Costco Business Model

As previously mentioned, Costco does have some direct competition within the industry from companies such as, another big box retailer Sam’s Club, as well as, Target and Walmart. Comparing for instance, Costco and Sam’s Club, both retailers offer basically low prices, mass quantities, miscellaneous items for the home, and require individuals to pay in order to shop at the establishment (Quirk, 2016). There is a minimal difference in the amount individuals pay to be members of these establishments; Costco’s annual fee is $55 and Sam’s Club is $45 (Quirk, 2016). Although both retailers have various similarities there are a couple of differences that stand out. For instance, Costco extends opportunities for home mortgages, security

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

Costco’s business model is called a subscription business model. This is a business model where customer must pay a subscription price to have access to the product/service. Customers who want to shop at Costco must buy a membership with the promise of lower prices to make up for the initial upfront cost; the current membership cost is $55 in the US. The service that Costco provides is its ability to use economies of scale to bulk buy a large amount of foods at low prices and then to pass these savings onto its customers.

The purpose of this paper is to do a value chain analysis of Costco, identify their resources and capabilities, to conduct a SWOT analysis to identify the opportunities in which they are lagging and to form a strategy to move forward using the recourses and capabilities in the direction of utilizing those opportunities.

Costco’s business model is appealing because they are able to continually sell to a niche market. This niche market has

Trader Joe 's sells gourmet foods to its customers with a low cost business model, which may seem very difficult to maintain, due to the rising costs in the international markets and the United States. However, with Trader Joe 's long term experience in operations and limited variety of products, this enables the company to reduce costs and transfer those savings to their customers. Furthermore, Trader Joe’s has a very efficient management process that allows keeping the product costs down to keep their customers satisfied. The management process is very significant for Trader Joe 's in which they have planned marvelously to carry certain products which is obtained at a discounted price from their suppliers. Additionally, Trader Joe’s keep costs down to a minimum by choosing non-prime store locations. For

Being one of the biggest club in US, still Sam’s Club is facing competition from another US based club known as Costco. Costco is offering same lowest possible prices and excellent supply chain process. Sam’s Club’s biggest problem is the notable differentiators in low profit margins and offering the best deals on products. The have a

Descriptive research will be helpful to Costco in deciding to provide items to customers in individual sales. Surveys that are filled out by Costco customers can answer many of the questions as far as which items are in the most demand to be sold individually. Development of a new test instrument can be created to address these new concerns that face Costco on changing its currents sales floor to increase revenues. Through various interviews and questionnaires Costco researchers could produce a long and short list of items preferred by customers for individual sale. Then the company could start planning the implementation of all or just the short list of items as a trial to see if the venture will produce enough revenue to cover the costs of set up.

The business model of Costco’s is simply to generate high sales volumes and rapid inventory turnover by offering its members low prices on a limited selection of nationally branded and selected private-labeled products in a wide range of merchandise categories. The company’s business model is appealing in today’s market because of the economic downturn we are experiencing. Everyday American’s are looking to make their dollar stretch and Costco’s provide them with a great way to buy in bulk and stretch the consumer dollar to the max!

The company prides itself on the amount of items they have available for sale as well. Although Costco carries less units of stock than their competitors, they offer a selection of goods that are more economical in price. This decision on Costco’s part has helped the company to currently obtain a member base of more than 59 million people worldwide.

The first of Porter’s Five Forces that impact Costco is the threat of new entrants. The threat of new entrants into the wholesale and membership retail space is low. There are several reasons why the threat of entrants into the market is low. The leading reason why the threat of entry is low is because an emerging company will struggle to have the volume necessary to compete with Costco. Costco is the sixth largest retailer in the U.S. As a major retailer, Costco has the highest discounts on a majority of its

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

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.)

This is a comparison between Costco and Walmart’s Sam’s Club which shows Costco is more loyal