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Costco's Five Forces Analysis - Essay Example

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Costco's Five Forces Analysis

The focus in this paper is on Costco Wholesale Corporation (CWC) that operates a series of ‘cash & carry membership warehouses’ that trade high-quality, domestically branded as well as privately labeled merchandises at a low price range. It sells the products to businesses that purchase for the purpose of commercial use and also to the individuals as selected member groups. The business of the company is depended on the attainment of high sales volume along with inventory turnover by providing various ranges of products at low price. Costco Wholesale Corporation receives bulk purchase based inquiries from domestic as well as international markets in large volumes. Costco Wholesale Corporation possesses widespread worldwide buying power and it endeavors to satisfy any specific item related requirements beyond its everyday assortment. The innovative concept regarding warehouse retail has enabled the Costco Wholesale Corporation (CWC) to make vertical integration and provide the products from manufacturers towards consumers. Porter Five Forces analysis facilitates to establish the strength of competition, profitability as well as the attractiveness of a company in the marketplace where it is operating. The five competitive forces that generate the framework of market and industry are ‘bargaining power of supplier’, ‘bargaining power of customers’, ‘threats of new entrants’, ‘threat of substitutes’ and ‘competitive rivalry between existing players’....
The other significant issue is the extreme focus related to capital, as type of inventories as well as warehouse facilities make it difficult for a firm to exist. Another noteworthy issue is that the retailers of warehouse strive to maintain brand loyalty and this effort is unique in comparison to usual customer loyalty based campaigns. In this aspect, Costco has captured the lead by means of proliferation related to tangible products as well as services (George et. al., 2004, pp. 8). Threat of New Entrants The threat of new entrants is low as there is high obstruction of entry in the market due to intense competition of Costco and its competitors. The new entrants may face enormous cost due to the inbuilt capital strength of the company. Costco already has developed good affiliation with suppliers as well as customers thus it would be a challenge for a new company to operate in the new market. Therefore, for Costco new entries are not a matter of great concern. The new entry may be important for two reasons: if the existing store in the market launches a product with greater expediency and low cost and if the competitors such as Target or Wal-Mart introduce warehouse retail chain with their capital resources. However, such situations have not occurred, as a result, for Costco the threat of new entrants has not become a major issue (George et. al., 2004, pp. 8). Threat of Substitute Products The threat of substitute of new products is considered to be low because the substitute of Costco’s multi product offerings is not available in the market. There is presence of substitutes of the products of Costco when there is disaggregation of the products across sub-industry parts. The mattress ...Show more

Summary

In the study, the five forces analysis of the company has been evaluated in order to determine its competitive advantage within the market.  Through the analysis of Porter’s five forces, the competitive advantage of the company has been determined.

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