

Costco Wholesale Corporation present market situation as denotes the strengths of the organization. Nonetheless, the just concluded SWOT analysis indicates that the company's business model puts some limitations to realizing its full potential and expands its growth, particularly in areas where it faces great competition. The following are some recommendations that can be adopted by the company to further expand its growth.

Recommendation 1

To ensure its sustainability in the future, Costco Wholesale Corporation must expand its range of products that will be key in attracting new clients. These clients include other shoppers loyal to other brands, as well as younger shoppers between the ages of 20-35 years. Introducing new product range would increase the company's sales significantly, thus increasing profitability in the long-run. Therefore, there is a need for the organization to attract the most recent generations, i.e. Generation Y and X who are technologically savvy.

Recommendation 2

Costco Wholesale Corporation also needs to expand into more markets internationally. There are many untapped markets in the Asian Pacific region as well as in the Middle East and African continent; markets that have been labeled as most promising in the developing countries. Even though this global expansion will be quite expensive, the company benefit immensely in the long run. The company can expand into these new territories through conducting intensive feasibility studies and evaluations, identifying the market themselves or contracting other research firms to conduct the research as third parties.

Recommendation 3

Apart from expanding into new territories and introducing new products into its stores, Costco Wholesale Corporation can also use technology to its advantage. One such strategy is partnering with technology firms such as Google to market the brand. A strong online presence would push the company's sales significantly. In line with this strategy, the organization would be required to launch strong e-commerce strategies, including an online shop where Costco members would be able to purchase merchandise. Strong e-marketing and branding would also be required to push the company's online sales.