Costco (19) - case PDF

Preview

Summary

case...

Description

Bargaining Power of Customers Warehouse clubs are forced to comply with the demands of their price sensitive members regarding lower prices because of the fees they pay for membership. Since prices and success in the industry are directly related, companies operate at low profit margins which become attractive to members in the form of low prices. Both Costco and BJs had a profit margin of less than 1.8% in each of the past two years. Prices are so low the majority of the profit they make is from membership fees. Since the companies in this industry are very similar, consumers have the ability to command low prices because they are able switch to another rival after their membership expires at a low cost, without losing any major services that are offered. The threat

is low because there is only a small concentration of wholesale buyers, predominantly middle class consumers, small business owners and families. The latter two however have a greater power over the higher and middle class customers as they would buy to ‘satisfy needs’ rather than luxury items. They are likely to resort to finding alternative stores such as competitors to get what they want at the price they can afford to pay for their regular purchases, due to the growth and alternative availability in discount stores...