Costco case study and strategic analysis
Costco Wholesale Corporation (Costco), one among the few largest wholesaler giant differentiates itself applying unique strategies relating to production and operations, and marketing which make it stand out from the rest of the retailers who are also said to be competitive in the retailing and wholesaling business globally. Costco is one of the innovative wholesalers teamed by very dynamic management team and dedicated, motivated and satisfied workforce with the mission “to continually provide its members the best quality products at the lowest possible prices” (Costco Annual Report 2006). Some of the fundamental principle of the Costco is that ...view middle of the document...
Declining or inconsistent profit margins Not widely scattered around the world than its competitors Location is not attractive in terms of real-estate No self-checkout Primary focus on business customers rather than individual customers |
Opportunities | Threat |
Costco’s operations is mainly targeted in countries where there is high GDP and high disposable income of the consumers (Canada, U.S.A and Japan) with low inflation rate in the countries Serves the democratic countries with political and governmental stability Rapid growth in membership Possibility of international expansion Advantage of economic downturn Increasing brand awareness Positive image in terms of employees pay and social responsibility | Costco cannot attract people who are below poverty line due to its membership fees and bulk purchase Not well diversified in terms of geography (presence) High competition from Sam’s Club and BJ Highly dependent on United States and Canadian market. Largely dependent on vendors for timely supply of quality merchandise at reasonable price High market expectation in terms of price, quality and financial performance |
In the core of their strategy, Costco sells limited numbers of products in fewer varieties to keep the cost down and they rely on high volume sales. But unlike their competitors they pay well to their employees. One of the key uniqueness and strength is that they sell membership to their customers that not only generate the fixed revenue every year but also increase the brand loyalty and awareness of the customers towards Costco. They advertise very less thereby reducing the cost by two percent each year.
One of the crucial factors of Costco is their pricing strategy. They have unique way or mechanism that helps them keep the price lower than that of competitors and they can still afford to pay 48 percent higher salaries to their employees than their major competitors mainly Wal-Mart. Their membership base is growing and they are able to retain their customers. Virtually, they do everything to retain their customers. Most importantly they have very incredible return policies in hand to attract and retain customers. Furthermore, they try to find the best value pack for almost every product they sell in their location (store). For example, they have thousand packet box of Splenda (sugar free sweetener). They generally engage in bigger packages because they believe that bigger package provides better value and cost savings to their customers.
Costco applies several other strategies to achieve corporate wide price leadership strategies. For example, to achieve the price leadership they reduce handling and storage cost, they maintain in-stock positions without being overstocked and transition seasonal merchandise, they utilize just-in-time principles when...