Reference no: EM132833496

Outside of Canada, few people have ever heard of the Mountain Equipment Co-op (MEC), but it is one of the most successful small businesses in the world. The company currently holds 65 per cent of the Canadian market for outdoor equipment, far outdistancing all other competitive MNE sand retail brands in the country.In fact, MEC is so efficient that its products are priced lower than those of any North American competitor.

MEC was founded in 1969 when a group of outdoor enthusiasts decided to get together and purchase expensive outdoor equipment. In 1971 the organization was officially registered as a co-op and began operating under a memberelected board of directors that assumed responsibility for setting overall policy and overseeing management of all operations.

Today MEC has two million members, nine stores spread across Canada, an international mail-order clientele, and a worldwide network of suppliers. For a one-time $5 fee, members are able to enjoy a wide variety of benefits from an organization that focuses heavily on four primary objectives: keeping costs down, offering affordable goods, providing highquality merchandise, and maintaining high ethical standards.

Regarding the first of these,MEC takes a number of steps to control costs and offer affordable products. One is to use the clout of its large membership as a basis for extracting the best possible prices from suppliers, thus being able to offer lowcost products. Another is to keep the number of staff to a minimum.Some of the ways it does this is through the use of self-service in all stores and the promotion of its international mail-order business, which can be handled by a small number of personnel. In addition, the co-op minimizes overall marketing expenses by relying heavily on customer word-ofmouth and the mail-order network to help promote its products.

MEC also places a great deal of importance on the quality of goods.Its buyers and designers look not only for a low price from suppliers, but also for products that provide both functionality and durability. In addition, the co-op offers a lifetime guarantee on most of its products, regardless of whether it manufactured them, had them provided by an outsourcer, or purchased them from a large brand name company.

Co-op members are also assured that the company adheres to the highest ethical practices. MEC is an innovator in a number of areas ranging from human rights to the environment. Its stores are designed with the utmost attention to the environment, using as much natural light as possible, high efficiency HVAC (heating, ventilation, and air conditioning), low-consumption water fixtures, and recyclable materials. As an example, its Ottawa store uses only half the energy of a conventional building. In addition, the co-op gives 0.4 per cent of gross sales to environmental and conservation groups. At the same time, its retail employees are among the best paid in the country and its buyers and inspectors are charged with ensuring that all factory workers in foreign countries receive a reasonable living wage and work under safe conditions.

Some suppliers, such as Sierra Designs, Salomon, Arc Tyrex,North Face,and Patagonia, see MEC as a threat and have refused to sell to it.In many cases,however,this strategy has proven to be counterproductive, resulting in MEC designing and manufacturing these products and then successfully competing with the traditional brands that were unwilling to sell to it.In addition,the co-op's increased involvement in manufacturing has enabled it to monitor its suppliers' operations more closely.

Over the past couple of decades,MEC's strategy has been more emergent than calculated. Yet it has proven to be a successful business venture that has brought together a large group of dedicated environmentalists and other customers who need products for outdoor activities. In the process, the co-op has created a "style" and "brand" presence that appeals to outdoor enthusiasts. In fact, MEC's outdoor gear has become so popular that even urbanites, highly unlikely to go trekking or camping in the outdoors, are now becoming members. As a result, annual revenues are currently in the range of $160 million and the company is continuing to expand operations across Canada.

MEC was able to flourish as a result of the huge margins enjoyed by its competitors. This allowed the co-op to both reduce prices and maintain higher levels of environmental and labor practices than its competitors. Over the next few years, however, as competition grows and large outdoor retailers exert the same kind of pressure on suppliers that allowed it to sell at lower prices, MEC will have to switch its strategy to remain competitive. It has some advantages. For one, it has no shareholders and reinvests most of its surplus into the company. When it does choose to reimburse members, it does so by giving them merchandise credits. MEC still has to exploit to the fullest its community and environmental contributions. In the spirit of keeping advertising costs low, many members, not to mention potential members, have never heard of MEC's social policies or its charitable contributions.

How does the Mountain Equipment Co-op use value chain analysis to increase both its membership and its revenues?

What is the co-op's generic strategy? Describe it

How does MEC measure its performance? What are two criteria it uses to evaluate how well it is doing?