Strategic Management at Wholefoods and Costco, Essay Example

Wholefoods has effectively employed the differentiation strategy. This multiproduct strategy has enabled the chain store to provide organic and natural foods to the clients. This strategy targets a specific market, creating its own niche within the broader food industry. There are a number of instances where the differentiation strategy is evident at Whole Foods Market.

Marketing and Sales: The Company has maintained a stable and cordial relationship with its customer base, developing customer loyalty over the years. The company has also embraced e-commerce with the inception of its website (Rothaermel).

Human Resource Management (HRM): Efficient and high-quality hiring and training procedures that involves the current employees. Employees feel valued. The company has created a conducive working environment for it employees by valuing their opinions and suggestions as far as customer service and management performance in concerned. Current employees get the opportunity to groom and train new employees to maintain Wholefood’s standards of quality and customer service.

Procurement: The Company has maintained a strict and high standard of quality in the organic foods accepted from suppliers. This has created a high-value market reputation to company’s franchise as only high-value market clients are willing to pay for high quality products (David).

Value Drivers

Wholefoods employs a number of value drivers to keep itself differentiated from its competitors in the organic foods industry.

Product Features

The company’s product features are its main value drivers. These aspects of the business affect its position in the market, relative to its competitors.

• Organic food
• Local food
• Sustainable fishing
• Animal welfare standard
• Volume discount
• Green packaging(Rothaermel)

Customer Service

The company has engaged in rigorous customer service activities so as to respond to changing market needs and tastes. They include;

• Online ordering
• Trained staff

Customization

The company has engaged in a number of endeavors to create customer loyalty. This is through customization of their products to suit certain customer needs. They include;

• Half fruit
• Customized cereal and grains

Complements

The company engages in a number of activities that are not business oriented. These activities are targeted at meeting the company’s social responsibility to the communities in which it conducts its operations. They include;

• Supports the community
• Give 5% of profits to charity(David)

Cost Drivers

• Economies of Scale: the company currently enjoys economies of scale on two fronts; (1) the company is the leading retailer of organic food, having the ability to move considerable amounts of their product in a day. (2) The company is switching to even larger suppliers with the ability of further driving down its costs due to bulk purchase.
• Product Range: the company has opted to reduce its product range. This includes eliminating the candy range of products. The company could potentially increase its product range to increase its market share. Since the company is involved in the whole foods industry, it could potentially expand into food production, such as fresh juices and smoothies.

Costco

Costco employs a cost-leadership strategy. This has been achieved through numerous cost-saving strategies employed throughout the production, operations and marketing functional areas of the business. This has allowed for the company to realize discount retailing without affecting profitability which results from a business model that focusses on rapid inventory turnover and high-sales volume.

Marketing and Sales: The Company has effectively developed a loyal fee-paying customer base. Loyal customers are rewarded with the lowest prices on an unlimited selection of goods. Increased membership stabilizes sales and revenue.

Human Resource Management: the company has developed a strong and close family of employees. Employees are valued and receive the best wages in the market. As a result of the high-sales volume strategy, the company can afford to adequately compensate its employees, keeping them motivated. This allows employees to increase sales as they feel valued (Lutz).

Procurement: Costco focuses on the low cost provider in the market. This avails the company the ability to provide the best competitive prices in the market. The low-cost provider approach mitigates operational and other associated costs, increasing revenue and profit margins.

Value Drivers

• Volume discount: the company offers further discount of volume purchases
• Warehouse club; the warehouse club increases customer loyalty by offering fee-paying clients the lowest prices on an unlimited assortment of goods.

Cost Drivers

• Product Range: the company has a wide range of commodities for the most competitive prices
• Economies of Scale: the company sources from the largest suppliers to ensure adherence to the low-cost provider.
• Low-Cost Providers: the company sources its products from providers with the most competitive price, allowing for low-prices on retail. This can be enhanced to further improve the company’s strategic position. Sourcing products from the larger suppliers would considerably increase profit margins due to lower prices associated with larger suppliers. Larger supplier already enjoy economies of scale. As such, these economies of scale would be replicated in the prices set by the provider(Dussart 66).

Customer Service

The company’s link with the customers is one of its strengths. This is achieved through;

• Warehouse club
• Highly trained staff

Complements

The company is unique in the market owing to the fact that it offers its employees the best level of wages in the market. This considerably differentiates the company in the chain supermarket industry.

Based on the analysis of the information provided and research, Costco is best positioned for continued success in the supermarket industry. The company depicts a number of elements within the organization as well as its external environment, which appear to work in its favor. In the 21^st century, all business are seeking to improving sales, revenue and profits by mitigating costs. Costco has managed to adopt a business model that maintains costs at their minimum while ensuring high returns. Despite the fact that the company realizes reduced margins on every [product when compared to its competitors, it has still realized increased profits over the years.

The company’s innovative club ensures a growing customer base that is loyal to the company’s. This customer base is responsible for the company maintaining high sales volumes as membership has skyrocketed with the introduction of the lowest prices on an unlimited range of products. While Wholefoods also depicts a growth trends in the future, its premium pricing limits its ability to realize its full market potential as it appeals to a smaller segment of the market. The high-value market, though with more financial ability, constitutes a smaller portion of the market in the United States. Costco targets the lowest-level consumer by offering them the most competitive prices, relative to the quality of the good on sale.

Works Cited

David, Fred R. Strategic management : concepts and cases : a competitive advantage approach. 14th. Harlow: Pearson Education, 2013. Print.

Dussart, Christian. “Costco.” Dussart, Christian. Creative cost-benefits reinvention: how to reverse commoditization hell in the age of customer capitalism. New York: Plagrave Macmillan, 2010. 65-71. Print.

Lutz, Ashley. “Costco’s simple strategy for outperforming Wal-Mart and Target.” 6 October 2014. BusinessFinancialPost.com. Internet Source. 26 March 2015. <http://business.financialpost.com/2014/10/06/costcos-simple-strategy-for-outperforming-wal-mart-and-target/>.

Rothaermel, Frank T. Strategic Management: Concepts. New York: McGraw-Hill Irwin, 2013. Print.