Case Study Of Costco's Millennial Problem

Although each business establishment may provide low prices, it is not strictly about the cost that is valued as a customer. For instance, one of the values is the ability to purchase product in mass quantities for the lower price. Buying in mass quantities not only keeps the pantry stocked, but it also decreases the number of trips to the store which saves precious time for individuals that are always on the go. Another value that is viewed as important, is the value that a company places on the employees and customers. It is of the opinion, that companies should consider what keeps the establishment in business in the first place and that is both the employees and customers. Costco demonstrates this by above adequate compensation for employees and the empowerment given to managers, in addition to catering to the wants and needs of the local market and quality customer service.

The strategic objective of Costco is based on the concept of offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories while producing high sales volumes and rapid inventory turnover. This rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self service warehouse facilities, enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets. (1)

Q1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?

Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety. Costco is focused in low-cost strategy is concentrated on a narrow buy segment and out competing rivals by having lower costs, therefore being able serve a niche consumers at a lower price. (Gamble, John and Thompson, Arthur (2009)

Due to the market; bargains were more important to consumers. Fifty-six of Costco warehouses exceeded $200 million in sales in fiscal 2010, and two of these units each did more than $300 million. This rate of revenue is highly attributable to the strong entrepreneurial culture that encourages its employees and management’s teams to be creative and contribute new ideas to allow the company to constantly evolve and improve. It has been well publicized that Costco rewards and compensates its employees well. It is a well oiled machine that reciprocates its success with its customers and employees.

Costco is one of the most profitable retail stores in the United States at the moment. This is in spite of the prevailing tough global economic times and stiff competition from stores such as Wal-Mart and Target. Costco, a members’ wholesale retail store, was founded in 1983 in Washington by Jeffrey Brotman, who serves as the current Chairman of the board of directors and James Sinegal, the current company president. Costco has not been spared by the current global economic conditions. They have affected it in a number of ways that have made the company’s management respond in a manner that is meant to ensure that the business not only survives but grows even stronger. First, Costco has taken strong measures to keep

Costco Wholesale has generated a revolution in how people shop: for the first time, many Americans are willing to 'pay' for the privileges of membership to a store so they can buy its products and save money. Like Wal-Mart, Costco prides itself on its low, low prices. However, in stark contrast to Wal-Mart, Costco has also made its exemplary treatment of its employees part of its marketing and sales strategy. It advertises itself as an ethical company, a company where it is a pleasure to work. This use of its HR police as a marketing strategy has proven to be effective, particularly with its target audience. While it caters to a wide and diverse audience in terms of its product diversity, on the whole Costco's target consumer is more affluent and educated than the average consumer at a big box store like Sam's Club. Costco's target audience members are interested

Costco is the best cost provider in the wholesale club category and the strategy is associated with Costco’s capabilities and resources, which includes; a streamlined supply chain, good supplier relationships, purchasing power, high sales volumes, quick inventory turnover, and excellent customer service. The three vital components of the company strategy are low pricing, limited product selection and high-end products acquired in closeouts and liquidations. While Costco strives to beat the competitors pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. Given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000 and this strategy works well for Costco. However, these customers are conscious not only about money but also value for the product, this fact is supported by the members who choose for executive

Costco will increase its revenue by 15% in the next five years upgrading to the “Executive” membership existing business and qualified members. The increase in revenue provided by the upgrade is almost 100% profit, and will help to provide a strong incentive to clients to save enough through their benefits and purchases to offset the cost of membership. Given that this is a low-margin business, membership fees can account for about 50-55% of operating profits. Over the past years, the sales mix has shifted towards services and away from department store related hard lines and soft lines. While all categories have shown strong growth over the past decade, the services/other category have been the standout. During the next five years, industry revenue is estimated to increase at an average annual rate of 5.2% to $531.5 billion. Growth will occur most likely because of improving disposable incomes, consumer sentiment and business sentiment, all of which act as key drivers for the retail sector. (See Table 1.)

Starbucks positions itself as a place college students can hang out, study, write term papers and meet people. A Starbucks appeal to this consumer directly through introducing technology as soon as it comes available, focusing on social networking and actively cultivating a “cool” image. The young adult audience grows 4.6 percent each year (O’ Farrell).” However, the majority of the advertising is catered to Adults around the ages of 25 to 40. Adults seem to prefer a pick me up first thing in the morning on their way to work. Most Starbucks today have a drive thru to make it faster to grab and go.

Costco has had steady growth in sales and earnings going as far back as 1995 as shown in Costco’s financial reports published on their corporate website. Also, Costco’s stock had substantial growth between 1995 and 200 and has shown steady growth trends since them (Yahoo Finance, 2013). Their member renewal rate was approximately 89.7% in the U.S. and Canada, and approximately 86.4% on a worldwide basis in 2012, consistent with recent years (Costco, 2012, p. 11). Costco’s strong financial performance, stock price trends, and customer retention are all indicators that their strategy is in line with their visions and objectives.

Owing to limited rationality of man, Herbert Simon contends that most decisions are based on limited rationality, that is, the organization is working like a brain. It would be impossible for organizations to attain perfection since their members have limited information-processing abilities (Morgan, G, 1997)

The market research team has also discovered that Starbucks’ customer base is evolving. The customers tend to be younger and less well educated. Regardless of this insight, customer behavior remains the same. According to Figure A in the case study, the typical customer visits just five times a month. I believe this is in part due to Starbucks’ inability to meet customer expectations and increase satisfaction. In order for the company to increase the frequency of customer visits, customer satisfaction must improve. Thus, the ideal, most profitable consumer for Starbucks is one who is a

Over the past ten years, Walmart has been losing retail market share and their customers to competitors that can offer more reasonable prices at greater convenience to customers. Walmart is losing money to Amazon and other online shoppings sites (D’Onfro). These competitors can offer the same or better price for a better quality item. Amazon can guarantee free, two day shipping if the package meets their requirements (Order with Free Shipping). To collect real data for the inspiration for our idea we sent out a survey to every teacher and many students in the district. Cole and I had a total of 122 respondents, a majority of them were between the ages of forty one to fifty and were female. In one of the survey’s questions, several respondents wrote that they regarded Costco as a more superior retailer for a more potential shopping option. Respondent sixteen replied that the changes that must be made to Walmart for them to regularly shop there were “A higher quality in their goods while keeping the low prices, obviously that will be a hard thing to do but Costco manages to do it.” The marketing strategy of Costco is simple, sell goods in bulk for the lowest possible prices. This can be a strong competitive edge for these retailer because their customers feel they are saving money and time, by stocking up on what they need and will use. Altering the angle of the target customers can completely change what type of customers you can get. From a casual

Parker’s budgeting decision is a good example of an individual acting with bounded rationality. This term was introduced by Simon in 1957 (as cited in Tolbert & Hall, 2008) to argue that normative models of decision making, which assume fully rational and objective judgement (Teale, Dispenza, Flynn & Currie, 2003), are unrealistic because human rationality is limited. Parker’s judgement may have seemed rational to him, but it was not rational for the organisation, a subtle distinction about rationality made by Storing (as cited in Tolbert & Hall, 2008). Parker’s judgement was also not rational in that he did not have all available knowledge and awareness of risk, which are the conditions of normative models (Teale et al, 2003) and the “official theory” of management (Anthony, as cited in Teale et al, 2003, p. 14). For example, Parker did not know about the variations in the terrain when he made his decision, and he also assumed that the assistant workers could work at the same physical rate that he could. Both of these limitations were factors resulting in a risk to on-time task completion.