Costco Case Analysis
Costco Wholesale Corporation is one of the largest membership wholesale companies in United States and the world. Costco has come long way since its establishment in 1983 by Jim Sinegal and Jeff Brotman. Costco provides goods and services only to their members. It is common to see many of their customers are not the consumers of the product. This is in a sense that many of their customers buy products in bulk and sell it to other consumers. Business Model
Costco Wholesale Corporation’s business model according to the case is “To generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories” (Thompson, 2008). Even though Costco targeted customers with the concept of cheaper goods/services, they have been successful in presenting their products to be of better quality. This has proven to be blessing for Costco as they are able to compete with other competitor providing quality products in the market. In addition, Costco believes that combining rapid inventory turnover with the operating efficiencies generated from volume purchasing, efficient distribution, self-service, and reduced handling of merchandise has helped them generate profit even with significantly lower gross margin than any other competitors. This business model has proven to be great for Costco as they are able to increase membership and open new stores every year. Along with growth of the corporation, Costco has also been able to enjoy benefits from its suppliers as it has been able to pay on time due to rapid inventory turnover ultimately leading Costco to enjoy the benefits of early payment discounts. Strategies
Lower pricing has been one of the important business strategies for Costco Wholesale Corporation. They have been very well known for providing product with lower cost to their members. Costco achieves lower price than its competitors by limiting their margin on brand-name products to 14% with compared to 20%-50% margin that Costco competitors use. Furthermore, Costco promotes use of the company’s private-label Kirkland Signature items which provides them with more profit as they could receive margin of 15%. Product Selection
Costco’s limited product strategy is surprise for many of its competitors. It is general understanding that a business can lose its customer if they are unable to provide customer with variety of goods. But, Costco has made this statement wrong by providing about 4,000 items compared to traditional supermarkets which offer about 40,000 items or large stores like Wal-Mart or Targets which offers about 150,000 items. Costco have gained efficiency through minimization of warehouse cost by stocking limited selection of products. This helps Costco business model as they sell bulk of goods and make average margin than selling smaller quantity with larger margin, which could ultimately be expensive as they would have to incur various operational cost. Also providing fewer brands helps Costco bargain more with its supplier to cut costs, eventually lowering the cost will make it possible to have lower margins. Treasure-Hunt Merchandising
Costco strategy of changing one-fourth of its product line to provide customers with the opportunity to buy high-end or brand-named product for limited time is Treasure-Hunt Merchandising. These products are constantly changing and create sense of urgency among the customers as they might not be available in the store when they visit next time. This has proved to be successful strategy for Costco as they are able to clear treasure-hunt items sooner and keep constant demand among customers for new items every visit. Marketing and Advertising
Costco’s strategies like lower pricing and treasure-hunt merchandise has helped the sale of the corporation even without creating big...
Please join StudyMode to read the full document