Case Study
MGMT 497
Sample Case Study: Costco
Five-Forces Analysis of the Competition in the Wholesale Club Industry
Rivalry Among Existing Players—a strong competitive force All wholesale clubs (Costco, Sam’s Club, and BJ’s Wholesale) offer low prices to attract members and provide them with considerable cost savings enough to more than cover membership fees. The rivalry among them is vigorous and will remain so: All 3 club rivals are aggressively pursuing top-line revenue growth (chiefly by opening new stores, attracting more members at both new and existing stores, and endeavoring to grow sales revenues and shopper traffic at existing stores). The industry is becoming somewhat mature and that intensifies rivalry. It is easy for households and businesses to switch their memberships from one club to another. Switching costs are low, thus strengthening rivalry. There is considerable similarity in the merchandise offerings of all three clubs. The degree of product line differentiation is weak, which enhances rivalry. Threats of New Entrants—a weak competitive force The window to enter the warehouse club industry is pretty small unless an outsider opted to acquire BJ’s Wholesale Club with the intention of rapidly expanding into areas and states where there are currently no BJ’s locations. The barriers to a new entrant are high: Costco and Sam’s are formidable competitors and enjoy sizable scale economies not easily accessed by a newcomer. Capital requirements are sizable if an entrant wishes to compete on a scale comparable to the industry incumbents. The marketing and advertising costs to attract members and build a significant volume of sales (and otherwise overcome the loyalty of existing warehouse club members) would be very high. Moreover, the three industry incumbents are in a strong position to vigorously contest any newcomer’s entry, making it not attractive for others to enter this industry. Bargaining Power of Suppliers—a moderate to weak competitive force.
Sample Case Study: Costco
Five-Forces Analysis of the Competition in the Wholesale Club Industry
Rivalry Among Existing Players—a strong competitive force All wholesale clubs (Costco, Sam’s Club, and BJ’s Wholesale) offer low prices to attract members and provide them with considerable cost savings enough to more than cover membership fees. The rivalry among them is vigorous and will remain so: All 3 club rivals are aggressively pursuing top-line revenue growth (chiefly by opening new stores, attracting more members at both new and existing stores, and endeavoring to grow sales revenues and shopper traffic at existing stores). The industry is becoming somewhat mature and that intensifies rivalry. It is easy for households and businesses to switch their memberships from one club to another. Switching costs are low, thus strengthening rivalry. There is considerable similarity in the merchandise offerings of all three clubs. The degree of product line differentiation is weak, which enhances rivalry. Threats of New Entrants—a weak competitive force The window to enter the warehouse club industry is pretty small unless an outsider opted to acquire BJ’s Wholesale Club with the intention of rapidly expanding into areas and states where there are currently no BJ’s locations. The barriers to a new entrant are high: Costco and Sam’s are formidable competitors and enjoy sizable scale economies not easily accessed by a newcomer. Capital requirements are sizable if an entrant wishes to compete on a scale comparable to the industry incumbents. The marketing and advertising costs to attract members and build a significant volume of sales (and otherwise overcome the loyalty of existing warehouse club members) would be very high. Moreover, the three industry incumbents are in a strong position to vigorously contest any newcomer’s entry, making it not attractive for others to enter this industry. Bargaining Power of Suppliers—a moderate to weak competitive force.