Costco Wholesale

Topics: Costco, James Sinegal, Strategic management Pages: 3 (895 words) Published: October 17, 2010
Question 1
What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model focuses on selling limited selection of products at low prices, often at very high volume and rapid inventory turnover. These goods are bulk-packaged and marketed primarily to large families and businesses. Costco does not carry multiple brands or varieties where the item is essentially the same. It provides members with a selection of only about 4000 items, this results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors. Costco’s business model is appealing because rapid inventory turnover, high sales volume per warehouse, low prices, reduced handling of merchandise, are all elements that create value to a Costco’s members, and make the company successful.    

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

The chief elements of Costco’s strategy are:
1. Low prices: Costco’s pricing strategy is to cap the margins on brand-name merchandise at 14 percent (compared to 20-50 percent margins at other discounters and many supermarkets. The margins on Costco’s private-label Kirkland Signature items are a maximum of 15 percent. Costco’s strategy was to keep members coming in to shop by wowing them with low prices. 2. Limited product selection: Costco’s merchandising strategy was to provide members with a selection of only about 4,000 items. 3. Treasure-hunt shopping environment: Costco’s strategy was to entice shoppers by offering irresistible deals on luxury items. About one-fourth of Costco’s line of 4,000 products was constantly changing.

Costco’s strategy is very good.

Question 3
Do you think Jim Sinegal is an...
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