Costco Wholesale Corporation: Mission, Business Model, and Strategy
1.
What is Costco’s business model? Is the company’s business
model appealing? Why or why not? Costco’s business model revolves around being a low cost
provider. Combing high sales volumes and quick inventory
turnover they can move products from supplier to consumer
without the bloat of high interest purchasing agreements. This
unique strategy allows Costco to mark up products by no more
that 15% compared to the industry average of over 25%
Their family oriented culture with all employees through
providing a living wage, excellent benefits and career
opportunities creates an environment that customers are feel
welcome in. The combination of value and environment
encourages customers to pay membership fees just to access the
store despite Costco’s modest mail only advertising. This
business model creates value for shareholders without
compromising Costco’s core values and makes it a very
appealing.
2.
What are the chief elements of Costco’s strategy? How good
is the strategy? -Membership Fees
-Narrow inventory with rapid turnover
-Ultra low prices
-Treasure hunt environment
This strategy is very effective. Low prices on name brand items
have allowed Costco to attract more affluent customers. By
targeting limited quantities of these items Costco is able to turn
the inventory quickly keeping them from financing inventory. Of
the approximately 3600 items you can find at an average Costco
approximately 20-25% are constantly changing. This changing
inventory gives customers a “treasure hunt” experience when
they are strolling though the isles.
This strategy is effective because it rewards both customers and
suppliers. Customers know they are getting a good deal and
suppliers know they can move the merchandise.
Additionally keeping their prices on these items so low gives
customers rewarding feeling for their memberships. These
memberships help Costco maintain a profit.
3.
Do you think Jim Sinegal has been an effective CEO? What
grades would you give him in leading the process of crafting and
executing Costco’s strategy? What support can you offer for
these grades? Refer to Figure 2.1 in Chapter 2 in developing your
answers. 4.
What core values or business principles has Jim Sinegal stressed
at Costco? 5.
(In the event you have covered Chapter 3) What is competition
like in the North American wholesale club industry? Which of
the five competitive forces is strongest and why? Use the
information in Figures 3.4, 3.5, 3.6, 3.7, and 3.8 (and the related
discussions in Chapter 3) to do a complete five-forces analysis of
competition in the North American wholesale club industry. 6.
How well is Costco performing from a financial perspective? Do
some number-crunching using the data in case Exhibit 1 to
support your answer. Use the financial ratios presented in Table
4.1 of Chapter 4 (pages 83-86) to help you diagnose Costco’s
financial performance. 7.
Based on the data in case Exhibits 1, 5, and 6, is Costco’s
financial performance superior to that at Sam’s Club and BJ’s
Wholesale? 8.
How well is Costco performing from a strategic perspective?
Does Costco enjoy a competitive advantage over Sam’s Club?
Over BJ’s Wholesale? If so, what is the nature of its competitive
advantage? Does Costco have a winning strategy? Why or why
not? 9.
Are Costco’s prices too low? Why or why not? 10.
What do you think of Costco’s compensation practices? Does it
surprise you that Costco employees apparently are rather wellcompensated? Better compensated than employees at Sam’s Club
or BJ’s? 11.
What recommendations would you make to Costco top
executives regarding how best to sustain the company’s growth
and improve its financial performance?