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Strategy Critique on Costco Wholesale

 

 

Read Strategy Critique on Costco case below for Wholesale and use that to write the paper. As well I have attached the Strategy Critique Evaluation of what the professor thought about the proposal. I have attached the requirements for the paper as well as some information that can be useful and will help in meeting all the requirements for the paper. These links will help too:

http://dineshperspective.blogspot.ca/2011/04/costco-case-study-and-strategic.html

http://www.ateneonline.it/thompson/docenti/casi/isbn6622-3_cs01.pdf

The 6-page Strategy Critique Paper
The Strategy Critique Paper should assess an organization?s existing strategy, and consider how the strategy could be improved so as to add value to the organization (remember to define what you mean by ?adding value?). Specifically, you will:

1. Select an organization (or subunit of a larger organization) that is using (or that should use) some form of competitive or cooperative strategy.
I encourage you to use local organizations with which you are familiar, however the
information you use to develop your paper must be publicly available and non- confidential

2. Based on your readings and the cases in this course, review the organization?s current strategy and discuss its direct and indirect effects on the organization?s performance.
???? You might want to use comparison cases of similar firms (or other means of benchmarking) in order to accomplish this step.

3. Relying on your analysis, recommend a new or modified strategy and defend them and discuss implementation steps.
An overview of the organization?s strategy should be included in the main body of the paper. In depth analysis of the organization?s strategy, and detailed information about the strategy, should be presented as an appendix (max 2 pages). The information in the appendix should be presented where possible in diagrams, charts and/or tables with brief supporting text. In the main body of the report you should identify whether the organization?s strategy is intended to be competitive or co-operative, and analyze the strategy using one of the framework(s) discussed in class (e.g., competitive dynamics, capabilities, networks, etc.). You should also discuss the coherence and consistency of the strategy, and the performance effects of the strategy (direct, indirect, and with respect to what aspect of organizational performance). Finally, modifications to the strategy or recommendations to change the strategy (e.g. to shift to a cooperative strategy) should be presented and defended.

 

Strategy Critique on Costco Wholesale
The essential elements of Porter’s analytical framework are:
1. Barriers to entry.
2. Threats of substitute products or services.
3. Bargaining power of suppliers.
4. Bargaining power of consumers/buyers.
5. Rivalry among competitors.

Barriers to Entry
Barriers to entry refer to forces that deter companies from entering a particular market. In general terms, one will hear such references as

“The barriers to entry in the telecommunications market are extremely high” or “The barriers to entry in the ice cream industry appear to be quite low.” Barriers to entry are just as important for firms that are incumbent in an industry as well as to the newcomers because of the threat of new entrants.
The barriers generally observed by Porter include economies of scale, product differentiation, capital requirements, cost disadvantage independent of size, access to distribution channels, and government policies (regulation).
Economies of Scale.These refer to the ability of a firm to mass produce a product and therefore to sell to the customer at a lower price. A competitor that does not have the luxury or means to mass produce would thus not be able to compete on price, but rather be forced to find another way to differentiate itself from the competition to the consumer.
Product Differentiation. This is the method or tactics used by a firm to give its product a more recognized value than the competitors’ products. Brand identity is a powerful tool in creating value and there- fore makes it difficult for a new entrant into the market to gain cus- tomer loyalty. For example, the leaders in the toothpaste market are Colgate and Crest. Customers tend to be loyal to their toothpaste brands, and it would require heavy expenditures to draw customers away from either of those brands. In addition to brand identity, adver- tising, first mover advantage (being first in an industry), and differ- ences in products also foster loyalty to products and can easily make entering a market highly expensive.
Capital Requirements. These refer to the amount of money and investment necessary to enter a market. Not only does this reference the product differentiation and brand loyalty mentioned earlier, but it is also extremely important in an industry in which the infra- structure to produce the product requires large amounts of financial resources. Both telecommunications and aviation are examples of industries that require investment in machinery, technology, and so on.
Cost Disadvantage Independent of Size.Some industries have a high learning curve, whether that is scientific, technological, or experiential. In other cases, companies in a particular industry may have access to raw materials, lower prices, advantage based on history or relationships, favorable locations, or even the benefit of government subsidies. All of these factors can affect the ability for an up-and-comer to set up business, get access to capital, and even be profitable.
Access to Distribution Channels.Incumbents in an industry have relationships that may have been functioning profitably for all parties for years. New entrants to that industry have the challenge of creating new relationships or even new and creative methods of dis- tribution just to get their products to market and in front of the con- sumer. This may mean using price breaks, innovative marketing, and creative product differentiation. For a service industry, this may refer to selling relationships or even a location of the service or place in society. For example, some law firms build relationships with clients and partners that are a result of years of networking and relationships. Business between the organizations goes back genera- tions and new law firms in the field must be creative in reaching the clients.
Government Policies (Regulations).The government has power over industries in the form of licenses, limits on access to raw materials, taxation, and even environmental regulation and standards.

Threat of Substitute Products or Services
A substitute to a product or service can be any other product or ser- vice that serves a similar function. Too often, firms underestimate the competitor by not realizing that the product the competitor sells may be a substitute for its own product or service. Many failed ven- tures during the dot-com bubble had the misconceived notion that “we have no competition,” when, in fact, there are always products or services that compete for a consumer or customer’s budget. The key to a substitute is that although it may not be the same product
or service and although the competing products or services don’t function in the same manner, the competing products meet the same customer need. For example, sugar prices cannot go too high or sugar substitutes such as fructose or corn syrup can be used in vari- ous consumable products (beverages, etc.). Other industries also have indirect substitutes such as preventative care and the pharma- ceutical industry.

Bargaining Power of Suppliers
By controlling the quality or quantity of a product or service a firm needs to conduct its business, or by affecting the price, a supplier can have power over the firm and impact its ability to enter or function in a new market. The ultimate power of a supplier comes down to the char- acteristics of the supplier group and the relative importance of sales. According to Porter, a supplier group is powerful—it can affect a firm and possess control over the firm—if and when:
• ? There are fewer suppliers than buyers.
• ? Its product is unique or differentiated.
• ? The buyer group is fairly small.
• ? It has created high switching costs. Switching costs are incurred when a customer switches from one supplier/product/service to another. For example, when switching from one deodorant to another, the consumer may not experience a switching cost. However, for a company to switch from one office software provider to another, the costs may involve human resources, time, training, and so on.
• ? The supplier can integrate forward or take on the function of its customers; for example, a tire manufacturer may open its own retail stores to sell and install its tires.

Bargaining Power of Consumers/Buyers
Just as the supplier has power in the competition and market wars, the customer has power. Customers can force down prices, demand more service or better quality, and even pit competitors against one another.
As with most situations, when buyers form groups, they become pow- erful and will remain powerful if and when:
• ? They purchase in volume. A prime example is Wal-Mart or Costco. Not only can the customer purchase in volume, but Wal-Mart can purchase in large volume from the supplier, forcing down prices for the end consumer.
• ? The product is undifferentiated and the alternatives for the buyer increase.
• ? The product that they purchase forms a component of the product they produce.
• ? Switching costs are low.
• ? They can purchase up front.
• ? They can integrate backward.

Rivalry among Competitors
All four of the aforementioned parts—barriers to entry, the threat of substitutes, and the bargaining power of suppliers and buyers—create rivalry among competitors. Analyzing all of these areas provides a plat- form for studying the competition in the firm’s market space.

 
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