Blue Ocean Strategy of Costco Wholesale Corporation

Introduction

The blue ocean strategy refers to a situation or a market where there is no irrelevant competition, or where there is negligible competition. The blue ocean strategy of Costco Wholesale Corporation is focused on searching for new markets and business avenues which operate with minimal pricing pressures. The blue ocean strategy can be applied across different sectors and industries, and the businesses that exist within them. Costco Wholesale Corporation blue ocean strategy is pivoted on entering new market spaces, or developing them as well as on innovation focused internally or externally that helps reinvent the industry to ensure no irrelevant competition (Kim & Mauborgne, 2014).

Moving away from saturated markets

The Costco Wholesale Corporation continues to operate in saturated market spaces, and is restricted in growth and expansion. The Costco Wholesale Corporation’s businesses often face hurdles in the way of development and are also faced with increasingly intense pricing pressures- and are thus said to operate in a red ocean. A red ocean is marked with cut-throat competition and pricing wars that compromise the profits for all players. Pressures in saturated markets along with narrow growth spaces had forced the Costco Wholesale Corporation to search for new avenues – vertically or horizontally – to be able to enjoy higher market shares, and swim in blue oceans (Kim & Mauborgne, 2014).

Blue ocean strategy and differentiation

New industry boundaries

As companies and organizations move towards blue oceans, they redraw and redesign industry boundaries. This is possible through innovation and creativity. The Costco Wholesale Corporation also explores new platforms and channels, as well as means of doing business and is thus able to expand existing industry boundaries. The Costco Wholesale Corporation has also been able to show the potential of developing new industries through its innovations – by identifying new spaces and making the competition irrelevant (Agnihotri, 2016).

Differentiation

The Costco Wholesale Corporation has focused on differentiation under the blue ocean strategy. The Costco Wholesale Corporation’s efforts towards differentiation are focused on creating unique value for the customers in its product and service offerings (Agnihotri, 2016; Blue Ocean Strategy, 2022).

Cost efficiencies and low cost

Under blue oceans, the Costco Wholesale Corporation also focuses on maintaining affordability for the value additions and differentiated products and services that it offers. The Costco Wholesale Corporation commonly continuously reevaluates and reassesses its own processes and systems to maintain high-cost efficiencies (Freedman, 2022).

Value innovation – value addition and low-cost maintenance

In doing so, the Costco Wholesale Corporation has been able to explore blue oceans through value additions as well as affordability for consumers. The Costco Wholesale Corporation has been able to successfully identify what consumer’s value and include it in its offerings and value propositions. At the same time, the Costco Wholesale Corporation has been able to provide the value differentiation at affordable costs. In this manner, the Costco Wholesale Corporation enjoys high levels of value innovation (Kim, 2002; Kim & Mauborgne, 2014).

Understanding red oceans

Under red oceans, where the Costco Wholesale Corporation previously operated, all layers had accepted the predefined structures and boundaries of the industry, and had continued to operate as well as compete within these (The Economic Times, 2022).

Cut throat competition

To be able to remain profitable and successful, players, including the Costco Wholesale Corporation within red oceans, focused efforts on developing and maintaining competitive advantages over one another, and other players. This advantage was largely cost-based, as in the case of the Costco Wholesale Corporation. In this way, wealth was only redistributed at the expense of other players, and the Costco Wholesale Corporation failed to create any new wealth in the red oceans (Kim & Mauborgne, 2005).

Understanding blue oceans

Under the blue ocean strategy, the Costco Wholesale Corporation operates in an industry and market space that is not marked with set boundaries or structures. These blue ocean structures have been recreated by the Costco Wholesale Corporation at large, as well as by other players. Other players have also contributed to the restructuring of the industry through innovation (Kim & Mauborgne, 2014).

Restructuring industrial boundaries under the blue ocean strategy

Under the blue ocean strategy, the Costco Wholesale Corporation is not restricted by predefined rules, barriers, and principles. Instead, the Costco Wholesale Corporation has been able to shift its strategic direction and attention from focusing on supply towards working on developing and creating demand (Blue Ocean Strategy, 2022). The Costco Wholesale Corporation, in this manner, is focused on the building of value innovation in its offerings, along with ensuring efforts towards building and maintaining differentiation and cost-effectiveness. In this way, the Costco Wholesale Corporation has been able to immaterialize the competition (Kim & Mauborgne, 2017).

Strategic directions for blue oceans

The Costco Wholesale Corporation has four different strategic directions, which it can choose from four continuing to pursue its blue ocean strategy. All of these strategic directions will strengthen the company’s current business position and will supports its strategy of value addition and cost efficiencies, as well as differentiation – allowing it to develop strong and sustainable market positions. These directions are

Raise

• The Costco Wholesale Corporation should assess and evaluate the current industry standards and practices.

• The Costco Wholesale Corporation should identify loopholes, and areas which can be improved, expanded upon, or developed a new within the industry.

• The Costco Wholesale Corporation should identify different drivers and factors within the industry boundaries.

• The Costco Wholesale Corporation should identify through research and observation the different factors that could raise above the existing industry standards (Kim, 2002; Kim & Mauborgne, 2017).

Eliminate

• The Costco Wholesale Corporation should assess and observe current industry standards.

• The Costco Wholesale Corporation should observe players’ practices within the industry, and relate the same with the industry standards.

• The Costco Wholesale Corporation can identify the standards which are not needed, which are obsolete, and which may slow down operations and processes.

• These standards can be eliminated in own operations by the Costco Wholesale Corporation (Kim & Mauborgne, 2014; Freedman, 2022).

Reduce

• The Costco Wholesale Corporation can also assess an observe industry standards for identifying factors that are not needed, or needed partially.

• The Costco Wholesale Corporation can work on reducing these standards to enhance operational performance and maximum utilization of resources as well as value addition (The Economic Times, 2022; Kim & Mauborgne, 2014).

Created

• The Costco Wholesale Corporation can also expand current industry boundaries and standards.

• This expansion will be possible by the Costco Wholesale Corporation through expanding and creating new standards.

• The new standards can be created by the Costco Wholesale Corporation through observing industry processes and operations, and identifying potential loopholes.

• The Costco Wholesale Corporation can introduce new processes and standards to redesign industry boundaries (Agnihotri, 2016; Kim & Mauborgne, 2005).

Blue ocean strategy: organizational competencies

The Costco Wholesale Corporation has been able to successfully implement the blue ocean strategy because of three important organizational elements (Freedman, 2022). These organizational elements have allowed the Costco Wholesale Corporation to explore blue oceans, experiment successfully with innovation, and add value to its product offerings. These elements include the following:

Mindset

• The Costco Wholesale Corporation has a progressive mindset that is rooted in this participative and visionary leadership (Bratton, 2020).

• The Costco Wholesale Corporation has a positive and can-do attitude and mindset.

• This mindset has allowed the Costco Wholesale Corporation to achieve success through high focus and efforts (Wilson, 2018).

• The Costco Wholesale Corporation has high motivation levels of employees – which enhances the optimal performance of the organization and has allowed it to explore Blue Ocean through creativity (Kim & Mauborgne, 2017; Kim & Mauborgne, 2005; Wilson, 2018).

Tools

• The Costco Wholesale Corporation has access to multiple resources that has allowed it to take advantage of the blue ocean strategy (Mebert & Lowe, 2017).

• These resources Costco Wholesale Corporation capabilities are internal as well as external for the Costco Wholesale Corporation.

• The Costco Wholesale Corporation has also invested resources and trainings for developing internal capabilities and capacities for ensuring upgraded skills and increased value addition (Buchanan & Huczynski, 2019; Chernev, 2018).

Culture

• The Costco Wholesale Corporation has a learning culture, and encourages all employees to ask questions and carry out healthy discussions (Anthony, 2021; Schein, 2010).

• The Costco Wholesale Corporation has a culture that is focused on research and development, which in turn leads to new innovations and solutions for existing demands and challenges (Wunder, 2019).

• The Costco Wholesale Corporation has an inclusive and diverse culture, which leads to increased synergies that allow the development and implementation of blue ocean strategies easily (Wilson, 2018).

Using the blue ocean strategy effectively: steps for successful implementation

The Costco Wholesale Corporation has developed the blue ocean strategy following systematic and organized processes and steps (Kim & Mauborgne, 2017). The steps that the Costco Wholesale Corporation undertook for developing the blue ocean strategy include:

Step1

The Costco Wholesale Corporation conducted thorough market and industry research to identify the right place to work towards developing a core team (Kim & Mauborgne, 2014; Freedman, 2022). This core team was responsible for driving Costco Wholesale Corporation forward strategically towards new value additions and differentiations (Blue Ocean Strategy, 2022; Kim & Mauborgne, 2017 b).

Step2

The Costco Wholesale Corporation continued to conduct deep market analysis as well as studied and assessed the competition closely. This was needed by the Costco Wholesale Corporation to identify potential opportunities, and demand gaps in the existing industry as well as potential structural changes in the existing industrial boundaries (Blue Ocean Strategy, 2022).

Step3

The Costco Wholesale Corporation’s assessment of the macro environment, and the market spaces allowed it to also identify the challenges and issues hidden in the current industry structure and design (Machado, 2019; Kim & Mauborgne, 2017 b). These issues and problems have restricted the industry size, and led to restrictive growth for the Costco Wholesale Corporation. The Costco Wholesale Corporation was also blue to identify new non-customers in this assessment- which could be turned into future consumers (Blue Ocean Strategy, 2022).

Step4

The Costco Wholesale Corporation worked to redesign and reconstruct the industry boundaries and structures in a systematic manner. This was done through identifying new opportunities, as well as through exploring new innovations and valuations in existing offerings (Blue Ocean Strategy, 2022).

Step5

The Costco Wholesale Corporation finally elected the right blue ocean move, i.e. conducted various pilot testing’s and market testing for its new offerings before finalizing and launching them in the market to attract new consumers, and explore new markets (Blue Ocean Strategy, 2022).

Tackling challenges on the way to Blue Ocean

Restructuring and reorganizing the boundaries and structures of the industries is not that simple (Anthony, 2021; Kim & Mauborgne, 2017 b). Managers and practitioners of the Costco Wholesale Corporation seek to renew the value of their offerings within the organization – mostly using new technologies and advances networks to not only create value propositions, but also transform existing ones (Kim & Mauborgne, 2005; Kim, 2002). However, the Costco Wholesale Corporation has been able to overcome resistance towards change and innovation within the organization, as well as in the external environments, because of:

Organizational culture

The culture within the Costco Wholesale Corporation supports exploration and innovation. This culture is important for supporting the development and implementation of new ideas that boost the value propositions of the Costco Wholesale Corporation (Chernev, 2018; Bratton, 2020; Martinez, Beaulieu, & Gibbons, 2015).

Business design

The Costco Wholesale Corporation also continually practices business design (Freedman, 2022). The Costco Wholesale Corporation ensures that it’s leading from the font. This means that the Costco Wholesale Corporation ensures that its teams are empowered, and confident in tackling ambiguous and difficult challenges and issues. This allows the Costco Wholesale Corporation to identify new opportunities and innovate (Wunder, 2019).

Strong and visionary leadership

The Costco Wholesale Corporation has a forward-thinking, progressive, charismatic leadership. This leadership ensures that the Costco Wholesale Corporation continually engages in disruptive processes and innovations – which in turn allow the company to explore and implement the blue ocean strategy. The leadership is supportive of, and facilitates the change processes within the company (Machado, 2019).

Communication

The Costco Wholesale Corporation ensures that all communication within the organization is transparent and quick (Chernev, 2018; Buchanan & Huczynski, 2019). The leadership and management levels have frequent meetings within the company along managerial levels (Wilson, 2018; Wunder, 2019). This allows employees to feel on board of the happenings, and be part of a change from the beginning – understanding its need and facilitating its implementation. This is critical for ensuring successful innovation and adoption of the blue ocean strategy (Anthony, 2021; Chernev, 2018; Kim, 2002).

Value innovation in blue ocean strategy

Value innovation within the blue ocean strategy focuses on value as well as innovation (Blue Ocean Strategy, 2022; Kim & Mauborgne, 2017). This means that the Costco Wholesale Corporation seeks to innovate and create value at the same time as a means of differentiation within the marketplace to be able to implement the blue ocean strategy (Kim & Mauborgne, 2014). The Costco Wholesale Corporation does not only engage in value creation – which focuses on scaling the existing value only instead of creating a new one (Blue Ocean Strategy, 2022; Agnihotri, 2016; Kim & Mauborgne, 2014).

Technology innovation

The Costco Wholesale Corporation engages in value innovation through technology innovation. The Costco Wholesale Corporation ensures that it uses advanced and progressive technology to address various consumer demands and problems as well as needs in innovative ways and manners (Kim & Mauborgne, 2005). However, the Costco Wholesale Corporation ensures that it focuses on value innovation rather than technology innovation in its value propositions so that new value through technology is created for consumers (Kim, 2002; Wilson, 2018).

Low cost

The Costco Wholesale Corporation also ensures affordability with value innovation. The value innovation allows the Costco Wholesale Corporation to operate at low costs, and maintain cost efficiencies (Chernev, 2018). As a result, the Costco Wholesale Corporation maintains low costs and high value for consumers – allowing it to tap into new consumer groups as well. As a result, the Costco Wholesale Corporation is able to enjoy a high growth rate as well as increased sales and profits (Kim & Mauborgne, 2014).

The strategies and strategic directions for designing and implementing the blue ocean strategy have been overseen through some guiding and fundamental principles by the Costco Wholesale Corporation. These include”

Formulation principles

Redesigning the industry

• The Costco Wholesale Corporation sought to reconstruct, redesign and rebuild the market boundaries and standards.

• The Costco Wholesale Corporation was bold enough to redefine the industry space and the market space in which it operated (Mebert & Lowe, 2017).

Long term focus

• The Costco Wholesale Corporation focused on long-term success and sustainability, instead of short-term gains and numbers.

• The Costco Wholesale Corporation was visionary, and aw beyond the existent customer demand and needs (Freedman, 2022).

Demand creation

• The Costco Wholesale Corporation creates demand for the new value-added offerings it manufactured and proposed in the blue oceans (Kim, 2002).

• The Costco Wholesale Corporation tapped into new customer groups and target audiences (Kim & Mauborgne, Red Ocean Traps (Harvard Business Review Classics), 2017 b).

Execution principles

Overcoming organizational challenges

Organizational culture

• The Costco Wholesale Corporation has a result organizational culture (Martinez, Beaulieu, & Gibbons, 2015; Schein, 2010).

• The Costco Wholesale Corporation invests in research and development.

• The Costco Wholesale Corporation is quick to adapt to change and has a disciplined change management team to oversee change processes (Chernev, 2018; Kim & Mauborgne, 2014).

Environmental assessment

• The Costco Wholesale Corporation continually assesses its internal and external environments and creates contingency plans (Chernev, 2018; Machado, 2019).

• The Costco Wholesale Corporation engages in pre-strategic planning to help strengthen its strategic focus and direction (Wilson, 2018; Kim & Mauborgne, 2017 b).

Leadership

• The Costco Wholesale Corporation has a visionary leadership (Bratton, 2020).

• The leadership at the Costco Wholesale Corporation has a participative approach which encourages employee motivation and their organizational commitment.

• The leadership ensures optimal organizational performance at the Costco Wholesale Corporation (Freedman, 2022; Kim & Mauborgne, 2005).

Developing execution strategy

• The Costco Wholesale Corporation has developed a sequential strategic direction for execution.

• The execution of the blue ocean strategy is based on market research (Anthony, 2021).

• The execution of the blue ocean strategy has been carefully planned to ensure that it’s timely.

• The execution involves all parts and members of the Costco Wholesale Corporation (The Economic Times, 2022; Kim, 2002).

Blue ocean strategic Tools

The Costco Wholesale Corporation has been able to use multiple operational and strategic tools.

Shift in organizational mindset

These tools kits have been important for the Costco Wholesale Corporation in helping it develop the right mindset needed for aligning processes and systems towards the blue ocean strategic direction (Kim & Mauborgne, 2017 b). The tools have been a powerful source for the Costco Wholesale Corporation in facilitating it towards aligning its resources, and identifying potential blue oceans (Kim, 2002). The Costco Wholesale Corporation has been diligent in ensuring that its teams and organizational members are familiar with the blue can strategies and tools so that the shift in their mindset is facilitated and strengthened (Wunder, 2019).

Cultural driver

Moreover, the tools also ensure increased alignment of the Costco Wholesale Corporation’s culture with the strategy. This, in turn, has allowed the Costco Wholesale Corporation to realize the increased number of opportunities, and embed creativity in its internal processes and systems (Kim, 2002; Buchanan & Huczynski, 2019).

These tools include, for example:

• Value innovation

• Six path framework

• Strategy canvas

• Four action framework

• Tipping point leadership

• ERRC Grid

• Pioneer settler migrator map

• Buyer utility map

• 3 tiers of non-customers

• Fair processes

• Visualizing strategy (The Economic Times, 2022)

Conclusion

With the use of the blue ocean strategy, the Costco Wholesale Corporation has been able to redesign the industrial boundaries and standards using multiple techniques and tools that have been identified and discussed briefly in this paper.

The blue ocean strategy has been an important strategic element for the Costco Wholesale Corporation. The Costco Wholesale Corporation has been able to explore new markets and tap into new customer groups through using the blue ocean strategy. This has been possible for the Costco Wholesale Corporation through continuous investment in research and development as well as through its organizational cultural, which is focused on innovation and creativity. The Costco Wholesale Corporation has been able to make use of innovative processes and progressive technology to create value innovation. At the same time, the Costco Wholesale Corporation has moved out of red oceans and no longer competes over pricing strategies. This has also allowed Costco Wholesale Corporation to build a cost advantage, and maintain affordability in its offerings for customers.

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