Costco Case Study

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Case: Costco
1. Describe Costco’s Business Model. Description must identify and describe model components. A) Include discussion of how each component impacts profit generation. Costco business model was to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of naturally branded and selected private-label products in a wide range of merchandise categories. Including rapid inventory turnover, volumizing purchasing, which allowed to it sell and receive cash for inventory before it has to pay many of its merchandise vendors. Also, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse leading to lower gross margins than traditional wholesalers to generate those high sales.

2. Describe Costco’s strategy. A) Identify strategy elements; include specifics that communicate how Costco employ’s each element. B) What each is designed to accomplish. C) Identify and describe Costco’s two primary internal core business principles. Costco’s strategy is low prices, limited selection, and a treasure-hunt shopping environment. Costco stocks only those items that could be priced at bargain levels and provide significant cost savings. A key element of Costco’s pricing strategy is to cap its markup on brand-name merchandise at 14 percent, private label items could be no higher than 15 percent, keeping customers coming in to shop by wowing them with low prices. Costco’s merchandising strategy is to provide members with a selection of only about 4,000 items, in each category of fast-selling models, sizes, and colors, and consumable items sold only in big-container. About one-fourth of Costco’s products offerings are constantly changing as part of their treasure-hunting strategy. The idea to entice shoppers by offering irresistible deals on luxury items, and out of the 3,000 items available on the floor, 1000 of those are treasure hunting items that are always changing....
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