Question

Prepare porter's 5 forces model for Costco and the industry ,

where its competitors are Walmart, amazon, Target, Kroger.

Answer 1

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Following are the analysis of porter's 5 forces acting on Costco

• Bargaining power of suppliers: LOW: Apart from a couple of major big brands like Coc Cola or Pepsi, most of the suppliers have very little bargaining power. Costco is a large retailer and purchases in bulk which gives them immense bargaining power over the suppliers. While Costco can easily switch its suppliers, its suppliers cannot afford to lose its such big retail space that Costco offers
• Bargaining power of buyers: MODERATE: While Costco buyers purchase in bulk, the bargaining power of individual buyer is very limited. With such a large customer base, losing a few customers has an insignificant impact on Costco. While its customers may choose to shop from competitor retailers like Walmart, Target etc, they will miss the quality service that Costco offers
• Threat of Substitute:LOW TO MODERATE: The low price and excellent service that Costo offers is hard to be substituted. However, there is a moderate threat of substitution by eCommerce channels
• Threat of new entrants: LOW: It is not easy to set-up a large supply chain from scratch and compete with the existing big players like Costco and Walmart. Moreover, these big chains are established brands and that is not possible to create for a new player
• Intensity of rivalry: MODERATE TO HIGH: Intensity of rivalry is moderately high among the several big players in the industry like Walmart, Target, Costo, Kohl's etc. They compete to gain market share and majorly compete on cost