THE STRATEGIC MANAGEMENT PROCESS [How to Analyze a Case] Dr. Ellen A. Drost Mgmt 497

COSTCO How to Analyze a Case Mission Mission –Values, goals, business model Current Strategy Current Strategy –Strategic challenges, critical issues, current situation Environmental Analysis Environmental Analysis –External: General and Porter Five Forces Model –Internal: Resources and Capabilities SWOT Analysis SWOT Analysis Recommendations Recommendations

COSTCO Mission and Objectives What is Costco’s business? What is Costco’s Mission? What are Costco’s Goals? – –How do we reach our Mission? Specific Quantifiable Time frame Consistent

Costco’s Mission Mission Statement: – –“To continually provide our members with quality goods and services at the lowest possible prices.” C-9) – –So, How is Costco going to accomplish its mission?

Costco’s Business Model What is Costco’s Business Model? Generate high sales volumes Rapid inventory turnover by offering low prices Limited selection of nationally branded merchandise categories What are the elements of Costco’s Business Model? Operating efficiency Volume purchasing Efficient distribution Self-service warehouse facilities (reduced handling of merchandise)

What is Costco’s Business Philosophy? The following five business principles :C-19,-20) Obey the law Take care of our members Take care of our employees Respect our suppliers Reward our shareholders

Mission & Business Principles What do Costco’s mission statement and business principles tell you about the company’s corporate culture? What do Costco’s mission statement and business principles tell you about the company’s strategy? How does Costco’s corporate culture affect its strategy?

Costco’s Business Principles Has Costco followed its guiding principles (to help measure) to run its business? Yes, by making Costco a great place to work. Look at some of its HRM practices: Selection Compensation Benefits Do the practices match corporate values and business principles?

Costco’s Strategy What business are we in?   Does Costco offer additional businesses or services to its members? Banking, insurance, loans (3 rd parties) Business level: single business How do we compete in our business? What is Costco’s Strategy? Corporate level: multiple businesses   What businesses are

Costco’s Strategy What is Costco’s Business Level Strategy? How should we compete in our business? low prices, limited selection, and a treasure-hunt shopping environment.” Generic strategy? Low-cost leadership

Elements of Costco’s Strategy What are the key elements of Costco’s strategy, or how does Costco implement its strategy?C9-18) Pricing Product selection Treasure-Hunt Merchandising Growth Strategy – –Increase sales by 5% or more annually – –And open new warehouses, nationally and internationally C-14

Costco’s Strategic Challenges What are Costco’s Strategic Challenges? Sustain growth   How?

Industry Analysis What industry does Costco compete in? Porter Five Forces Model – –Rivalry among competing firms – –Power of substitute products – –Barriers to entry – –Economic power of customers – –Who buys at Costco/ memberships here – –Economic power of suppliers – –Warehouse operation, here

Industry Analysis: competition Five Forces Model Suppliers Potential Entrants Buyers Substitutes Rivalry

Industry Analysis Porter Five Forces Model Rivalry among competing firms   Who are Costco’s major competitors?   How strong is rivalry?   Are there many firms competing with Costco in in the warehouse retail market? Power of substitute products   Are their any substitutes for the Costco experience? Barriers to entry   What are the barriers to entry?

Industry Analysis Porter Five Forces Model Economic power of customers   How powerful is the customer?   Does the customer have many warehouse retailers to choose from? Brand loyalty? Economic power of suppliers   How powerful are the suppliers? Are there many suppliers that Costco can choose from? How important is Costco to suppliers? Are suppliers interested in building a relationship with Costco?

SWOT Analysis Strengths Brand recognition Corporate Culture Merchandizing Other?Weaknesses Narrow product line Other? Opportunities International markets Product lines Other?Threats Competition

Recommendations What would you recommend to Costco’s executives as it relates to Costco’s current position and challenges?