Using porter’s five forces model, analyze buyer power & supplier power of Costco

Question

Using porter’s five forces model, analyze buyer power & supplier power of Costco NING CASE Buy Experiences, Not Things Retail is one of the most competitive and stingiest industries in America boasting some of most dissatisfled workers across the board. Walmart Stores employees began a week-long strike in Mlami, Boston, and the San Francisco Bay Area to publicly display their immense dis satisfaction with the mutinational corporation. Employees at Amazon.com fulfilment center in Leipzig. Germany went on strike demanding higher wages and better benefits. Just search retail strikes and you ill find numerous examples of dissatisfied employees doing what they can to improve their situations. However, there is one company that will not appear on the list - Costco the Wholesale Costco Wholesale, the second-largest retailer in the U.S. behind Walmart, is an anomaly in a world where retailers are closing their doors due to the inability to compete with online prices Retail stores such as Aeropostale, Sears, and Macy's are all feeling the pressure of the online marketplaces of today's digital world. Costco requires a $55-a-year membership fee for access to its massive warehouses supplied floor to ceiling with generous portions of everything from olive oil to paper towels. While many businesses are losing customers to the Internet,Costco's sales have grown 40 percent and its stock price has doubled. Treating employees exceptionally well is the secret to Costco's success. Costco employees make an average of $20 an hour, not including overtime and eighty-eight percent of Costco employees have company-sponsored health insurance. Costco treats its employees well in the belief that a happier work environment will result in a more profitable company. Iit is obvious Costco is thriving in one of the toughest retail markets in history The style of Costco is minimalist with no fill idustrial shelving stocking the 4,000 different products.Products are marked up 14 percent or less over cost. tems like diapers, suitcases, and tissues, which it sells under its in-house Kirkland Signature brand, get a maximum 15 percent bump. After accounting for expenses such as real estate costs and wages, Costco barely ekes

Explanation / Answer

The Porter’s Five Forces Model for Costco:

The switching cost of customers in this segment is quite low. Hence The company needs to value its customers and try to retain them. The availability of substitutes is also quite high, making the bargaining power of consumers stronger.

The bargaining power of suppliers, in retail segment, in general is quite weak. This is due to the availability of large number of suppliers in the segment. Moreover the suppliers have very limited power over the distribution rights and sale of their products in the company, leading to low forward integration. Hence, the bargaining power of suppliers in Costco is quite low.

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