HRMN4830 Total Rewards | Managerial Strategy of Cosco

Using the material provided, supplemented by additional articles (properly referenced) if necessary, answer the following questions. Ensure you answer the questions in terms of the text’s managerial and business strategy frameworks.

1. Evaluate Costco’s managerial strategy using Long and Singh’s model. What kind of managerial strategy do you think Costco has chosen? Why? Justify your answer using the model from the text -- 1 page maximum.
2. Evaluate Costco in terms of the text’s behaviour and attitude model. What kind of behaviour(s) is Costco trying to encourage. Is there alignment with their Managerial Strategy (from question 1)

Answer:

1.Part 1: Evaluation of the Cosco’s managerial strategy using Long and Singh’s model:

An evaluation of the managerial strategies of Costco Wholesale Corporation, which is the world’s second largest retailer after Walmart based on Long and Singh’s model shows that the managerial strategies is aimed at enhancing benefits to employees and customers. The business strategy of the wholesale supermarket revolved around offering quality products to customers at prices which are cheaper than the competitors of Costco. This enables the supermarket chain earn immense revenue by serving both middle and upper class customers. The company redirects an immense part of the revenue towards paying high wages to its employees. The analysis of the case study shows that this managerial approach has significant positive impacts on the organization’s business turnover. The first outcome is that it allows the company attract upper class customers by offering them premium quality products at low prices. The second outcome can be inferred as the outcome of the first outcome. Generation of high revenue enables the American supermarket chain provide its employees higher wages than the industry average (Business.Financialpost.Com). This motivates its employees to perform better and enables the supermarket retain talented employees. The outcome of this efficient employee and customer management is the international presence of Costco and its acquisition of second position in the global wholesale market.

Part 2: Kind of managerial strategies chosen by Costco, reason and jsutification:

The managerial strategies which Costco uses can be categorized as integrated strategy which stands on enhancing the value creation to the consumers by offering superior quality products at lower prices. According to Handfield, Robert B., et al., integrated strategy can be defined as the managerial strategy in which originations keep the cost of production or offering services low. They are as a result able to fix low sale prices without compromising on the quality of products. This strategy enables firms to offer premium products to both upper and middle class customers at low prices. Foss, Nicolai J., and Tina Saebi opines that attracting upper and middle strata consumers enables the business firms applying integrated strategy earn immense revenue which provides a wide substratum to diversify their cost of operations, thus increasing the profit margins earned for sale of goods. An analysis of case study of Costco provided would show that the supermarket chains maintains low cost of production by avoiding high advertising expenses and keeping employee turnover expenditures low (Stone). Costco charges low prices for its goods and attracts large consumer base. It can also be reasoned that Costco uses integrated managerial strategy considering that the fact that the company maintains low variety of stock of goods and emphasizes on quality and cost benefit to consumers (Forbes.Com). This strategy enables the supermarket keep its brand acquisition costs low and leverage its pricing competitiveness. Thus, it can be justified from the analysis that Costco uses integrated managerial strategy.

2.Part 1: Evaluation of behavior and attitude model of Costco:

The behavior and attitude model of Costco stands on integrated managerial model. This can be pointed out from the fact the American supermarket chain maintains low prices for its products yet retains high quality. DaSilva, Carlos and Trkman point out in this respect that maintaining high quality and low cost of products enable the supermarket chains enhance value of the customers’ purchase. Thus, it can be pointed out that as far as Costco is concerned, its attitude model seeks to enhance value of the customers’ purchase. This value creation chain has enabled the supermarket chain create value and earn immense revenue.

Part 2: Behavior Costco is trying to encourage and its alignment with managerial strategy:

Costco is trying to encourage a customer and employee centric centric organizational behavior. The supermarket chain adopts two significant practices namely, value creation to customers and value creation to employees. Firstly, the supermarket chain offers high quality products at low prices. This strategy enables the supermarket chain create value for the customers and generate high revenue. The second pillar of the managerial strategy of Costco is employee value creation. The supermarket chain pays its employees high salary which motivates them to perform higher and serve customers more efficiently. It can be pointed out that the two pillars of behavior which Costco encourages are well aligned with the integrated managerial strategy of the organization. This is because providing higher rates of wages to employees than competitors enhances the motivation of the latter to serve customers better. The supermarket chain is able to maintain low employee turnover expenses and retain its employees being poached by its strong competitors like Walmart. Again, efficient customer services enable the supermarket chain retain customers and prevent the competitors from poaching them to a large extent. Thus, it can be inferred that the attitude of Costco towards customers and employees are aligned with the managerial strategy.

Part 3: Justification of managerial strategy based on Porter’s Typology:

It can be justified that Costco’s managerial strategy draws its strength of Porter’s Typology or Generic strategies. Salavou points out that the Porter’s Typology of Competitive Strategies is grounded on four aspects namely, cost leadership, differentiation focus, cost focus and differentiation focus. As far as Costco is concerned, it can be pointed out that the supermarket aims to maintain cost leadership by maintaining lower cost of production. Similarly, it charges lower prices for its products which differentiates it’s from its competitors like Walmart. Moreover, it offers high premium quality products at this low prices which differentiates it from its competitors. The supermarket carries out continuous market research which enable it to remain abreast with the changing demand patterns of customers. Costco instead of marketing an immense product line focuses on selected varieties of products within each product line aligned with the needs of the customers. This enables it to achieve differentiation focus and differentiate it from its competitors which are not able to focus on both quality and prices simultaneously. Thus, the discussion can be closed by mentioning that the managerial strategies of Costco are well aligned with Porter’s Typology.

References:

"Business.Financialpost.Com". Business.Financialpost.Com, 2018, https://business.financialpost.com/executive/c-suite/a-stick-and-a-carrot-at-the-same-time-why-costco-pays-twice-the-market-rate. Accessed 24 Sept 2018.

"Forbes.Com". Forbes.Com, 2018, https://www.forbes.com/sites/glennllopis/2011/01/31/the-costco-factor-to-win-the-business-game-you-need-to-change-how-you-think/#201c8753626d. Accessed 22 Sept 2018.

DaSilva, Carlos M., and Peter Trkman. "Business model: What it is and what it is not." Long range planning 47.6 (2014): 379-389.

Foss, Nicolai J., and Tina Saebi. "Fifteen years of research on business model innovation: How far have we come, and where should we go?." Journal of Management 43.1 (2017): 200-227.

Handfield, Robert B., et al. "How can supply management really improve performance? A knowledge?based model of alignment capabilities." Journal of Supply Chain Management51.3 (2015): 3-17.

Salavou, Helen E. "Competitive strategies and their shift to the future." European Business Review 27.1 (2015): 80-99.

Stone, Brad. "Bloomberg.Com". Bloomberg.Com, 2018, https://www.bloomberg.com/news/articles/2013-06-06/costco-ceo-craig-jelinek-leads-the-cheapest-happiest-company-in-the-world. Accessed 24 Sept 2018.