Costco Case Study

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.

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

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.

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

Renee McDonald (“Plaintiff”) allegedly sustained personal injuries on October 8, 2015 while shopping at a store owned and operated by Costco (“Defendant”) in Brooklyn Park, Maryland. According to the plaintiff, while walking through the store, she tripped on mop water which caused her to fall to the ground and suffer “severe bodily injuries.” The Plaintiff claims that her fall was caused by the mop water. The mopped area had been secured with a yellow caution sign that warned customers of the wet floor. At the time of the Plaintiff’s fall, however, the sign had fallen down and was lying on the floor. Plaintiff alleges that the store did not have proper signage to warn of the hazardous condition.

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.

Some of the areas that get affected by global economic circumstances include investment, access to supplies, compensation of employees, hiring of employees, operations, social issues, labor practices, output, marketing, and expansion to new markets. This paper examines the impact of the current global economic and financial conditions on staffing, compensation, operations management, social issues, and labor practices of Costco. The business reality is that the current global economic and financial conditions have not led to cuts in compensation of employees and the slimming down of some of Costco’s outlets as it is the case with other stores such as Wal-Mart. Hiring has also not stalled and labor practices are now being carefully observed to minimize litigation costs. Additionally, contentious cultural and social issues are steered clear of as a way of avoiding any disturbances to an already unpredictable business climate. Costco’s operations management has assumed a leaner outlook with emphasis on quality services from smaller workforces.

Costco's mission is to “continually provide our members with quality goods and services at the lowest possible prices (Costco Wholesale Mission Statement - Profits and Prices Revolve Around Ethics, 2013)

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

The Costco strategy for getting into the wedding gown business is to have a set of touring trunk shows at its Western stores during the season where people are planning their weddings. Costco's typical pricing strategy is to undercut competition and make up for this with high volume sales. The company applies this strategy to the wedding gown business as well. Costco offers one of the lowest prices of any company on its wedding dresses. The company's business plan ensures that the details have been fleshed out, and that has led to the unique distribution strategy for wedding gowns.

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

1. What is Kraft Foods Inc.’s corporate strategy? How has its corporate strategy evolved since its independence in 2007?

The Dollar General is an American wholesale company that was first initiated in Scottsville, Tennessee by Turner and Cal Turner. Its headquarters are located in Goodlettsville, Tennessee. The mission statement of the Dollar General is "Serving Others." This mission statement helps to bring out the innate requests and intentions of the company in the United States of America and other countries in the world. The company has a vision that describes how it manages to cater for four different types of people. These four groups of people include the customers, the community, employees, and shareholders. Within these categories of people, Dollar General aspires to serve others through deliver of price quality and terrific prices for customers, opportunity, and respect for employees, a superior return for shareholders and a better life for the communities.

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.