| Course | GSM-7300 Global Strategic Management |
|---|---|
| Module | Module 2 |
| Paper type | Written assignment 2: business-level strategy and competitive rivalry |
| Length | About 930 words, 6 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Master of Business Administration |
| Updated | October 2026 |
Free sample paper for GSM 7300 Module 2
Eleven Percent Margins and Eighty-One Million Members: Costco's Cost Leadership
Student Name
Master of Business Administration, Thomas Edison State University
GSM-7300: Global Strategic Management
Mentor Name
Month Day, Year
Eleven Percent Margins and Eighty-One Million Members: Costco's Cost Leadership
A business-level strategy is the set of commitments a firm uses to gain a competitive advantage in one product market (Hitt et al., 2024). The textbook identifies five: cost leadership, differentiation, focused cost leadership, focused differentiation and an integrated cost leadership and differentiation strategy. This paper classifies Costco Wholesale's strategy using its fiscal 2025 annual report, tests it against the five forces, examines its rivalry with the other warehouse clubs, and recommends how Costco should defend its position.
Classifying the Strategy
Costco describes its model in terms that match the textbook's account of cost leadership almost word for word. It offers low prices on a limited selection of national-brand and private-label goods, expecting high sales volume and rapid inventory turnover, and it runs no-frills, self-service warehouses so that it can operate profitably at gross margins well below those of most retailers (Costco Wholesale Corporation, 2025). Fewer than 4,000 active items per warehouse, compared with tens of thousands in a supercenter, raise volume per item and strengthen bargaining with suppliers. Goods move through cross-docking depots that cut handling. Costco often sells merchandise before it has to pay for it.
The numbers confirm the design. In fiscal 2025 net sales were $269.9 billion and merchandise costs $239.9 billion, a gross margin of about 11.1 percent. Membership fees added $5.3 billion, up 10 percent, and operating income was $10.4 billion, so fees equaled about 51 percent of operating profit.
Costco is not a pure cost leader, however. Its Kirkland Signature private label, generous returns policy and reputation for quality give it differentiating features, and Miller and Dess (1993) found that many successful firms combine low cost with differentiation instead of choosing one. Still, Costco's features exist to reinforce its low prices rather than to justify higher ones, so it is best classified as a cost leader with selected differentiation, close to the textbook's integrated strategy but anchored in cost.
The Five Forces
Hitt et al. (2024) argue that a cost leadership position can defend a firm against each of the five forces. Costco's evidence supports the claim.
| Force | Strength for warehouse retail | Costco's defense |
|---|---|---|
| Rivalry among competitors | High | Lowest prices and a renewal rate of 89.8 percent worldwide |
| Bargaining power of buyers | Moderate | Members prepay fees, which raises switching costs |
| Bargaining power of suppliers | Low to moderate | Large orders on few items; Kirkland Signature as an alternative |
| Threat of new entrants | Low | 914 warehouses and scale purchasing are hard to copy |
| Threat of substitutes | Moderate to high | Online sales about 10 percent of net sales, plus gasoline and pharmacy traffic |
The weakest point is substitutes. Online retailers and same-day delivery reduce the value of a trip to a warehouse, which is why Costco has built its own e-commerce and services that bring members in, such as gasoline at 747 stations and pharmacies.
Competitive Rivalry
The textbook draws on two dimensions of competitor analysis proposed by Chen (1996). Market commonality is the degree to which firms serve the same markets, and resource similarity is how far their resources resemble each other. Sam's Club, owned by Walmart, shares high market commonality with Costco across the United States and similar resources, including a membership model and a private label. BJ's Wholesale Club shares markets on the East Coast but is smaller. Firms high on both dimensions are direct competitors and are most likely to respond to each other's actions.
Costco's competitive actions are mostly strategic rather than tactical: opening 27 warehouses in a year, raising the Gold Star fee to $65 in September 2024 and expanding Executive membership. Tactical moves such as price cuts on single items are frequent but rarely draw large responses, since every club already prices near cost. The fee increase was a test of loyalty, and paid membership still rose to 81.0 million, with 38.7 million Executive members, while the U.S. and Canada renewal rate held at 92.3 percent. That resilience suggests rivals have little room to attack on price.
Risks to the Strategy
Hitt et al. (2024) list the risks of cost leadership: competitors may imitate it, technology may make it obsolete, and focus on cost may cause a firm to miss changes in what customers want. For Costco, the first risk is limited by scale, but the second and third are live. Renewal rates were weighed down by a higher share of members who joined online, who renew less often, and its dependence on California, 26 percent of U.S. net sales, and on the United States and Canada, 86 percent of net sales, concentrates exposure (Costco Wholesale Corporation, 2025).
Recommendation
Costco should protect its cost position and grow Executive membership, which pays twice the base fee and earns a 2 percent reward that ties members' spending to Costco. It should resist widening its assortment to chase online variety, since more items would dilute volume per item, the source of its cost advantage. The trade-off is that Costco will remain weaker than online rivals on choice and convenience and will lose some shoppers who value those features. Accepting that loss keeps the business model coherent, which a cost leader needs more than breadth.
Conclusion
Costco fits the textbook's cost leader closely, with differentiating features that reinforce rather than replace low cost. Its membership fees, roughly half of operating income, let it price goods near cost, which in turn defends it against rivals, buyers and suppliers. The main threats come from substitutes and from its own geographic concentration, and the best response is to deepen membership value while keeping the assortment narrow.
References
Chen, M.-J. (1996). Competitor analysis and interfirm rivalry: Toward a theoretical integration. Academy of Management Review, 21(1), 100-134. https://doi.org/10.5465/amr.1996.9602161567
Costco Wholesale Corporation. (2025). Annual report on Form 10-K for the fiscal year ended August 31, 2025. U.S. Securities and Exchange Commission.
Hitt, M. A., Ireland, R. D., Hoskisson, R. E., & Harrison, J. S. (2024). Strategic management: Competitiveness and globalization: Concepts and cases (14th ed.). Cengage Learning.
Miller, A., & Dess, G. G. (1993). Assessing Porter's (1980) model in terms of its generalizability, accuracy and simplicity. Journal of Management Studies, 30(4), 553-585. https://doi.org/10.1111/j.1467-6486.1993.tb00316.x
Reading the GSM 7300 Module 2 assignment instructions
The second GSM-7300 written assignment covers business-level strategy and competitive rivalry, the chapters of Hitt, Ireland, Hoskisson and Harrison that follow the external and internal analyses. Expect to classify a firm's strategy among the textbook's five types, show how it defends the firm against the five forces, and analyze rivalry with specific competitors. Pick a firm whose annual report gives margins, costs and customer measures, since evidence decides the classification. Use the textbook's language precisely, such as market commonality and strategic versus tactical actions. End with a recommendation and the trade-off it carries, and keep the analysis on one product market rather than the whole corporation. Cite the annual report for every figure you give.
How this GSM 7300 Module 2 example is built
The paper first classifies the strategy using the company's own description and then confirms it with margins and fee data, a pattern that keeps the claim grounded. A research citation explains why a firm can mix cost leadership with differentiating features. A table summarizes the five forces with the firm's defense against each, and a short paragraph names the weakest force. The rivalry section applies two named dimensions to two competitors and separates strategic from tactical actions using a dated example, the fee increase. A section on the risks of the strategy, drawn from the textbook, leads to the recommendation and its cost, which the conclusion restates. Each section closes by stating the implication for Costco.
Reading the GSM 7300 Module 2 grading rubric
Mentors score this assignment from 0 to 100. They look for a correct classification of strategy supported by evidence, not by slogans, and for the five forces applied to the specific industry. Competitor analysis earns more when it uses the textbook's dimensions and names rivals. Mentors also reward attention to the risks of the chosen strategy and a recommendation that addresses them with a stated trade-off. Current figures from filings, accurate APA citations and a clear structure with headings complete a strong paper. A paper that mistakes a firm's marketing claims for its strategy, or that recommends doing everything at once, usually loses points on analysis. Concise, specific writing is valued over length alone.
GSM 7300 Module 2 help from the desk
Students often label any low-price firm a cost leader without checking margins and cost structure, or call a firm differentiated because it advertises quality. Another weakness is treating rivalry generically instead of naming the competitors that matter. Our writers can prepare a GSM 7300 business-level strategy analysis of the firm you choose. Start with the business description in the 10-K and the income statement, compute the gross margin, and compare it with a rival's. Then decide which of the five strategies the evidence supports. When you recommend, write one sentence beginning with what the firm gives up, which keeps the recommendation honest. Finally, check that the conclusion matches your evidence.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Thomas Edison State University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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GSM 7300 Module 2 questions, answered
Where can I find a free GSM 7300 Module 2 sample paper?
The second Global Strategic Management written assignment is shown in full above: Costco's cost leadership strategy, the five forces and its rivalry with Sam's Club and BJ's.
What are the five business-level strategies in Hitt's textbook?
Cost leadership, differentiation, focused cost leadership, focused differentiation and integrated cost leadership and differentiation.
What are market commonality and resource similarity?
Market commonality is how far two firms serve the same markets, and resource similarity is how far their resources resemble each other; firms high on both are direct competitors.
What is the difference between strategic and tactical competitive actions?
Strategic actions commit significant resources and are hard to reverse, like opening warehouses; tactical actions are smaller and easily reversed, like price changes.
What are the risks of a cost leadership strategy?
Imitation by competitors, technological change that removes the cost advantage, and losing sight of changes in what customers value.