Threat of Substitutes or Substitution (Strong Force) This element of the Five Forces analysis shows that the external factors leading to the bargaining power of suppliers are among the least of Costco’s concerns. In addition, most of Costco’s suppliers have low forward integration, which means that they have minimal control on the distribution and sale of their products in Costco warehouses/stores. Suppliers’ bargaining power is further weakened because the overall supply is high, which means that a single supplier’s action is unlikely to significantly impact the level of total supply available to Costco. Large population of suppliers (weak force)īecause of the large population of suppliers, no single supplier can easily impose its demands on firms like Costco.The following are the external factors that create the weak bargaining power of suppliers in Costco’s case: The demands and impact of suppliers on businesses are covered in this element of the Five Forces analysis. Suppliers affect Costco’s business and the retail industry environment. Bargaining Power of Costco Wholesale’s Suppliers (Weak Force) These external factors indicate that Costco Wholesale Corporation must consider the bargaining power of buyers as among the top issues in this Five Forces analysis. As a result, it becomes even easier for them to transfer to the retailers that have the best offers. Also, because of the Internet, Costco’s customers can easily access information about prices and offers among competing retailers. In relation, Costco consumers have many substitutes to choose from. The low switching costs mean that Costco’s customers can easily transfer to other retailers like Walmart’s Sam’s Club. High quality of information (strong force).High availability of substitutes (strong force).In Costco’s case, the external factors that lead to the strong bargaining power of customers are as follows: This element of the Five Forces analysis considers the influence of customers on firms’ effectiveness in the retail industry environment. Bargaining Power of Costco’s Customers/Buyers (Strong Force)Ĭostco must ensure that it satisfies consumers. Thus, based on this element of the Five Forces analysis, competition is among Costco’s most important concerns. In addition, the low switching costs are an external factor that makes it easy for consumers to transfer from Costco to other firms. Also, the high variety of firms makes the competition tougher, as firms capitalize on their unique competencies to compete against Costco. The retail industry is saturated, with many firms aggressively competing against Costco.
The following are the external factors that contribute to the strong force of competitive rivalry against Costco: This element of the Five Forces analysis refers to the influence of competing firms on each other. Competitive Rivalry or Competition with Costco Wholesale (Strong Force)Ĭostco Wholesale Corporation must counteract the effects of competition on the retail industry environment. Costco also needs to improve its goods and services over time to address the potential negative effects of substitutes. To remain effective and to keep its position in the retail market, Costco needs to continue enhancing its competencies to combat the effects of competition and new entrants. The bargaining power of suppliers is the least of Costco’s concerns. The above synopsis of the Five Forces analysis of Costco Wholesale shows that the company faces challenges linked to most of the five forces.