Posted on : 2023-10-08 20:23:52
Article : Good Morning Monday Management Solution for TASK 262- Retail chain marketers understand that highly motivated staff help the company maintain higher standards in terms of customer service which results in very high overall customer satisfaction and higher retention rate.
As narrated in TASK part of our discussion on business models of Costco and Walmart, now here in this Solution part we discuss on competitive advantage in the business models and similarities and differences. These discussions on business activities would act as guiding models for many entrepreneurs.
Competitive advantage Costco has maintained is a strong reputation, based on low prices, good customer service, strategic HR management, and unique customer experience. It runs a membership-based business model where customer pays membership fee to obtain products at lower prices. However, it is not exclusively prices that attract customers to the Costco warehouses, it has created a differentiated and unique shopping experience. The company pays its employees better than other retailers and highly motivated staff have helped the company maintain higher standards in terms of customer service and the result is very high overall customer satisfaction which shows in its retention rate. Globally, the renewal rate of Costco memberships was 88% in 2019 experiencing a growth of 7% in its net revenue from membership fees.
Walmart’s competitive advantage lies in several factors but the leading source of competitive advantage for Walmart is its pricing strategy. The EDLP (everyday low price) pricing strategy of Walmart draws customers from the lower-income and middle-income segments in huge numbers. Walmart business is open to all unlike Costco which is membership-based. Its efficient operating model helps it keep its operating expenses including transportation and inventory costs lower. Apart from that, the supply chain management strategy like adoption of direct sourcing from the producers has also helped the company manage lower prices eliminating middlemen. Further Walmart managing its own logistics has also helped the company control operating expenses and save money. Since its foundation, Walmart has adopted cost-saving practices and continued to improve them. As a result, its competitive edge has continued to strengthen with time.
There are many similarities as well as several differences in the business models of Walmart and Costco. Both are successful retail brands enjoying heavy popularity and enormous financial success. Walmart has its EDLP pricing at the core of its value proposition that differentiates Walmart from Costco and other retailers in the US. This also means sacrificing profit margins. This is what Costco also does. It keeps its profit margins low in order to sell to its customers at lower prices. However, compared to Walmart, the product range available at Costco is smaller. Walmart comparatively offers a very large assortment of products in its stores and online. Both Walmart and Costco procure in bulk to save costs.
When it comes to human resource management, Walmart has taken a few strategic steps to improve its reputation in this area. Till recently the cost-cutting strategy of the company also affected staff wages. However, the company has improved the hourly wages it pays its associates. On the other hand, Costco has managed a strong reputation in the area of HR where it has excelled since its foundation. Apart from an organizational culture that values employees’ contribution, it has always paid its staff well and offered them a work environment that maximizes work satisfaction.
End point- Keeping an open learning policy helps entrepreneurs to learn more from market place and to improve the business functionals they need to conduct. Following the Walmart and Costco business models even in India MORE chain markets of AMAZON have every day lower price display boards while JioMart has 5% discount on every product purchase. All this is to increase more walk-ins as well as more customers by either of these chain retailers.
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