1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?
Costco’s business model is based on customers’ membership. It is to generate high sale volumes and quick inventory turnover of selected private labels product (Kirkland, for instance) that have higher quality than national brands. This business model appears to be good as the company provides the privilege of buying at low price high quality to members. Narrowing down vendor list and quick inventory turnover will let Costco buy high quantity at limited chosen vendors, thus enjoys lower prices that it can pass to customers. However, brand-oriented customers think it is inconvenient that they don’t have wider brand choice of products.
2. What are the chief elements of Costco’s strategy? How good is the strategy?
Low price, limited products selection, and treasure-hunt merchandising are the chief elements of Costco’s strategy.
Low price: no branded item can be marked up by more than 14 percent and no private-labeled merchandise can be marked up by more than 15 percent
Limited selection: only products that are quickly sold are offered. This speed up inventory turnover that allows the company to buy goods at even lower price as vendors give it bonus for paying earlier than term
Treasure-hunt merchandising: cause excitement and curiosity. Customers always feel they got a good catch after buying a high-value merchandise at under market price. This strategy triggers customers to visit the store more often and buy more goods.
9. Does Costco pay its employees too much? Does it make sense for Costco to compensate its employees so much better than the employees at Wal-Mart/Sam’s Club? Why or why not?
Considering the extra benefit that Costco pays to its employees as the expense to acquire employees’ loyalty, it does not pay too much. High loyalty lowers employees turnover rate, motivates employees, cut costs due to employees’ theft, and enforce company’s good... [continues]
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