Costco's Competitive Strategies

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. A firm that utilized cost leadership is Costco. Since Costco is able to purchase in bulk, they can in return pass on the savings to the consumers. With this strategy, they have positioned themselves well according to Porter’s five forces.

Rivalry among current competitors: LOW The rivalry among current competitors

Specifically, Ralph’s (similar stores are Vons and Albertson’s) and Whole Foods (similar stores are Gelson’s and Trader Joes) are two firms that utilize cost leadership and differentiation. On one hand, we have Ralph’s using cost differentiation by providing a broad range of merchandise at a decent price. On the other hand, we have Whole Foods that has implemented a differentiation strategy by marketing their merchandise as healthier (organic). The trade of for both companies is that they are attracting less consumers by just marketing to a specific crowed. For instance, if Whole Foods had lowered their price and still sold premium merchandise, soon Ralph’s would be in trouble.

How would you evaluate the industry of your current employer according to Porter’s five forces? Is your current industry ‘attractive’ or profitable, according to this model?

Let’s look at the five forces in the commercial real estate industry

Rivalry among current competitors: HIGH There are countless of real estate companies competing for limited real estate.

Threat of new Entrants:

The consumer (if buying real estate) has little option to find similar property (due to size, location, land etc).

According to Porter’s five, this is an attractive industry. In this positive-sum environment, competitors do not erode profits as they work together to increase the value of their land.

How does Porter’s five-force analysis provide insights as to the likely success of a given business strategy? Given the competitive dynamics of your current industry (your employer), which of Porter’s competitive strategies is likely to be most successful? For us specifically, I think are in a vulnerable position. However, the real estate that we own is hard to lose. There are threats of substitutes is high as our renters (shops like Wal-Mart and Ross) are facing constant pressure from online retailers. Therefore, we have positioned and balanced our tenants in such a way that it’s hard for online firms to replace them. For instance, we have a shopping center that has Starbucks and restaurant that are surrounding the bigger retailers such as Ross and Office Max. Therefore, we draw customers to our shopping centers where all their needs can be met which is an advantage we have over online