GROUP 3

2140068686 MINGDRY HANAFI TJIPTO

2140067166 NABILA AULIA RAHMAH
2140067462 FANDI ANDI SYARIPUDDIN
201878470 HENDRO CAHYONO
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
Theory
“Costco’s philosophy was to keep customers coming
to shop by wowing them with low prices”

Costco Wholesale needs to implement the theoretical

framework about the Strategy Making.

A firm’s strategy is all about how:

§ How to attract and please customers
§ How to compete against rivals
§ How to position the firm in the marketplace to capitalize
on attractive growth opportunities
§ How best to respond to changing economic and market
conditions.
§ How to manage each functional piece of the business
§ How to achieve the firm’s performance targets.

The character and strength of the competitive forces

operating in an industry are never the same from one
industry to another. For Costco Wholesale case study,
needs to use the five forces framework tool for diagnosing
the principal competitive pressures in a market.
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
Background/Synopsis to the Case Study
Costco implements a membership
system to increase its sales, where
members who are members of it
get cheaper prices compared to
non-members who are equipped
with membership cards that can be
used to get discounted prices
The key elements of Costco's
strategy are ultra-low prices, a
limited selection of branded and
personalized products, a 'treasure
hunt' shopping environment, a
strong emphasis on low operating
costs, and the continued
expansion of the geographic
network of store locations
Mission Statement: “to continually provide our members with quality goods
and services at the lowest possible prices.” There are three key elements of
a mission statement which is:
1. What is being satisfied: Provide customers with quality of goods and
services at lowest price
2. Who is being satisfied: Costco Wholesale’ members
3. How customer needs are satisfied: services at the lowest price and
quality goods
Business Model:
1. Membership fee warehouse club, customers should pay the
membership fee to access the low-cost products.
2. Retailing, Generating high sales volumes and rapid inventory turnover
by offering fee-paying members attractively low prices on a limited
selection of national branded and selected private-label products in a
wide range of merchandise categories.
3. Financing, With Sizeable working capital: Financing its merchandise
inventory
 Company History

1 2 3 4

Price Club Costco Opens The "PriceCostco" Costco Today

Opening the first Price James (Jim) Sinegal merger In 2019, Costco had
Club warehouse on July and Jeffrey H. Brotman In 1997, Costco 98.5 million members.
12, 1976, on Morena opened the first Costco changed its name to In 2020, Costco had
Boulevard in San warehouse in Seattle on Costco Wholesale 105.5 million members.
Diego, California. September 15, 1983. Corporation.
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
 Main Issue
1 2
Highly Dependence on
Memberships Fee Business
Model
Costco’s strategic business creates
exclusivity to members which
means only members can avail
discounted products. It has a great
dependence on membership as
one of its revenues. In 2019, its
members paid roughly $3.54 billion
in membership fees, which was up
6% from 2019. In turn, this means
that Costco's revenues are fairly
stable, but there are risks to using
this business model only.
Low Profit Margins for Retailing
Business Model
Costco’s has the issue of low profit
margins, which leaves little room
for price adjustments. In 2015 the
company had a profit margin of
only 20.6%; an ideal profit margin
would be above 25%. This is
because of their low-cost strategy.
3
High competition industry.
Costco operates in an industry that
is highly competitive on price,
merchandise quality and selection,
convenience, distribution strategy,
and customer service. In addition to
other warehouse and supercenter
operators, Costco competes with
global, national and regional
wholesalers and traditional
retailers.

For these 3 main issues, Thinking strategically about a Costco wholesale ’s industry and competitive environment
entails using some well-validated concepts and analytic tools five forces framework in order to craft a strategy that
fits the company’s situation within their industry environment to maintain survive.
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
 Tools and Analysis
01
Bargaining Power of Suppliers
The bargaining power of Costco’s suppliers is weak. There are many
suppliers available to choose from. Costco’s suppliers do not have
much control on the distribution and sale of their products to
Costco because they have low forward integration.
Trusted suppliers play an important role in wholesale companies.
Suppliers do not have access to direct consumers that can purchase
all their products at once. They need a vendor that can accomodate
their products. This means that the supplier depends so much on
the price given by the vendor and therefore the supplier has little
bargaining power over the price. A vendor can choose from more
competitive suppliers that can meet the price demands from the
customers.
02
Threat of New Entrant
The threat of new entrants is low. Costco is one of the largest and
most successful merchandising companies nationwide, it would be
difficult for a new entrant to compete against the established
brand; if any entrant has the courage then it will be costly and
unappealing. Costco already has brand recognition and a good
customer base nationwide. Every entrant that would like to
compete on a nationwide level, It would require extensive capital
expenditure to at least at par with existing companies.
 Tools and Analysis

03 04
Rivalry Among Existing Competitors Bargaining Power of Buyers

The wholesale warehouses always attract consumers through The bargaining power of buyers is strong. The buyer can easily
discounted prices on a wide variety of retail products. But switch to another company with a low cost. And nowadays,
consumers should pay yearly membership fees in order to avail technology has helped the buyer to find high quality products with
these discounted products. They are Costco Wholesale, Sam’s Club, cheaper prices. Buyers have the ability to postpone purchases
and BJ’s Wholesale that are competing in this business. Walmart is depending on their needs and availability. Buyers are large and few
the largest merchandiser in the world, and since Sam’s Club is a part in number relative to the number of industry sellers.
of that brand, it is Costco’s biggest competitor. There are around
652 Sam’s Clubs locations in the United States, and there are an
estimated 150 locations in other countries. BJ’s Wholesale Club has
an estimated 210 locations in 15 states, 85 percent of which are
located within 10 miles or less of at least one Costco or Sam’s Club
warehouse. The industry business model is based on discounted
warehouse pricing which makes competition extremely high.
 Tools and Analysis

05
Threat of Substitutes

The threat of substitutes is strong. Good substitutes are readily

available and attractively priced, namely Walmart, Kroger, Target,
Dollar General, supermarkets, general merchandise chains,
specialty chains, gasoline stations, and Internet retailers such as
Amazon. These substitute products can satisfy customer
expectations. Also, some of these substitutes offer quality equal to
or above Costco’s product quality. Other substitutes even offer
cheaper products than Costco without the need for membership
fees. Aside from discount retailers there are also online discount
retailers, such as Amazon, that offer comparable pricing with
greater convenience. This makes the threat of substitutes high.
Online shopping grows in popularity due to increasing competitive
pricing, shipping options and convenience. Wholesale club
warehouses may save costs in bulk, but they offer less selection
than non-wholesale club retails.
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
 Recommendation and Action Plan
As a rule, the strongest competitive forces determine the extent of the competitive pressure on industry profitability. Thus, in evaluating the
strength of the five forces overall and their effect on industry profitability, we should look to the strongest forces and matching Company
Strategy to Competitive Conditions with steps:

Pursuing avenues that shield the firm from as many of the different
competitive pressures as possible.

Initiating actions calculated to shift the competitive forces in the company’s

favor by altering the underlying factors driving the five forces.

To solve main issues for Costco Highly Dependence on Memberships Fee and Low Profit
Margins for Retailing Business Model, and High competition industry, we need to formulate
Costco’s strategy which should strengthen the insulation of Memberships Fee Business Model
from competitive pressures, shift the competitive battle in Costco's favor, and position the firm
to take advantage of attractive growth opportunities by looking to the strongest forces and
matching Company Strategy to Competitive Conditions.
Recommendation and Action Plan
There are two strong competitive forces that pressure the Costco's profitability:

A Bargaining Power of Buyer

The bargaining power of buyers is strong. The buyer Costco needs to pay attention at the price-sensitive by:
can easily switch to another company with a low cost. • Segmented product for low profits or low-income customers
The strategy to reduce the competitive pressure of the • Segmented product for a significant fraction of their purchases.
strong position of buyers for Costco as follow: • Segmented product for product is undifferentiated or quality is
• Costco needs to focus on what buyers' products not an important factor.
highly demand based on seasons because buyer
demand is weak in relation to industry supply.
• Costco needs to focus on products that are not
standardized or undifferentiated.
• Make sure the membership is more worth than the
cost of switching to competing retailers.
• Make sure the availability of stocks is bigger than
the number of buyers
• Make sure buyers have a more attractive
experience purchasing in Costco compared to
integrating backward into the business of sellers.
• Create a marketing environment which is willing to
purchase soon periodically instead of postpone
purchases, such as periodic discounts for products
highly demanded based on seasons.
Recommendation and Action Plan
B Threat of Substitute

The threat of substitutes is strong. Good substitutes are readily available and attractively priced,
some of these substitutes offer quality equal to or above Costco’s product quality. Other substitutes
even offer cheaper products than Costco without the need for membership fees. Aside from
discount retailers there are also online discount retailers that offer comparable pricing with greater
convenience.

The strategy to reduce the competitive pressure of the strong position of substitute for Costco as
follow:
• Costco should make retaliatory moves against new entrants
• Expand the favorable access and location to warehouse
• Improve loyalty program to increase the return rate
• Increase new access to distribution channels and shelf space
• Strengthen the network effects
 Content
1 Theory

2 Background/Synopsis to the Case Study

3 Main Issues

4 Tools & Analysis

5 Recommendation & Action Plan

6 Conclusion
Conclusion
Costco Wholesale’s issues are based on the company’s strategic focus. Costco’s most important issues such as highly
dependence on memberships fee business model. It has a great dependence on membership as one of its revenues. There
are risks to using this business model only. Membership fees were a critical element of Costco’s business model because
they provide sufficient supplemental revenues to boost the company’s overall profitability to acceptable levels.

The other main issue is low profit margins for retailing business models, Costco’s has the issue of low profit margins, which
leaves little room for price adjustments. an ideal profit margin would be above 25%. This is because of their low costs
strategy.

The other issue is Costco facing high competition in its industry which is global, national and regional wholesalers and
traditional retailers.

To solve the main issues for costco highly dependence on memberships fee and low profit margins for retailing business
model and high competition industry, we need to formulate Costco’s strategy based on five forces analysis and formulate the
competitive strategy which should strengthen the insulation of Costco from competitive pressures, shift the competitive battle
in Costco's favor, and position it to take advantage of attractive growth opportunities by looking to the strongest forces and
matching Company Strategy to Competitive Conditions.

Based on analysis tools, the industry environment of Costco has 2 strong forces; Bargaining Power of Buyers and
Threatening Substitutes. The competitive strategies of Costco should focus on how to strengthen the insulation of Costco
from the competitive pressure of buyers and threatening substitutes.
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