Analysis Of The Corporate-level Strategy

Is the firm vertically integrated such that it gains a competitive advantage in its core business?

Analysis of the Corporate-level Strategy

1. Is the firm vertically integrated such that it gains a competitive advantage in its core business?

2. What is the firm’s diversification strategy? Does it contribute to the firm’s competitive advantage in its core products?

3. Are there potential synergies across businesses? Are they appropriately leveraged?

4. What is your assessment of the firm’s growth mode (acquisition, JV, internal growth)?

5. What and how can corporate-level decisions enhance a firm’s competitive advantage?

Costco Wholesale Corporation is a chain of membership warehouses that sells premium goods at low cost. Even though the profit margin is smaller compared to other wholesale club markets, Costco has succeeded in making this a very successful strategy. The low cost leadership strategy follows selling of superior-quality merchandise at prices below what other wholesalers or retailers charge (Farabhi, 2012). Consequently, most of Costco’s merchandise is private label items enabling them to sell products at prices significantly lower with emphasis on geographic expansion and low operating costs. As a result, Costco has managed consistent financial and operating performance since 2000 and has had the highest sales compared to the competitors.

Costco’s supply chain is partially vertically integrated with a backward integration with the Kirkland Signature Brand (Farabhi, 2012) which is Costco’s private label or store brand trademarked by the corporation. Hence, even though Costco doesn’t do the manufacturing, Kirkland acts as their own label and can be bought only at Costco stores. This kind of integration provides Costco with the competitive advantage as they can make goods available to consumers directly from the manufacturers and that at ultra low prices. Also, a typical supermarket’s diversification strategy was to stock numerous items for consumers to choose from, Costco’s strategy was to provide shoppers with a broad spectrum of product range but with limited selection of fast moving products in each category with branded items comprising 85 percent of the merchandise and the Kirkland label comprising the remaining percentage. The diversification strategy of Costco is a natural protection against risk.

Also, Costco attained market synergies with its decision its decision to make Costco a kind of one-stop destination catering to every need of the consumer. Opening of ancillary departments next to the warehouses including pharmacy, food court, car washes, gas stations and one-hour photo centers has proved profitable for Costco. The gas stations now account for at least five percent of Costco’s annual revenue (Keitner & Cassidy, 2011). The corporate culture of Costco follows five very simple and down-to-earth principles of business including following the law, taking care of employees, suppliers, shareholders and members. The growth strategy concentrated on increasing at least five percent sales in existing warehouses and open more stores both domestically and internationally.

In the rapidly growing and turbulent markets, the competitive edge that a firm holds is unpredictable. In these reality situations, corporate-level decisions and strategy emphasizes strategic market positioning of the firm, building sustainable relationship with suppliers and effective diversification form a basis for sustained competitive advantage. 

References

Farabi, Y. (2012). Competition among the North American Warehouse clubs: Costco Wholesalers versus Sam’s Club versus BJ’s Wholesalers. Munich: GRIN Verlag GmbH.

Keitner, R., & Cassidy, C. (2011). Management. South Western: Cengage Learning.

Thompson, A. (2012). Costco Wholesale in 2012: Mission, Business Model, and Strategy. International Strategic Management (Cases).