Case Study Analysis Costco's Competitive Strategy | Môn Organizational behavior - Đại học Kinh Tế Quốc Dân

lOMoAR cPSD| 58675420
1. Introduction + Costco Overview + Case Summary
Firstly, before detailing the case study, we must have a general understanding of
Costco. Costco, full name Costco Wholesale Corporation is membership only
warehouse club that provides a diverse selection of merchandise at substantially
discounted prices to members who pay an annual membership fee . They are
currently ranked first compared with others membership only warehouse club in
the United States, and as of 2014, Costco was the third largest retailer in the U.S.
and the second largest in the world just behind Walmart. Costco was founded in
1983 and its headquarters are in Issaquah, Washington. Costco owns and manages
an international chain of membership warehouses, mainly under the "Costco
Wholesale" name. A Costco store frequently carries groceries along with a variety
of other items as well as a constantly changing assortment of other stuff, some of
which are high-end. The goods are piled high in a large "warehouse" with a floor
space of almost 140,000 square feet, (13,000 square meters). In spite of its scale,
a Costco store generally just has approximately 4,000 different products in stock
at any given time, which is just about onetenth of the variety witnessed in a
normal supermarket. Most Costco facilities have supporting businesses like
pharmacies and gas stations. Costco offers three types of memberships: Business,
Gold Star (individual), and the executive membership. Business members qualify
by owning or operating a business and pay an annual fee of $55 in the U.S. to
shop for resale, business, and personal use. The Gold Star membership is for
individuals who do not own a business and is still available for a $55 annual fee
in the U.S. This fee includes a free household membership. The Company also
has a third membership level, called the Executive Membership.
Secondly, to understand more about what we will be analyzing and how we will
answer the case study's questions, we will provide a description of the case. In
this case study, Costco faces competition from two sources (Walmart and
Amazon) as they try to be successful. The first is Walmart, which, although
competing for the same customers, is distinct in some ways: •
Wage of Costco's employees is $20.89 per hour while Walmart's is justabout $12.67. •
Compared to 50% of Walmart employees, 88% of Costco
employeeshave employer-sponsored health insurance. •
15% of Costco's employees belong to the International Brotherhood
ofTeamsters, in contrast, Walmart actively avoids unionization. •
Reducing staff from 343 employees per store to 301, Walmart
hasgained criticism over the past five years. lOMoAR cPSD| 58675420
While Amazon's development has signified a failure for a lot of stores, Costco
has been able to maintain its own for the following reasons: •
Costco offers a lower price than Amazon because of the bulk discountfrom supplier •
Much of Costco's business revolves around a market-groceries
whichAmazon has not reached yet. •
With its own website, Costco does have at least a minimal presenceonline.
Not only competing with the two largest competitors, Costco also needs to cope with numerous issues.
- Costco's 5% revenue rate brings them opportunities about cost and
stability over conventional competitors, allowing them to
outperform the others. However, it limits the number of new ideas
that outsiders may offer to a corporation.
- Costco has a low executive turnover rate of just 1% and does not
recruit business school graduates.
- Beside, Costco is unlikely to be concerned about the possibility of stagnation.
2. How exactly does Costco’s low turnover rate help it in its battle against
Walmart? Will any of those factors also help against Amazon?
2.1. How exactly does Costco's low turnover rate help it in its battle against Walmart?
Have you ever wondered how Walmart manages to stay one of the largest
merchants despite providing its customers with the lowest prices? Walmart has a
number of programs in place to deal with the industry's competitive difficulties, including:
Every Day Low Cost (EDLC) - Controls costs so that customers can benefit from
savings; Every Day Low Price (EDLP) -Their products are constantly priced
incredibly low so that Walmart customers have faith in them and feel that their
pricing won't change as frequently as others' for marketing objectives ; Savings
Catcher and Ad Match - These are marketing strategies designed to match or
undercut the price that a rival has offered. Rollbacks – Reduces the cost of specific
products so that buyers can benefit from the cost savings; Walmart Pickup – With
this choice, a customer can place an order online and have it free-of-charge picked lOMoAR cPSD| 58675420
up at any of the business's locations; Pickup Today — This service enables
customers to place an order online and have it free-ofcharge picked up from any
nearby Walmart store within four hours; Online Grocery – With this choice, a
client can order items online and have them delivered to their residence; Money-
Back Guarantee – Ensures that the fruits and vegetables are optimal in terms of
quality and freshness. Walmart offers a 100% money-back guarantee if they are
not; Online Grocery - This service allows customers to place orders online and
have them delivered to their homes; Money-Back Guarantee – Ensures that the
veggies and fruits are of the highest quality and freshness. If they aren't, Walmart
offers a no-questions-asked money-back guarantee.
More than 2.2 million people (referred to as "associates") were employed by
Walmart Inc. and its subsidiaries as of the end of fiscal 2020, with 1.5 million of
those people working domestically and 0.7 million abroad. The Company has a
sizable number of hourly, nonexempt, or part-time staff, similar to other shops.
They think they have positive interactions with their coworkers. Although
Walmart U.S. turnover has decreased recently as a consequence of our focus on
raising pay and offering better resources, technology, and training to colleagues,
a significant percentage of associates change jobs every year. Note 11 to their
Consolidated Financial Statements contains specific information regarding the
retirement-related benefits they offer to their employees. They provide their
workers in the United States with a wide range of company-paid benefits in
addition to retirement-related benefits. A store discount card or Sam's Club
membership is one of them. Others include performance-based bonuses, life
insurance, matching a portion of associate stock purchases, and bonuses
depending on company performance. In addition to providing health benefits to
eligible full-time and part-time employees in the United States, they also provide
paid parental leave and maternity leave to all full-time employees. They also
provide a $5,000 perk to help qualified employees with adoption. Additionally,
they provide qualified colleagues with tuition aid so that they can pursue a college
degree through "Live Better U," which enables associates to do so for the price
of just $1 per day. Likewise, in their activities outside the United States, we offer
a variety of associate advantages that change depending on regional customs and legal needs.
The fact that Costco's internal staff turnover is so low is one of the key factors in
its ability to remain competitive with other businesses. The low turnover rate of
1% at Costco shows that the business can provide a successful and rewarding lOMoAR cPSD| 58675420
work environment (Colquitt, 2008). The turnover rate specifically benefits the
company in three areas when compared to Walmart.
Firstly, by paying more, Costco will entice more candidates, resulting in $20,89
per hour as opposed to $12,67 for Walmart employees. If they are paid more,
workers are more inclined to stick at the company.
Secondly, keeping people on board builds a more reliable workforce foundation
from which to run the business. Long-term employees will be better able to
accomplish tasks more quickly and offer better customer service since they will
have a deeper understanding of the company and how it runs. Last but not least,
with greater support and knowledge, there will be more capacity for outstanding
customer service, which will increase the customer base. A combination of these
factors, all of which are dependent on Costco's turnover rate, determines how well
the company performs with both employees and consumers.
2.2. Will any of those factors also help against Amazon?
Regarding Costco's rival: Digital streaming, cloud computing, e-commerce, and
artificial intelligence are the main areas of interest for Amazon, a multinational
technology business based in the United States. One of the most valuable brands
in the world, it has been called "one of the most significant economic and cultural
forces in the globe." Along with Alphabet, Apple, Microsoft, and Meta, it is one
of the Big Five American technological firms.
A chain of membership-only warehouse clubs is run by the American
multinational company Costco Wholesale Corporation, doing business as Costco.
As of 2016, Costco was the biggest retailer of choice and prime beef, organic
groceries, rotisserie chicken, and wine in the world. As of 2015, Costco was the
second-largest retailer in the world, behind Walmart.
Through the Costco and Amazon’s branches on the world map in the current time:
How is Costco supposed to rival Amazon? Second-place rival Amazon doesn't
have any racks to stock. Undoubtedly, Amazon's strategy hinges, to some extent,
on in-store shopping being so annoying that ordering online ends up being the
significantly more relaxing alternative. While Amazon's rise has signaled a lOMoAR cPSD| 58675420
decline for many stores, Costco has had the option to hold its footing for three
reasons despite the fact that Amazon's global dominance has constantly outpaced
it for a long time. First, Costco can charge less than Amazon because of the huge
restrictions it receives from suppliers. Second, a sizable portion of Costco's sales
are around everyday food items: The grocery industry is one that Amazon has yet
to conquer. Third, Costco at least has a minimal online presence. In fact, its own
website ranks as the seventeenth most popular retail website in the United States.
According to the U.S. Registration Bureau's normal skewed development for the
period 2007 to 2011, web-based retail gained 16% last year, compared to a
development rate of 5% for retail as a whole. The brief of Costco chair Jeff
Brotman illustrates the predicament that Costco will face in the future by
illustrating how not only will competitors like Walmart and Amazon have an
impact, but also how a change in retail purchasing patterns would influence Costco.
In conclusion, it unmistakably points to the answer to the query "Will any of those
factors [that are successful with the Walmart campaign] also work against
Amazon?" Factors like long-term staff and pay do not have a significant impact
on Costco's ability to compete with Amazon. Wage may eventually be
advantageous, but what is sold, available, priced, and valued on the market are
the main factors that affect it. Due to the convenience of not having to leave one's
home, the online market has continued to thrive. As a result, regardless of whether
or not the same criteria were employed to compete with Walmart, Amazon can
continue to battle Costco depending on the goods being sold and
the value and pricing of those products. 3.
What would a “perfect turnover rate” be for a company like Costco?
Describe the consequences of a turnover rate that’s too low.
Costco is a company with low prices and huge products, and there are always
countless free samples available to customers. In fact, most people love bargain
hunting, and that doesn't change even as their job market and economy improve.
Costco's profit model is not maximizing its profit margin, but rather they are
known for maximizing its sales volume to increase net profit. Most of their
net income comes from membership fees, and most of their products have lOMoAR cPSD| 58675420
little to no margin at all. So, for a company like Costco, the "perfect turnover
rate" would be 0%. However, this is highly unlikely and impossible to achieve.
Extremely low turnover rates are not ideal. Here are some consequences of a
turnover rate that's too low:
● Reduce employee productivity
Employee performance can be negatively impacted by low turnover rates. When
there is little competition in their jobs, employees may have few opportunities for
training, coaching, and development. In addition, it is less expensive to recruit
and train a promising new employee than it is to keep a temporary permanent
employee. Furthermore, the departure of a person with a negative attitude eases
the burden on other employees. To keep development going and prevent talent
stagnation, well-managed organizations with tight management and retention
processes typically have high turnover and internal turnover rates.
● Costco's top executives are too old and slow to adapt
The case refers to a recently retired CEO, who is 77-year-old has maintained an
advising role. The presence of poor managers can be covered up when all turnover
ratios are low. When there is little turnover, bad managers appear to be great ones.
The lesson learned is that when the economy is in bad shape, new approaches
need to be found to identify weak managers. Do not continue to try to maintain a
low turnover rate if the management team consists of elderly, tired, and slow to
adapt to changes in the business environment. They won't be able to respond
quickly enough to unexpected events.
● Lack of innovation and the need for uniqueness to increase market share
The world is constantly changing and evolving. Instead of people who have been
with the company for a long time, Costco needs to hire new individuals with fresh
perspectives to recognize its shortcomings and flaws. Contribute great ideas to lOMoAR cPSD| 58675420
change the organization for the better. Perhaps at this point, Costco needs to have
something fresh and unique to gain market share. The biggest risk is the threat of
e-commerce players like Amazon. Costco needs to be watchful as Amazon has
the scale, money, and resources to directly compete with Costco if they want to.
Overall, Costco is a low-cost leader in an industry that is significantly
resistant to downturns in the economy. That was a two-edged comment. The
threat of a turnover rate that's too low cannot be dismissed and ignored. 4.
If you were in charge of human resources at Costco, would you retain
the philosophy of sending rank-and-file employees to school rather than hiring
business school graduates? Why or why not?
There needs to be a balance between insiders and outsiders for there to be
competition. We think Costco ought to actively use both of its resources hiring
business students and sending regular staff to school. The market is constantly
changing, thus in order to compete successfully, there must be a diverse
approach that can examine the situation from several perspectives and come to a more sound judgment.
By examining the root causes of turnover, turnover rates can be reduced.
Both voluntary and involuntary turnover, which are the two main types, can be
decreased by making better employment decisions. When workers voluntarily
decide to leave their jobs, this is known as voluntary turnover. If an employee is
unhappy in their job, has received a better offer, or wants to change careers, they
may decide to do this. Giving personality tests to job applicants to determine how
likely they are to be pleased in their work is one strategy to reduce the chance of
voluntary turnover. Candidates who are non-aggressive and introverted, for
instance, can end up dissatisfied in a sales position and decide to leave a company.
As an alternative, involuntary turnover happens when a worker is let go from
a job. Employees may be fired for a variety of reasons, such as subpar work
performance or inappropriate behavior, which is frequently referred to as
unproductive work behavior (CWB). Aptitude or skills tests can be used during
the recruiting process to reduce the possibility that a candidate won't be able to lOMoAR cPSD| 58675420
perform the tasks of the position. Similar to this, some personality tests can be
used to determine whether a worker is likely to participate in unproductive work
habits that could harm a company.
As a result, I will continue to send only insiders to school, but WE will start
bringing in outsiders. This keeps the two main sources of new ideas and workers
in place and enables a "step-up" in comparison to the rivals. By sending staff
members to business school, it upholds the philosophy that Costco has
adopted and been successful with. By employing business students, it
expands the pool of potential ideas and workers for the workplace. By
retaining both, Costco is able to foster a work climate where ideas and
employees are prioritized.
5. Recommendations and conclusion Recommendation
● Analyze the strengths and continuously develop them
Compared to other competitors like Amazon, Walmart, etc, Costco has some
outstanding characteristics. There is the interest of the employees and the benefits
of customs in Costco. The lower price allow Costco to sell a huge amount of
products which brings them high profit.
● Improve the weaknesses
As we mentioned in the introduction part, Costco has a low executive turnover
rate of just 1% and does not recruit business school graduates which leads to the
lack of innovation and creativity because there is a little competition between each person.
So we ‘ll give Costco some recommendations. I believe Costco should increase
its uniqueness and stimulate innovation through expanding young human
resources. Youngsters, especially Gen Z, not only have enthusiastic spirit but also
knowledge as well as always updating hot news. Besides, Costco should actively
utilize both resources, that of hiring students and that of sending rankand-file
employees to school. By sending employees to business school, Costco maintains
the ideal that it works with and allows for a “step-up” in comparison to the
competition. The business students - youngsters play an important role in
developing and innovating the company. lOMoAR cPSD| 58675420
To sum up, Costco is a long-time business that has both strengths and problems.
With outstanding advantages, Costco has brought benefits and real value while
maintaining high profits with products to groceries. However, with the feature of
not being worried about stagnation, Costco may face challenges in the future.
Innovation and creativity in the new age are extremely necessary, so this report
can provide important information and data for Costco to grow more successfully in the future.