Costco Case Study

Topics: Costco, Warehouse club / Pages: 7 (1747 words) / Published: Jul 4th, 2011
Case Discussion – Assignment Questions
Case (2): Costco Wholesale in 2008

1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?

Costco is a membership warehouse business. It allows corporations and consumers the opportunity to buy memberships to the warehouse club. The membership allows members to buy a range of selective items, many times in bulk. These items consist of H&B, food, household items, electronics and many other item categories. The items offered through the warehouse club are in at lower prices than the average retailer, hence purchase of membership.

Costco’s business model is to generate high sales while offering club members low pricing on items. The concept of rapid inventory turnover with operating efficiencies has enabled Costco to generate profitability at a lower profit margin, especially compared to traditional wholesalers, merchandisers and supercenters.

The overall business model is innovate and effective. The model has allowed Costco to attract consumers that are eager to save money. In turn this generates high volume of sales and continued profitability.

2. What are the chief elements of Costco’s strategy? How good is the strategy?

The cornerstone of Costco’s chief strategy is to increase sales and profitability. The 3 main elements to the organization’s strategy are low prices, limited product line with a limited selection and a “treasure hunt” shopping environment.

- Pricing: The organization is well-known for offering top-quality brands at lower prices lower than their competitors, traditional wholesalers and retail outlets. Costco caps margin on brand items (14%) and on their own store brand, Kirkland (15%). The pricing philosophy keeps members coming to warehouse by continuously offering low prices.

- Product Selection: Costco provides members with a selection of about 4,000 items in comparison to their supercenter competitors,

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