Costco Strategy

1036 Words May 26th, 2011 5 Pages
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
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The forces characterize an industry by considering the threat of new entrants, power of buyers and suppliers, threat of substitutes and the impact among rival competitors. The threat of substitutes is the strongest for Costco. This threat comes from specialty discount stores, broad product discounters and hypermarkets followed by online sellers as an alternative threat. Both act to increase the power of existing buyers, particularly for shoppers who are satisfying needs versus wants.

Costco’s overall generic strategy of being a best-cost provider has been effective and sustainable in the retail industry today. Costco’s strategic vision for being a low price, high volume retailer is well known all
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