Costco's Business Model

Glori Bryson

January 22, 2011

Business Policy

Module 2

Term: January 2011

Bryson 1

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

Costco’s business model is one of rapid inventory turnover and high sale volumes. The company implemented this model by offering customers national and some private label brands at low prices. Costco business model is appealing in that it combines the offerings of low prices with rapid inventory turnover. Because of its inventory turnover, Costco it able to sell inventory before that inventory payment is due to manufacturers. This allows Costco to save money from the ability to accept manufacture discounts for early payment.

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

Costco chief strategy is offering wide range of products at the lowest possible cost. Costco sells everything from caskets to tooth paste. Compared to other retailers and warehouses, Costco offer about 4,000 items to the typical Wal-Mart supercenter offering 150,000. Costco caps its profit margins at 14 % for brand named merchandise, and its own Kirkland Signature brand it caps at a maximum of 15 % which still results in the Kirkland Signature brand selling at 20 % lower than the brand name products Costco carries.

Costco pricing is major to its strategy. By offering large quantity count of items, Costco is able to be more efficient and make its stores easier to manage. Costco offers many services in or around its centers to attract customers. These services include food court, one hour photo centers, gas stations, pharmacies, optical centers, print/copy centers, and hearing aid centers. Part

Bryson 2

of Costco strategy is what they call “treasure hunt merchandising”. This is the offering of highly desirable goods which aren’t carried offended. These limited offers keep Costco customers returning to the store. Because of Costco successful strategy its warehouses are...