Semester Case Project

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Consider Costco, which must design a strategy that will lead to success in the Amazon environment.


Costco has enjoyed healthy sales and profit growth generally in the 6–10 percent range through the Amazon era. In 2016 it had grown to nearly 120 billion in sales with nearly $2.5 billion in profit that come from over 700 stores (up from 600 in 2011).

Costco focuses on low prices and high volume with a target market of small businesses and large families. The low prices in part comes from an operational strategy that leads to a cost advantage. The assortment is limited; there is usually only one brand for any category, which gives Costco significant market power and logistic efficiencies. Where a typical Walmart Supercenter carries over 140,000 products, Costco carries fewer than 4,000. The items are generally bulk-packaged, which means customers buy more of the item on their Costco trips and the brand involved can justify having Costco sell the brand at a sharply lower price. It has a well-regarded house brand, Kirkland, that is sold at a very low profit margin—around 15 percent mark-up—and generates about 12 percent of the sales. Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. Costco does not have a large advertising budget.

Costco has a membership model, which generates a close customer relationship and commitment plus significant revenue since the memberships represent about 15 percent of the value of the firm. The in-store experience is unique with many tasting opportunities, some upscale brands, and a lot of energy. The meat and produce selections have an outstanding quality reputation and include many organic options.

Costco was behind in e-commerce in 2016, generating only about 3 percent of sales. The firm had a slow start and a rather poor web presence compared to Amazon and even to its other competitors.


1 Why is Costco immune from the Amazon threat? Will that continue going forward? What are the strengths and weaknesses?

2 How should Costco react to the Amazon threat? Besides create a more competitive website, is there anything that Costco could do to leapfrog competitors on the e-commerce side?

3 How does Amazon’s recent purchase of Whole Foods threaten Costco? What should Costco do in response?


The essay answers the questions clearly with sufficient explanation. It reflects original thought, sound logic and provides ample supporting detail, which needs references and citations. This will make for a strong, convincing response. The writer projects a consistent and mature voice throughout the response.

The essay provides multiple references to specific information presented in the chapters and/or learning materials.

All sentences are well constructed and have varied structure and length. The author makes no errors in grammar, mechanics, and/or spelling.

And the metirial is attached.

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Assignments • Plagiarism • Rubric – Educated, thoughtful response (should include your own thoughts but can bring in some outside material in addition to own thoughts if properly cited; examples are great) – Related to content in chapter (need to discuss how the discussion question or case relates to the chapter contents) – Topic-focused and Readability – Thoughtful responses (need to respond to questions on your own comments; in your responses to other threads, bring something new to the conversation—e.g., examples) Creating Advantage Customer Value Leadership (Ch 6) Customer Value • Performance value is having the best product or service offering • Price value is having the lowest price over the life cycle of the product • Relational value is being able to offer a customized offering or solution Customer Value • To achieve customer value leadership, companies should strive to excel at one type of value (performance, price, or relational) and at parity for the other two • Companies should not try to be all things to all customers, and instead should focus on a clear and specific value proposition. The business model, or how the firm creates and captures value from the target segment, should be aligned to meet this value proposition. Application • Compare brands of selected industry on price, performance, relational value Chapter 7 Building & Managing Customer Relationships Customer Decision Journey • Complex, nonlinear process that customers go through as they are: – Triggered to make a purchase – Gather information – Form a consideration set – Develop preferences – Make a purchase – Evaluate their choice post-purchase • Cognitive Dissonance or Shopper’s Remorse (Buyer’s Regret) Discussion • What is the decision journey for going out to dinner? • What are the steps post-purchase? – How can a restaurant owner manage these? Customer Experience • Experience with all aspects of a firm • Overpromise, underdeliver • Underpromise, overdeliver • Customers prefer experiences that improve over time vs. plateauing or getting worse over time even if sum of satisfaction is same • Peak-end bias—overall satisfaction is affected most by peak (good or bad) • The Power of Moments (Chip Heath & Dan Heath) Customer Loyalty • Behavioral Loyalty – How frequently customer purchases when the need arises – Not out of attachment – Habit, family, lack of convenient alternative • Attitudinal Loyalty – Reflects deeper trust or commitment to company and offerings • What tactics do companies use to build loyalty? Chapter 8 Creating Valuable Customers Creating Valuable Customers • Customers are valuable assets that should be actively managed to enhance profitability • Customer equity—sum of the value of firm’s customers over time (LVC) • Star customers both bring high value to and derive high value from the firm • Free-riders derive high value but bring low value to firm • Vulnerable customers bring high value but derive low value • Want to get the right quantity of high-quality customers and keep them engaged • Fire customers? The Purchase Funnel • A tool to help managers sort customers into different stages in the purchase process and monitor their success at moving customers through that process • This approach helps firms to see when in the process they are losing customers, which can be used to improve customer progress Common Problems • Poor quality leads • Not enough leads • Sales & marketing not working together CLV (Customer Lifetime Value) • Most companies don’t know – So…don’t know how much to spend to attract or retain customer • Firms should be willing to spend more to acquire and retain customers with a higher CLV Chapter 9 Building & Managing Brand Equity Discussion • What are the strongest brands you can think of? • What makes them strong? Building & Managing Brand Equity • Brand equity—set of assets & liabilities linked to a brand • 3 types of brand assets: brand awareness, brand loyalty, brand associations Brand Awareness • Provides a sense of familiarity, credibility, and relevance • Customers are more likely to consider brands that are top-of-mind (TOMA) • Name dominance: Kleenex, Clorox, Band-Aid, Jell-O, Crayola, Facebook, A-1, Viagra • Study on blenders found that more than 20 years after GE stopped making blenders---still the 2nd most preferred brand! • Recognition vs. Unaided Recall—which is better? Brand Loyalty • Research Article • Resistance to switching based on simple habit, preference, switching costs • A loyal customer base: – Reduces the cost of marketing – Provides an entry barrier to competitors – Supports a positive image – Provides time to respond to competitor moves Brand Associations • Directly or indirectly linked to memory • Brand associations can and should go beyond attributes and benefits to include dimensions such as brand personality, organizational intangibles, product category associations, etc. • Brand personality research Brand Identity • Brand identity = aspirational associations • The most important of these associations, the core identity, should be supported by proof points and/or strategic imperatives and should be the driver of strategic programs including product development • In contrast, while the brand identity represents long-term aspirational associations and is multi-dimensional, the brand position represents the short-term communication objectives and is more focused
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Costco’s Strategy to Compete in the Amazon Environment



QUESTION ONE: Why is Costco immune from the Amazon threat? Will that continues
going forward? What are the strengths and weaknesses?
This can be best analyzed based o the different aspects of SWOT analysis which
described as a strong tool applied in analyzing your weaknesses and strengths as well as
identifying the available opportunities in addition to the threats being faced. Most business
companies employ such a technique in a bid to curve a sustainable strategy that can help a
company curve in a competitive market or industry (Jackson, Joshi & Erhardt, 2003).
Research indicates that this Costco has consistently maintained a high position based on
the loyal membership base of the company which has greatly increased due to the numerous
discounts being offered. Costco offers a wide range of grocery items along with household items
such as clothes, high-quality electronics as well as many other business based services. Most of
the members incur over $55 annually in a bid to access the entire chain of the store. Despite the
fact that Amazon has greatly grown, Costco has continued to be loyal to its customers and added
more reputation (Costco, 2017).
Many analysts have continued to note that Costco is greatly immune to the threat created
by the different based retailed. Despite the fact Costco has dominated greatly in
high tech gadgets alongside other businesses, it also greatly depends on the sales generated from
gasoline and sales. Though most o its leaders have continued to deny that the company is not
faced with any ...

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