Free Essay Sample on Comparative Analysis on Costco and Sam's Club

Published: 2023-11-10
Free Essay Sample on Comparative Analysis on Costco and Sam's Club
Type of paper:  Essay
Categories:  Company Analysis
Pages: 7
Wordcount: 1804 words
16 min read


Wholesale distributors are convenient for most consumers. They offer a full supply of a wide range of commodities, both frozen and fresh, as the demand dictates in the market environment (Carvalho & Gabaix, 2013). The wholesale marketing experiences consistent evolution calling for new design approaches to me activated and adopted to formulate possible plans to improve the existing markets. Simplified methodologies are essential to lay strategies that would be used as likely drawing board leads to offer a systematic approach regarding all the proposals on development. Food is a primary need in every market in all the states, thus, guaranteeing that any development changes made on food marketing can have vital impacts on the community's more impoverished environments. Costco and Sam's Club groceries are first stores known for their supply ventures of the comprehensive range of products either fresh or packed. The stores ignite a consistent competition among consumers as they provide good quality and a variety of products to choose from fulfilling consumers satisfaction and a wide variety to choose from.

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The question in this research is the impacts of competition among the supermarkets on their item pricing on various products. The focus on different price rates will ensure the achievement of several objectives in the market competition on given commodities as having a healthy competition to attain prevailing fair prices in favor of the suppliers and the consumer demands (Nkondo, 2017). Further, the research guarantees a favorable profit margin among the competing supermarkets, which gives security to consumer rights by avoiding possible extends of exploitation.

Literature Review

Wholesale supermarkets are involved in a wide range sale of products, and competition is expected when similar groceries are set in the same environment selling the same types of goods which directly pose a challenge on the quality and pricing of the products to survive the wave. Rapid evaluations on quality and price build a false product differentiation, which results in absolute market power. Differentiated product competition theory upholds that a rise in competitors does not necessarily guarantee lower prices to the costs (Carvalho & Gabaix, 2013). However, we should shift our expectations for the firms to intensify consumer confusion on the quality of products through numerous means, including persuasive advertising, as they equally inflame consumer confusion on prices through obfuscation. With careful adjustment on welfare calculations, the unclear workings in the utility model can be considered an error in the course of the product evaluation process rather than true variation based on taste. It is inevitable to have confusion on product quality and the efforts most firms employ as they try to influence such cases of the disorder. Firms are given the opportunity to cover every possible mistake in their daily operations to control the rate of which they may lose customers to their competing entities. Obfuscation is viewed as selecting an abstract scalar taking intricacy, which later conforms to models that put more edifice on obfuscation and consumer choice. Consumers either make perfect or random choices where the choice probabilities are laid in line with those of an arbitrary utility. This gauge model has tastes that are supplied depending on a mixture of different thrilling value distributions.

According to Frank and Salkever (1992), the retail price has a pattern of response when competition pressure intensifies, as evidenced by extensive literature works explaining entry and exit patterns and market structures. A unique venture into the price responses of grocers to entry suggests a model where pharmaceutical producers have a high chance of raising prices when cornered by possible conditions in response to competitive entry (Carvalho & Gabaix, 2013). This condition explains the various incidences where the brand-name drugs majorly increase costs instead of laying them cheaper in the face of the generic competition after they undergo a patent loss. Two kinds of buyers receive the products in the segmented-market model: the loyal buyers or those who portray responsiveness to prices set for both generic drugs and brand-name. Generic entry may prompt brand-name producers to increase their rates as it may pose a high demand for brand-name drugs (Nkondo, 2017). Other possible incidences are when the drug-name show a consistent reduction in marginal costs or the entry creates an evident decrease in the elasticity demand curve for the brand-name drug. A suggestion to raise the prices to gain a wide profit margin, in this case, would be justified. This model gives and agreeing appeal to a competitive entry case by a mass-market discount stock in the retail market. The incumbent grocer replaces the brand-name drug as entering generic drugs equally returns coming big box stores. The loyal customers are expected to ignore shopping at the big box grocer despite having favorable prices, the commodities and their convenience for the grocery store are termed as bold and strong enough.

Numerous studies have a similar opinion on interactions between value chains and territories as they critically analyze localized food systems (Nkondo, 2017), value chains under different geographical locations with an indication that they vary and looks at the recompositions at work from view of "quality, territory and embeddedness" which they refer to the degree most economic strategies are deterred by the non-economic institutions in most geographical locations. The idea of "embeddedness" is widely utilized in literature presentations, and three conceptions are commonly used: social, spatial or geographical, and ecological embeddedness (Carvalho & Gabaix, 2013). For the typical sectors, few studies address the structure in which they are arranged and organized where these sectors lock or lever to ensure a territorialisation of the productions, whereas Sonnino (2007) displays that territorial specificities can be "taken" by globally functioning players to maximize their profit by retrieving niche markets. This necessitates a careful valuation of the nature of this "embeddedness", including the part played by "quality", "localisation", and the circulation of power between performers in these systems

Costco and Sam’s Club Comparison Analysis

Costco remains an American corporation known for its membership links on warehouse clubs. It is flagged second-largest retailer globally in 2015 after Walmart, which followed with a 2016 win as the largest retailer of organic food, chicken, and wine. Costco warehouse carries only 3700 distinct commodities, unlike a Walmart that is equivalent to 140, 000 products. Costco tends to deny to stock any product that they consider its wholesale price high like in the 2009 case where they refused to sell the coca-cola products when the production company refused to lower the costs. Costco has numerous distribution locations carrying out merchandise cash and warehouse club, offering a US$152.7 billion revenue in 2019 and a basic operating income of US$4.74 billion in the same year. The brand is actively involved in decreasing the costs despite the expensive stores where large amounts of money are channeled to like in 2013. It used $80 million on every opened new store (Carvalho & Gabaix, 2013). Real estate demands partially raise the cost as every new store requires an accommodating space to support the building of probably 14,000 square meters in size, a big parking lot, and some of them incorporate a gas station. Costco lacks a department for public relations and does not purchase outside advertising. The company rules and regulations demand that no product is marked past 14% over cost, and no Kirkland signature product is marked over 15% above its original price. The daily company proceedings are made with 10% overhead costs of revenue and 2% of its profit margin to achieve the intended profit margin.

Costco has managed some inventory changes, as it is commonly associated with discontinuing them having them for a while. Its interest in packed products has grown over time with a claim that they are easy to handle, like the liquor stores, which are set apart to meet common liquor license restrictions (Carvalho & Gabaix, 2013). Some states prefer such liquor stores owned and operated by different contractors with their workers as earlier in 2016 Costco lost to the state challenge in pursuit to make its purchases directly from producers without consideration to state retail monopoly. The company persuades its private label, Kirkland Signature, sold in its website and distribution outlets, thus being trademarked by the firm. The brand name accounts for the third of the company sales achieving a rapid growth than its major sales, where it has Kirkland water brand produced by a rather private entity, Niagara Bottling. The private label's plan was to highland the company's quality products at considerably discounted prices, which would attract most consumers over the upcoming market competitions.

Besides, Sam's Club remains equally an American retail warehouse, which is run by Walmart Inc., thus the name Walmart from the founder (Madelrieux et al., 2019). 2019 allowed Sam's Club to make a global runner's up to sales in its warehouses totaling up to $57.839 billion, which was slightly lower than their Costco competitors. The retailer local warehouse club equally owns numerous operating grounds that comprise 599 in America dealing with a wide range of product distribution across the globe, establishing its demand. The stores cover a location size of approximately 32,000 to 168,000 square feet, having a possible club size of 134,000 square feet. The enterprise close around 63 stores with a claim of liquidating and leaving the workers at a sudden dilemma. The closure meant to the conversion of some stores to e-commerce fulfillment centers, an announcement linked to Walmart's growth dedicated to online retailing. Sam's Club made an approach to company slogans to attract population attention, adapting its first as 'enjoy possibilities' whose fame made it an advertising slogan in most social media platforms. Later in 2008, the former slogan had served its term, and they made an update to a new slogan, 'savings made simple.' Sam's Club shifted its interest to new operational supercenters, putting up with the Costco entity's heat competition with some workers caught in the crucifix and left jobless, which marked 10% of all the workers in the various outlets.

Sam's Club sells most of its stock in bulks stocked in steel bins, which are kept in the warehouses as the club does not sell great value brands that are common in most Walmart stores. Sam’s Club has given its members an added advantage equipping them with an available mobile app that easily enables them to scan and pay for their ordered products (Madelrieux et al., 2019). A further advantage of the mobile app to its members is that they can make a prior order of a product during the same day curbside pickup at their warehouses. Their means of payment encourage Visa credit in gas stations to evade the high charges incurred in comparison with Walmart’s discounted rates while a member uses a MasterCard.


This research can be termed relevant as it highlights how competition-oriented pricing can grant opportunities to prevent one's business from upholding market share. It equally warns on the impact of pricing products too cheap. Low pricing hurts the expected profits when one's revenue does not cater for production costs and any other possible expenses.

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