Costco Strategy

Good Essays
Company: Costco

Costco was founded in 1983 by Jim Sinegal and Jeff Brotman who were previous colleagues in California within other membership warehouse stores. “The company’s business model was to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories” (Thompson, p. C-35). This analysis will review the “cornerstones of Costco’s strategy; low prices, a limited product line, limited selection and a ‘treasure hunt’ shopping environment” (p. C-35). Furthermore, it will identify if Sinegal’s strategic approach identifies with Thompson’s five competitive strategies and Porter’s five forces. In conclusion, consulting recommendation will be advised.

Thompson describes a five strategy phases for crafting and executing on strategy as; low-cost provider, a broad differential, a focused or niche market based on low cost or differentiation, and best-cost provider. “A low-cost leader’s basis for competitive advantage is lower overall costs than competitors. Whereas, Siengal’s Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their business” (p. 88).

Sinegal’s approach focused on four major strategies, the first was to “sell top-quality national and regional brands at prices consistently below traditional wholesale or retail outlets” (C-35). This tactic was to keep prices low to members by capping the margins on brand-name merchandise by fourteen percent and their in-house Kirkland brand at fifteen percent. The philosophy was to keep members coming in to shop by wowing them with low prices.

Siengal next alignment with Thompson’s strategies was broad differentiation. The essence of broad differentiation is being able to offer unique product attributes that a wide range of buyers finds appealing and worth paying for. Siengal took broad differentiation to



References: Porter, M. (1985). “Competitive Advantage – Creating and Sustaining Superior Performance” The Free Press, p. 557 Thompson, A

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