1. What is Costco business model? Costco business model is to generate high sales volume and rapid inventory turnover by offering fee paying members attractively low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories.
Is the company’s business model appealing? Why or why not? I do agree that the business model is appealing because people want to feel like they are exclusive with VIP treatment and they would be able to buy the name brand items they love for exceptionally lower than average price.
2. What are the chief elements of Costco’s strategy? Ultra low prices Limited selection of nationally branded and private label products “Treasure Hunt” shopping environment Strong emphasis on low operation cost Geographical expansion
How good is the strategy? The low prices keeps the customers coming back Costco offers more product selection than the avg supermarket Keeping overhead cost down allows Costco to offer better value eliminating cost history associated with conventional wholesalers and retailers The growth of the company was intended to show 5% growth, however, the existing warehouses grew by an avg. of 10%
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 developing your answers.
Yes, I do think that Jim Sinegal has been very effective as CEO. For grading, I would give Jim Sinegal an A because of the increase of profits to
4. What core values or business principles has Jim Sinegal stressed at Costco? Obey the law Take care of members Take care of employees Respect suppliers Reward shareholders
5. What is the competition like in the North American Wholesalers Club? Competition among the warehouse clubs (Costco, Sam’s Club, BJ’s Wholesale Club) are based on such factors as price, merchandise, quality and selection, location and membership services. The competition becomes much greater because of the attraction to small business owners, family households, churches, non-profit organizations, caters and small restaurants
7. Is Costco financial performance superior to that at Sam’s Club and BJ’s Wholesale? Yes, Costco financial status has 57% share of warehouse club sales across US and Canada, Sam’s Club has 35% share and BJ’s Wholesale has 8% along with several small warehouse club competitors.
10. Are Costco prices to low? Why or why not? Yes, Costco prices would be considered too low because the revenue does not fully cover the operating expenses of the company and generate only a modest contribution to operating profits. 70% of Costco operating profits were attributed to membership fees and the membership fees were larger than the company’s net income.
11. Costco Compensation Practices Costco compensation is what the company thinks about its employees and how they value them. Employees will work to their highest potential and go above and beyond the call of duty for greater compensation either tangible or non-tangible.
Its not surprising that the employees are well compensated because the company understand that good compensation comes with lower turn over employee rates, the employees are more loyal and the work relationship between the employee and employer are better valued.
12. What recommendations would you make to Costco top management regarding how best to sustain the company’s growth and improve its financial performance?
Customer loyalty: Lower the prices of the customer memberships and increase markups for pricing to have more increase in revenue
Increase membership by offering discounted membership rate to those customers that switch from Sam’s Club and BJ’s Wholesalers
Review inventory and items that are not customer driven should be eliminated which would keep funding either towards another merchandise or will be able to keep the funds to stay as apart of the companies revenue.
Build competitive advantages by increasing advertisements to broadcast the company via television, radio and internet for increase in customer membership.