MGT317 University of Michigan Samsung Diversification Event Essay Writing instruction This is a very good opportunity to exam how well you are able to app

MGT317 University of Michigan Samsung Diversification Event Essay Writing instruction

This is a very good opportunity to exam how well you are able to apply what you have learned from

the class to the real events in the world. Every student is required to write a brief analysis, about 1.5-2 pages long, word count at least 400 double space, font 12, times new roman, and 1” margins, discussing an ongoing event concerning issues of strategic management that have been taught in class. You are required to use the concepts and theories learned from the class to analyze a current event in the business world. You are also required to make a short presentation to the class and answer questions.

The presentation will be evaluated by four criteria: (1) relevancy to strategic management (10points), (2) quality of analysis (20points), (3) answers to questions (10points), and (4) clarity and organization of presentation (10points). MacBook Air
CO
Ittiphol 1
2
11
Wednesday, May 11, 2011
MGMT 425 W 2:00-3:15pm
Current Event
Diversification: Costco
N
Costco is one of the dominant retail wholesalers because of the quantity and quality that
it provides. Its strategy is to sell its products at heavily discounted prices to sustain sales even
n
during harsh economic times. The company provides a wide variety of merchandise from
clothes, to electronics, to gasoline, but the majority of consumers go to Costco to purchase
necessities such as bathroom products, cleaning products, and food. There are three types of
Costco Membership consumers can choose from. The first one is the Gold Star Membership for
$50 per year which is suitable for consumers who want to purchase products mainly for personal
use. The second type of membership is the Business Membership also for $50 per year intended
for business owners and managers to make purchases on products for business, personal, and
resale use, but the difference between this membership and the Gold Star Membership is that six
additional cardholders may be added to the account for $50 each. The last type of Costco
membership is the Executive Membership which is the highest level of membership. Members
will be rewarded 2% or up to $500 per year on most Costco purchases along with additional
benefits and discounts.
Costco has diversified by not only providing consumer products, but also by offering
consumer, insurance, and business services for its members. Consumer Services include Costco
Auto Program, High Yield Savings Account & CDs, and Mortgage & Refinancing. Insurance
Services include Auto & Home Insurance, Business Health & Dental Insurance, and Individual
PO
delete
*
&
7
%
5
9
O
8
6
O
Р
Y
T
U
enter
Ittiphol 2
Dental Plan. Business Services include 401(k) plans, Payroll Services, Business Websites, and
Electronic Health Records. By implementing unrelated diversification with these services,
Costco has increased shareholder value and has maintained membership renewal rate in which
the company is considered a Cash Cow company because it generates cash surpluses over what
is needed to sustain present market position.
Costco currently has 580 warehouses and is planning on opening up 24 new locations in
2011. Its strategy of expanding is to purchase empty spaces that were department stores such as
J.C. Penney and Sears in order to expand at a faster rate since the infrastructure already exists
and to bring Costco stores to more generally populated areas like malls. Consumers will have
easier access to low prices while being able to shop at other stores in the mall. The company’s
competitors are Sam’s Club and BJ’s because the three companies share similar business model
by selling high volumes of merchandise at low prices at a membership-only warehouse club.
However, companies that diversify have high risk of failure because going into an
unknown market with an unfamiliar product means that there is a lack of experience in the new
skills and techniques required. Diversification may also become a distraction for the core
business. Besides Costco, here are other companies that have overcome the risks of
diversification- Virgin Media which went from music production to travel and mobile phones,
Walt Disney which went from producing animated movies to theme parks, and Canon which
went from producing cameras to office equipment.
Sources:
http://shop.costco.com/Services/Index
http://www.stockbloghub.com/2010/01/12/cost-costco-wholesale-corporation-coverage-
initiated-as-neutral/24692
http://www.wikinvest.com/stock/Costco Wholesale_%28COST%29
O

Purchase answer to see full
attachment