Costo Case Study

Costco questions

Case 2 questions to consider for discussion: Costco

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

Costco’s mission is to provide customers with quality goods and services at the lowest possible prices. The company’s business model was to increase a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. The company also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors. In my view, company’s business model is appealing. The company generated $71 billion at 544 warehouses in 40 states, Puerto Rico, Canada, the UK, Taiwan, Japan, Korea and Mexico. Its annual sales per store averaged $130 million whereas it’s closest competition; Sam’s club averaged $75 million per store. If it’s not appealing, the company can’t be huge successful.

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

The chief elements of Costco’s strategy are low prices, a limited product line and limited selection, and a treasure hunt shopping environment. The strategy looks good as the prices are low, customers flow can be increased. Meanwhile, limited product line helps customers from being product confusion and it also helps company to have good relationship with its suppliers and not to overstock unnecessary inventories so that cash flow becomes smooth. But, in general the company carries all most all of the basic necessities goods and services.

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...