Costco mini case study

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)

Between these three wholesale clubs, I would say that the rivalry among them is the strongest force. This is strong because these three wholesale clubs all compete with each other for the same customers. Sam’s club and Costco both have clubs within the United States and also in other countries, with BJ’s main focus which is on the east coast of the U.S. Costco and Sam’s club have high competition between them and Costco has way more market share then BJ’s. The second best is the power of buyers. The market of wholesale is definitely a buyer’s market because they can switch and buy whatever it is that they need from one of the other two clubs. Consumers are always looking for lower prices which makes the demand in the industry very high.

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?

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

Where I live we do not have a Costco but when I lived in Illinois I had the opportunity to shop there. Sam’s club has a cheaper member than Costco does. It’s a very small difference maybe by $5-$10. Costco offers many things to their members such as investing in securities, a mortgage, and car insurance, while Sam’s Club offers regular shipping for paper and ink(Peterson H., 2016). According to consumer reports, Costco and Sam’s Club both score low on customer service(Peterson H., 2016). Costco came out a little higher than Sam’s Club. Sam’s Club also has the upper hand because there are more than there are Costco. A big difference in customer service that I noticed was Costco employees are paid more and have better benefits than Sam’s Club. The general consensus on the web is that Costco is superior in customer service. Many individuals feel this way because mainly the way they treat their employees. When a company cares about their employees it shows. Which makes their employees want to work harder. Sam’s Club customer service seems to be lacking even though they do have several positives that Costco did not

From the customer’s standpoint Costco looks to keep increasing its consumer base by providing low prices that aren’t coming at the workers’ expense, they believe this is the key to providing a good service and good business

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 has a very strong trend that announced sales of $8.78 billion in only the month of May. It is quite impressive that it has beaten its competitors Walmart and Target by a great percentage. Investors can look forward to the future in Costco outperforming the other retail stores. Costco and Sam's are very similar in the products that they sell; however Sam's Club has worse sales than those of Walmart. We may wonder what makes Costco more unique and more shoppers to shop there? The answer is that Costco does an incredible job at giving low prices. This can also be explained as Costco being an efficient company by providing the best possible prices to their customers. They have a benefit of making their profit from their membership fees, great member services, making customers experience pleasurable, and bringing the best quality brand names at the lowest price.

Costco has a very unconventional advertising technique, spending $0 in marketing. What they pay in advertising is very little and can be found on their big trucks with a big red, white, and blue Costco logo, yet they are extremely effective at conveying to the public that they exist, and are selling goods to business and non-business consumers at wholesale prices. How do they do it? It’s very commonly known as “word of mouth”, and has effectively made Costco one of the most successful businesses in the world. When asking any common man or woman where someone could purchase goods at wholesale prices, the average answer will likely be “Costco”. There are no commercials, or billboards, or website advertisements, or spam that shows up on search engines. Their greatest advertisements are the enormous stores and parking lots crowded with people trying to do some shopping. Despite the lacking of marketing, Costco is a household name.

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

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

“The key elements of Costco strategy are extremely low prices, a limited selection of naturally branded and private label products, a treasure hunt shopping environment, strong emphasis on low operating costs, and ongoing expansion of its geographic network of store locations.” To provide low prices Costco caps its markup on brand merchandise at 14% compared to 20% to 50% at other supermarkets. The equals out to a sales revenue that only equales several million dollars. This number excludes all other operating factors including the membership fees. Another important element of the strategy is that unlike other retailers they don’t offer window displays or any other thrills with in the stores. They know because of the reputation and because of the value that they offer their customers that the items that they sell offer value over all else.

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

A Business week article makes an interesting statement that Costco belongs to the very short list of companies with a culture so favorable to employees that it gives the company a competitive advantage, and it’s most likely to keep on rising over many decades. Costco sees workers as an asset to invest in, rather than a cost that must be reduced. In the U.S. Costco pays workers an average of nearly $21 per hour, almost three times the minimum wage and about twice as much of what most competitors pay. They receive great benefits and are part of a safe and healthy working environment as well. At Costco they are committed to providing its employees with opportunities for personal and career growth. Costco has implemented a strategy for a competitive advantage by having a mix of low-cost providers and differentiation. Company differentiates itself by providing consumers with products in bulk at a low per unit cost. Costco offering two types of memberships- the regular and executive membership. With an executive membership, Costco gives a 2% reward on annual Costco purchases. A holder of the executive membership receives incentives for shopping there, which leads to more sales and higher customer visits. This is just one of the many reasons customers keep going back to Costco. It has made itself a highly successful company by offering quality products and excellent customer service.