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Costco Value Chain Model
Challenges in implementing Total Quality Management
Challenges in implementing Total Quality Management
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In fact suppliers want to be part of Costco, as a result, members get lower prices and higher quality products while spending less time shopping among fewer options.” (Will 1). In addition, most of the products that Costco buys are purchased directly from manufacturers, so that Costco avoid the high cost arises through distributors. I believe that it is always good to have competition in a market because one business can improve and learn from its competitors. Also according to this article Costco like Wal-Mart offer low prices, if may be true that Walmart Offer prices lower than Costco, but there is no doubt that Costco offers quality at a reasonable price.
Weaknesses Although Costco has got a successful business and been a leader in retailer industry, they also has some weaknesses. Costco’s weaknesses are on the limitations to their business. These limitations may restrict the development of business. Like the exclusivity to members, low price margin, and geographic dependence.
Meaning that Costco purchases straight from the manufacturer and then has the merchandise transported to a cross-dock warehouse that will then truck to the stores. In addition Costco believes in paying its employees a higher wage because that equals happier employees who take their work seriously. Higher wages also mean that Costco will employ a higher quality employee from the preexisting pool of candidates that retail chains compete
We choose Walmart, Costco Wholesale and Target Corporation in grocery retail industry to calculate their five-year residual income and analysis their operation conditions. Frist of all, we found their net income and total shareholder’s equity from income statement and balance sheet from NASDAQ website, The Wall Street Journal website and PDF of their annual reports. Then, we try to find the cost of capital for each company in the matched year, but we failed. So we decided to calculate the cost of equity by ourselves. Since the three companies we choose are C corporations that pay dividend to their shareholders, we believe that the dividend capitalization model, which bases the cost of equity primarily on the dividends issued by a company, make more sense to us.
In Costco’s macro-environment, a variety of factors could affect the company’s economic viability. External factors such as inflation, foreign currency exchange rates, levels of unemployment, reduced consumer confidence, and changes in tax policies could unfavorably affect the demand for Costco’s products and services. Prices of some goods and services including food products, are often variant and subject to fluctuations deriving from changes in domestic and foreign supply and demand, competition, taxes, labor costs, or delays in delivery which could significantly affect Costco’s sales. Therefore, the product’s costs and selling could also increase affecting financial results. Other important economic factors include the increasing international
Hunter Avenarius MBA 705 M4: Case Analysis 2 4/3/23 Question 1 Costco’s business model differs from other traditional discount retailers in various ways. The first way goes all the way back to the roots of the business as they were founded on a principle that they would provide the lowest prices possible for their customers by keeping their costs low. They do this by utilizing a low-price and high-volume philosophy (Neubauer, 2022). Meaning, they are not marking up their items as other stores would, rather, they are keeping their margins slim and hoping to outsell other stores drastically.
Almost everyone has heard of the membership warehouse retailer, Costco Wholesale, whether or not you actually choose to shop there. You can find one of their warehouses in over 400 locations around the United States, as well as an additional 200 warehouses in Canada, Mexico, Australia, the United Kingdom, and parts of Asia. Although they are not quite as instantly recognizable as their main competitor, Sam’s Club of Wal-Mart Inc., Costco has attracted somewhat of a cult following due to their unusual business operations. In many financial comparisons, Costco seems to beat out all of their industry competitors. Even in the recent economic downtown, Costco still posted growth in their stock, as well as higher than industry average profits.
Costco’s goal is to try and sell first-class merchandize at the lowest price possible to the customers. Costco has many big competitors including Wal-Mart Stores that own Sam’s Club, The Target Corporation and The Kroger Co. who owns Ralphs and FoodsCo. Costco figures out the customers buying habits and needs so they can buy and sell the right product that match’s what people want and need. They need to have a productive supply chain, that allows Costco to measure and identify through their ads and marketing efforts what kinds of products are successful or not.
COST offers brand-name products, which are sold at discounted rates when compared to department stores as the pricing tactic that COST has executed focuses on the price-sensitivity of its consumers. COST has excelled in keeping its prices low by capping the markup on its merchandise, while maintaining quality of merchandise. Customers of Costco must pay a membership fee to purchase their merchandise. COST’s market strategy of low pricing is a strategy which highly depends upon several factors.
Johnson used the cost-leadership strategy while he was CEO of J.C. Penney. One of the major strategies he implemented was the lowering of prices by 40 percent. By doing this not only did Penney provide an acceptable product that had the same quality but the products are also at a lower price. Johnson’s strategy of have a select number of products on sale for a month and having clearance sales monthly attracts customers that are looking for a bargain. This can attract a large number of returning customers and new customers.
Costco’s business model is centered around offering a smaller range of products at incredibly low prices which attracts the consumer. In order to supplement this lowered profit margin, they require their shoppers, both businesses and individuals, to purchase annual memberships. The membership fee accounts for a majority of the company’s profit. Furthermore, Costco operates its under a wholesale warehouse style which eliminates the need for excess handling and workers in the store. The stores are stocked to carry certain big ticket, ‘limited time offer’ goods so that customers feel the need to take advantage of the deal because it may not be there when they next return.
Key Trends – Globalisation One of the main opportunities Costco has is more global expansion to specific targeted countries. Although operating in many countries, Costco is heavily dependent on the U.S. and Canadian markets. It still has the opportunity to expand into the Asian and Australian markets where it has a limited presence. Costco has the capability to operate about 100 stores in Taiwan, Korea and Japan combined and about 20 stores in Australia. It currently has 41 stores in Taiwan, Korea and Japan combined and 6 stores in Australia.
What are the two types of core competencies that drive a firm’s competitive advantage? Which firms demonstrate a clear competitive advantage because of (a) major value-creating skills/core capabilities and/or (b) superior assets or resources? Which firms have demonstrated sustainable sources of competitive advantage? The two core competencies that drive a firm’s competitive advantage are cost leadership and differentiation.
During what is arguably the most difficult period in U.S. history, Honest Abe expressed his hopes that “government of the people, by the people, for the people, shall not perish from the earth.” The NSA surveillance program goes against this principle. It poses a substantial threat to the social contract and is illegal both domestically and globally. Edward Snowden’s revelations about these activities were done so in the public interest and set him apart from many other Americans charged with espionage by the U.S. government- he is a whistleblower. For this reason, in the eyes of the international community he has committed a non-violent political crime (under the assumption that he has committed a crime).
3.0 Concepts 3.1 Resources and Capabilities In order to achieve and sustain competitive advantage, a business needs both resources and capabilities. Resources are assets that are owned or employed by an organization. The organization utilizes and uses these assets to carry out their business operations. Resources can be grouped either tangible assets or intangible assets.
