Costco Case Study

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

The company’s business model is “to continually provide our members with quality goods and services at the lowest possible prices.” The company’s business model was to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories.

This model is appealing because to consumers, if they can get quality goods and services at lower prices, this is savings in their pockets. In this day and age of cutbacks, layoffs, recession, Costco makes good business sense to the consumer who is on a budget. At the end of September 2008, Costco had 53.8 million cardholders. I think I can conclude that the model is appealing!

2. What are the chief elements of Costco’s strategy? How good is the strategy?

The cornerstones of Costco’s strategy were low prices, a limited product line and limited selection and a “treasure hunt” shopping environment.

3. Do you think Jim Sinegal is 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.

The process of crafting and executing strategy is done in 5 steps. Below, I will discuss the different steps and evaluate the performance of this company’s CEO, Jim Senegal, in the process of strategy making, as well as discuss areas for improvement.

Phase 1 – During this phase, the CEO and other senior management meet to discuss and draft a strategic vision for the company. The strategic vision lies out the path the company will take in the future to improve its market position. Good strategic visions reveal where the company is going in the future and provide reasons for that particular

path. Vision statements should be...