The company’s business model is a membership-only warehouse club, meaning that each client pays a membership fee to access Costco’s selection of goods. The majority of profits for the company come from membership payments, as the products themselves are sold especially cheaply.
Company’s business model
This model is extremely specific but appealing to customers at the same time. Compared to all other stores, Costco gives its customers the ability to buy products at a very low price and buy in bulk (Thompson, 2019). Both of these decisions make membership fees worthwhile, helping people to obtain the items they need for a fixed cost. In addition, this business strategy sets the store apart from its competition, establishes a relationship of trust, and incentivizes more people to become its clients.
The chief elements of Costco’s strategy
There are several elements of Costco’s business strategy, each being critical to the company’s success. First, as mentioned previously, is the price. Costco can make customers return by offering them unique deals and outstanding prices (Thompson, 2019). Connected with this point is the consideration of product variety. When shopping, people value variety and often support stores that possess specific brands of products that they enjoy. As a result, Costco outclasses its competition, offering a large selection of products. Many of the items offered in the store are valuable, which adds to the perceived value of getting a membership card for many. At least 75% of the company’s products are name-brand items that meet appropriate standards of quality. Another chief element of the store strategy is its mix of low operating costs and continuous expansion, both of which seek to open stores to more customers year after year (Thompson, 2019). By keeping costs low, the company can afford to diversify its selection and present itself as more valuable than its competitors. In addition, practices of constantly changing store inventory help the chain keep its selection fresh.
Evaluation of the strategy
This strategy is effective at meeting the store chain’s goals and aims. Firstly, it serves to set Costco apart from its competition, helping brand recognition and constantly increasing the stream of customers (Thompson, 2019). In addition, it is also a decision that saves costs, increasing potential profit margins. A combination of these two considerations makes Costco’s business model not only sustainable but effective.
Core values or business principles that Jim Sinegal stresses at Costco
The founder of the store chain stressed five easy-to-follow principles to guide his company forward. First, Costco, like any other organization, has to obey the law. Business in the organization is conducted with measures and practices approved by the state (Thompson, 2019). Any compliances and regulations are taken especially seriously. The next value the founder instilled is a consideration for the store’s members. Compared to other companies, Costco can build strong bonds with its customer base. Such a connection must be reciprocated and supported by a variety of customer-centered solutions. Providing good services and goods for an affordable price, abiding by safety and regulatory standards, and giving all customers a warranty for returning products (Thompson, 2019). The next value of the company comes in considering its workers. Employees are an essential part of any business, allowing it to prosper and thrive. Giving Costco’s workers a living wage, healthcare benefits, understanding, support, and protection are all vital to ensuring the success of the Costco brand. The last two considerations concern suppliers and shareholders, which are both extremely important for delivering value to customers. The former must be monitored and regulated strictly, to ensure fair business practices and good product quality. The latter, then, demand specific attention to their needs, and their contribution to the company. For the monetary investment shareholders provided, their interests should be overviewed and catered to.
Considering that the percentages of product sales for Costco have continued to either remain at the same level or increase, it is likely that the company’s expansion is proceeding smoothly. Much like the US market, an expansion provides the company with the profits and support necessary to continue its operation. Categories such as food and Ancillary have experienced a decline in sales, which is more indicative of larger trends in the international economy than the organization’s problems.
Thompson, A. (2019). Costco Wholesale in 2018: Mission, Business Model, and Strategy.