Costco Analysis

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AN ANALYSIS AND RECOMMENDATION FOR THE PRACTICE OF
CHARGING MEMBERSHIP FEE’S FOR COSTCO INC.

INTRODUCTION

Supermerchants across the United States are becoming a very popular way for consumers to do their shopping. From furniture, to electronics, to clothing, to grocery, supermerchants offer many different goods all under one roof. A consumer can enter the store and be able to shop for just about anything, and redefines the term ‘one stop shopping.’

Costco falls into the category of a supermerchant. Costco also differs from many of these companies by offering their consumers wholesale prices, but yet still providing the ability to shop for many different items in the same store. Costco provides its consumer with lower prices than a conventional supermerchant by charging its customers an annual membership fee. This fee gives the consumer the right to shop at the warehouse club for items found often in bulk and usually at a lower price. Wal-Mart Inc. also provides this service through their warehouse chain called Sam’s Club. Costco and Sam’s Club are the two major players in the warehouse club industry and although other supermerchants such as Target and Smith’s Marketplace are competition, Sam’s Club is the only major direct completion to Costco. Membershipping is often very popular and has great advantages however, it also has some major drawbacks and this report will provide an evaluation of this business practice.

PURPOSE

The purpose of this report is to show that although membership pricing can be very beneficial to a company, there are also great disadvantages to the practice. This report will show the advantages and disadvantages to the requiring memberships as well as recommendations for future practices of membership pricing.

ANALYSIS

Charging membership fees has given Costco the opportunity to provide members with quality products and attractive prices. Relying on membership fees as a source of revenue allows them to charge a

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