Case Study Analysis: Costco Wholesale's Business Environment (BUS 101)

This case study provides a comprehensive business environment analysis of Costco Wholesale, examining its operations through various frameworks. The analysis begins with an introduction to Costco and its global presence, followed by a detailed examination of its external environment using PESTLE analysis, which covers political, economic, social, technological, environmental, and legal factors. The report then applies Porter's Five Forces model to assess the competitive landscape, including the threat of new entrants, substitute products, and the bargaining power of customers and suppliers. Finally, a SWOT analysis is conducted to evaluate Costco's internal strengths, weaknesses, opportunities, and threats. The study concludes by summarizing the key findings and implications of the analysis, providing insights into Costco's strategic positioning and future prospects in the retail market. This report aims to provide a thorough understanding of Costco's business strategies and its response to market dynamics.

Case study analysis Costco

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
PESTLE Analysis........................................................................................................................4
Porter Five Force.........................................................................................................................7
SWOT Analysis...........................................................................................................................9
CONCLUSION..............................................................................................................................13

INTRODUCTION
Business environment is considered as one of most important aspect of an organization.
Business environment is considered as sum or collection of all internal and external factors that
can affect the business or decision making of an organization(Hamilton and Webster, 2018). This
processes can be used by the business organization to get better overview of the market place in
order to make proper policies and changes in the organization to improve the performance of
organization in market place. This report is providing business environment analysis of Costco
Wholesale. Costco Wholesale is an American global corporation which is operating in chain of
membership only clubs of warehouses. It is considered as third largest retailer organization after
Walmart. Company was established in year 1976 in San Diego, California as Price Club. Later in
sept 1983 it was established as Costco Wholesale in Seattle, Washington. Organization was
founded by James Sinegal and Jeffrey Brotman. Currently company is operating on 785 locations
around the world. mainly the operations area of organization considered as- Unites States,
Canada, United Kingdom, Australia, Mexico, Japan, China, Taiwan, Spain, France, South Korea
and Iceland. Various internal, external and competitive factors for the organization will be
analysed in order to know their impact on the performance of organization in market place. For
external analysis porter analysis will be used in the report. For the internal factor analysis SWOT
analysis will be used to analyse the internal capabilities of the company in market place.
Competitive analysis for the organization also will be conducted in order to perform porter five
force will be used in study.
MAIN BODY
To analyse the market place considered for organization can use different tool and
techniques in order to collect information and data related to business environment in market. In
the analysis of business environment process this is important to perform macro and micro factor
analysis to design effective policies and decisions for the business of organization. For the
External factor analysis or macro factor analysis organization can us PESTEL analysis. PESTEL
analysis is known as acronym of six different external factors which are extracted from the
external factors that are important for the organization. Main external factors that are categorised
to develop better understanding about these factors. Categories of external factors are- Political
Factors, Economical Factors, Social Factors, Technological Factors, environmental factors and

legal factors. These factor can be considered by the organization to make effective changes in
organizational polices and processes as per the impact of external factors.
PESTLE Analysis
Political Factors
Political factors are considered as factors that are related to the decisions that are taken by
the government in order to keep the actions of the organization limited in order to maintain
political and economic stability in country. There are various decisions and policies of the
organization are need to be considered by the company to make effective changes in market
place to get better result with their business operations in market place.As per the decisions of
the organization for the business organization there are different opportunities Costco Wholesale
have to grow their business in market place(Prajogo, 2016). Policies that are implemented by the
government are supporting the Costco to grow their business in market place. The business
policies that are designed by the government are positive for the organization to run their
operations in market place with higher effectiveness. The foreign policies that are effective for
the business or goods transaction in market place. Organization can take advantage of the
government policies in order to perform global business expansion. Costco can take the
advantage of the government policies in order to grow their business in national and international
market.
Economic Factors
This is most important for the business organization to consider the economical factor in
order to maintain economic stability in the organization to make the business profit stable and
suitable to ensure the profitability of the Costco in market place. Mainly these factors are
associated with the stability of the nation’s economy. It has major impact on the performance of
the business organization in market place. Better economic condition in country can provide
more opportunities to the organization to improve their marginal profit in market place. Effective
economic conditions can help the organization to make international trade agreements. In
developing market, Costco can make proper efforts in order to gain proper benefits of market
place. The economic conditions in market place can encourage the organization to generate
higher profit in market place. The economic stability is country is also good for organization and
it can help the Costco to maintain effective performance in market place. Some challenges can be

faced by the organization in initial level of business growth but later organization can implement
various processes in the market place. Organization also can take financial risk to generate
higher revenue from target market.
Social Factors
Social conditions are related to the different personal and social values of the people who
are connected to the organization from different perspectives. Some of the major considerations
that can be analysed the social conditions of the country. For example population of local area,
education level of people, per capital income of individual person and diversity of the local
area.Population of the country is effectively high to run their business in market place. Company
can target their target audience in order to run their Costco with effective profit.Literacy rate in
country is also high that can allow organization to higher local talent in order to fulfil workforce
needs of organization(Kozubikova, Homolka and Kristalas, 2017). It can help them to recruit
local people in order to run organization effectively. Percapital income of the people is directly
related to the range of products that can be sold by organization to the clients. This can allow the
Costco to sale high range and branded products to the customers. This is how these factors can
help the organization to gain higher productivity in market place. In the social factors some other
considerations also can be used by the organization that are related to the personal and social
values. This is important for the organization to consider ethical consideration in order to
develop effective and positive
Technological Factors
In current time this is important for the business organization to effectively consider the
technology factor in order to generate higher profit in market place. As retail organization this is
important for the organization to maintain proper technologies in organization to complete their
business operations with higher effectiveness. The technological factors are categorised in three
considerations which are technology that is used by the competitor business organization in
business operations, second consideration is about the technology that is used by the organization
in internal and external operations and the last category is about the new updates in the
technology that is considered as the current technological trends in market place(Eling and
Schaper, 2017). The current technology which is used by the Costco is highly advance and
effective for the operation of the organization the market place.There are different competitors in

market place who are need to be considered for technological analysis. Competitors of the
organization are using similar or previous version of machines to run their business operations so
this is not major threat for the organization to consider the technology that is used by other
organization in the market place. Other factor which is need to be considered by the organization
is about the technological update in market place. Technological update as per the current trends
of the market place. new updates in market place are highly reliable for the Costco and also the
technology that is used by the organization also can be used with new developments in business
operations. This is how the technological factors for Costco are not that effective for
organization and company can effectively run their business with effective performance and
profitability. There are also opportunities for Costco in market place like e commerce that can
improve the performance and sales of organization and performance in market. This can improve
their profitability. This can influence the decision of the organization to use these technology to
get better response from the market place and gain higher profit.
Environmental factors
There are various factors are considered by the organization that can affect their
operations in the market place. Some of the major considerations that are need to be considered
by the organization are climate change, Low carbon lifestyle (Virglerova, Dobes and Vojtovic,
2016). There are various legislations are need to be considered by the organization to protect
biodiversity and environment in order to avoid hampering the nature. These legislations can
force the organization to implement certain practices which are sustainable and good for
environment. This can affect certain operations of the organization that can affect the operations
of the company. This is important for the Costco to implement sustainable technology in
operations to meet the conditions and needs of the legal laws made by legal authorities. This is
how organization can made some changes in business operation in order to keep their business
operation more effective and legal to run business in market place.
Legal factors
Legal factors are more important for the organization to gain higher productivity in
market place. There are some laws are defined by legal authorities in order to keep actions of
organization limited in order to gain higher productivity in market place. Some changes in laws
like employment law, tax reforms and GMO regulations are need to be considered by the Costco

to keep their actions legal and ethical issues in order to maintain continuity in business
operations and retain productivity in market place.
These are some external factors that are need to be considered by the organization to
evaluate the impact of these factors on the decision making and policies of the organization to
maintain their performance in the market place.
Porter Five Force
This is important for the business organization to keep evaluating their positioning in
market pace to gain advantage over other organization in market place. Porter five force model is
known as frame work that can be used by the organization to analyse the competitive analysis in
market place. There are five different forces are mainly analysed by the organization to gain
higher productivity in market place(Somers, 2019). The major forces that are need to be
considered by the organization are through Porter Five Force Modal are- threat of new entrant,
threat of substitute, bargaining power of customer, bargaining power of supplier and existing
rivals in the market place. These all considerations can be made by the organization to evaluate
their performance in market place.
Threat of New Entrant
As new entrant in marketplace this is highly challenging for organization to run their
business effectively among the organization that are already present in market place. For Costco
this is high challenging to perform business as new entrant in market place. In this case
organization can face severe challenge in order to keep their operations profitable in market
place. For Costco this threat is moderate because there are various organizations are there that
can affect the operations of the business organization. This threat can be reduced by the
organization by implementing some strategies in order to attract new customers in order to
maintain high marginal profit from business operations. In this process Costco can use cost
leading strategy to access and attract more customers. This goal also can be achieved by the
organization through providing better quality of product and services at effective cost to develop
largercustomer base in the market place.
Threat of Substitute

This is not difficult for the business organization to develop products and services that are
offered by Costco Wholesale in market place (Fabuš, 2017). The services and products that are
provided to the customers are mainly related to the retail sector which are highly imitable. This
threat is high for organization. There are some competitors in market place like Woolworths are
providing similar services to thecustomers so this will be high challenging for the organization to
avoid the substitute product of other country. This challenge can be avoided by designing
product as per the requirement of the customer. In this process Costco can target to provide more
featured and satisfactory product to the customer. This is how organization can avoid the threat
of new entrant in market place to keep their business profitable for long term.
Bargaining Power of Customer
This threat can be considered as threat of the organization where customer can threat the
organization by selecting other service provider available in market place. This is major threat
for organization. In case of Costco Wholesale this threat is high because there are different retail
stores are available in market place(You, Dal Bianco, Lin and Amankwah-Amoah, 2019). This
threat can be reduced by organization through offering high quality products at low effective
price to the customer in order to make them loyal to organization. This threat also can be reduced
by maintaining effective relationship with customer through marketing communication channels.
Bargaining Power of Supplier
Bargaining power can be considered as the capability of the supplier to threaten the
organization by asking them to pay more to maintain supply of raw material. This is major threat
for retail sector organization. In case of Costco Wholesale this threat is moderate and
organization can take different steps to reduce the power of supplier to get raw material at
effective rate in order to maintain high marginal profit in market place. For example organization
can improve the number of suppliers to reduce the power of supplier. Through these process
power of supplier can be effectively controlled. This power also can be reduced by the
organization by develop own manufacturing plant to maintain continuous supply of material and
products to run Costco effectively. This how Costco can use these process to reduce the power of
customer in market place.
Existing Rivals in Market Place

This is major considerable factor that is need to be considered by the organization to keep their
competitive positioning effective in market place. This threat of existing rivals is very high for
organization and it can affect their operations along with share in profit from the market place.
thisis important for the organization to considered the current rivals in market place to develop
effective business strategy to gain higher productivity in market pace. In case of Costco
Wholesale there are different local retail stores are there in market place that can affect their
performance and profit in market place(Saleh and Watson, 2017). So, it can be considered as this
threat for organization is moderately high. This is important for the COstco make proper
consideration to reduce the threat of the organization to retain their performance in market
placeOrganization can use different processes can be used by the organization to improve the
performance of the organization in market place. For example company can improve marketing
process to attract larger customer base to generate higher profit and performance standard in
market place. This force can be avoided by developing more effective business polices to gain
higher productivity in market place.
SWOT Analysis
Swot analysis gives contributes in analysing what are the strength, weakness are there in
Costco and opportunities and threats allow to identify what are the opportunities that Costco can
utilize and what are the threats from which Costco needs to safeguard and prepare so that they
cannot affect it negatively.
Strength
Business Model
Business model of Costco is one of its biggest strength. This is membership based
business model and this model allows and enables that only paid members of Costco can shop at
the stores of Costco (Kanjanapradit, Nuttapat, Alexander Benos, and Timotheos Angelidis 2017).
These members in Costco are charged with annual membership fee and then they can shop at
Costco and they are provided with best shopping experience and they are allowed to shop at
discounted prices which are otherwise would have been higher at other stores. This model of
Costco is its biggest strength and enables it to take competitive advantage. Through this model of
business Costco ensures that products sold by it are available at less price to its customers than
its competitors.

Ability to provide differentiated shopping experience
This is the strength of Costco that they are able to provide differentiated shopping
experience to their customers. Customer experience plays key role in success of the organisation
and in relation to Costco they are able to provide experience on the basis of price. Prices of
Costco are less than other retail organisations compared to traditional retail competitors of the
company. Wider selection and choice available for the products which are available at Costco
and Sam’s Club these includes 950 fresh food selections and these are also available in
selectively smaller size of package size. Customer can also get improved experience in their
shopping by continually refreshed assortments in general merchandise. Price and products of
Costco both are attractive for its customers.
Experienced management team
This is very important factor in success and growth of any organisation and in Costco
their leader and management team both are very experienced and competent. Their approach of
managing the Costco has significant contribution in success of the Costco. From their leader and
CEO Jim Sinegal to other people involved in management they all are experienced and effective
in management. They have also established effective strategy and manpower management
practices. Where senior management is responsible for developing strategies and policies middle
level management has responsibility that the strategies are properly executed and collectively
both has worked efficiently in Costco.
Loyal customer Base
Through its business model and differentiated experience which it gives to its customers
and members Costco has managed to create loyal customer base (Sarathe, Ajeet, Rajesh Gupta,
A. L. Basediya, and Venkata Satish Kuchi 2018). Loyal customer base of Costco consist of 5
million cardholders worldwide which means that 5 million customers are there with Costco and
they are growing each and every year and people also renewing their membership with Costco.
This is a bigger validation of the loyal customers which are there with Costco. Customer when
are associated with Costco by membership fees chances are higher that customer remain loyal for
the Costco.
Less operational cost

Costco manage to have its operational cost as low as possible and this allows them to
remain less reliant on the sales for the purpose of profit margin. Less operational cost increase
savings of the Costco and through this saving Costco allows its customers to save on their
shopping. No advertisement policy of Costco is also a contributor in its less prices.
High Quality of Products
Costco provides and sell its products at low cost but low cost of Costco does not affect
and compromise with the quality of the products. This is the policy and strategy of Costco to
provide its members with high quality of products at the competitive price . Costco enables it to
do so because of its direct bargain and direct purchasing from manufacturers.
Weakness
Limited product selection
Products available at Costco are in huge amount in every type of clothing but there are
limited selections when it come to individual choice there are limited selection options available
(Liu, Hanpeng, Yaguang Li, Michael Tsang, and Yan Liu 2019). This selection at Costco is
limited and less in comparison to other competitors of the company. This affects Costco
negatively because customers are looking for the store where they can select from more available
options.
Limited Global Presence
Costco has limited presence in the world and this is its weakness as Costco has successful
business model which it can apply to various countries but its limited presence limits its
customers and growth. Its majority of warehouses are there in US and Canada and they account
for 80% revenue of Costco. This means that its global dependence outside US and Canada is
only 20% which is comparatively very less. Costco can increase its operations in other countries
as well and take advantage of its business model.
Limited Digital Advertising
Its digital advertising and e commerce activities are limited and this is why its customer
base is aging customers. New age people and millennial generation prefer to shop online and
other than this prefers shopping through local stores (Martínez, Ascensión Barroso, Ramón

Sanguino Galván, and Samsul Alam 2017). Online shopping allows them to get goods delivered
at their doorstops. E commerce presence of Costco is limited and this is why it is not able to and
less able to attract new and millennial generation.
Research and Development
Research and development are two important part of the success of any organisation
Costco also invest its significant amount in research and development (Huddleston, Patricia,
Eunyoung Christine Sung, Stella Minahan, and Constanza Bianchi. 2016). But the amount that
Costco spends is still lower than its major competitors.
Opportunities
Online presence
Online presence of Costco is its one of the weakness and this can also be its opportunity
improvement and increase in its online presence will increase its customers and will also attract
millennial customers towards Costco. E-commerce platform is increasing and its users are also
increasing and Costco can take advantage of this and increase its revenue.
Advertisement
Costco believes in no advertisement policy and reason behind this is very influencing that
they can give benefits to their customers. But advertisement plays an important role in attracting
and increasing customers for the company. Costco can adopt digital advertisement policy this is
less costly and effective in increasing visibility of the company and at the same time increasing
customers. Increased visibility of the company enables and motivates customers to buy the
products of that company. Digital and social media marketing will also not cost much to the
Costco making less impact on its overall cost.
Global Expansion
Dependency of Costco on international and global market is limited because of limited
presence of Costco in global market and this is an opportunity available to Costco. Increasing
and enhancing global presence will increase its customer and dependability on global market
((Bull, Joseph William, Niels Jobstvogt, Anne Böhnke-Henrichs, André Mascarenhas, Nadia