Research Paper on Costco: Providing Exceptional Products, Excellent Service, and Strict Ethics

Paper Type:  Research paper
Pages:  7
Wordcount:  1756 Words
Date:  2023-01-29


Costco's mission is continually providing its members with exceptional and cost-effective products. Costco continues pursuing its purpose of ensuring the availability of best products in the market while offering excellent customer services and complying with a strict code of ethics. These codes of ethics include caring for Costco members, workers, suppliers, and awarding shareholders while also being responsible for environmental stewards and corporate citizens. The focus of the business model of Costco is entrenched in the generation of high sales volumes and increased the turnover of its inventory (Gamble, Peteraf, & Thompson, 2014). The fee-paying members of Costco are offered attractively low prices on limited branded and chosen products. Costco has realized efficient operations and improved profits due to the rapid inventory turnover, lower costs of services, active distributions, self-service warehouses, and minimized handling of merchandise. A vital element of the company's business model is the membership fees since it offered enough additional revenues to improve the profitability of the company to the accepted levels. Costco's business model of rapid inventory turnover and high sales volume helps the company in selling and receiving for inventory before having many merchandise vendors. Therefore, Costco bankrolled a significant percentage of the merchandise inventory using payment terms offered by vendors instead of maintaining its sizeable working capital. To this end, the vital elements in the strategy of Costco include the low prices, increasing expansion of its stores, strong focus on low costs of operation and private-label goods.

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Costco's Strategy

The philosophy of Costco was to ensure consumers kept coming to shop by convincing them with meager prices to generate high sales volumes. For example, in 2015 alone Costco's sales volume led to lower costs in specific product categories such as $6.4 billion sales on the same time, Costco company was the leading company in sales of fine wine in 2015. In the last decades, a crucial aspect in the pricing strategy of Costco was capping its markup on brand-name good at 14 %( Gamble, Peteraf, & Thompson, 2014). Due to the low profits, the prices of Costco Company were above the breakeven points, leading to high net sales revenues, which exceeded all expenses incurred in operations. Wall Street highlighted a critical issue which arises from the pricing strategy of Costco. Costco has faced criticism for aiming to please consumers at the expense of increasing the shareholders' profits. Costco has faced growing calls to quit its ultra-low pricing plan, where Sinegal claimed that the company is looking to stay for the next five decades. Another strategy of Costco which has guaranteed its success is the product selection. Where companies such as Wal-Mart or SuperTarget have around 150,000 items, the merchandising strategy of Costco offers members with choices of over 3,700 active items priced at bargain levels. Therefore, members are provided with essential cost savings. 80% of the products are quality brand-names, while 20% carried the private-label of Costco called the Kirkland Signature Brand (Kovacic-Fleischer, 2017). Costco's signature brand was on everything, including the shirts, pet food, cookware, and other merchandise. Through the signature approach, Costco was communicating that the Kirkland signature products are better or equal to the national brands. For the members, shopping at Costco would ensure they acquire high-quality products at relatively sustainable prices. Moreover, Costco established other departments in its warehouses to provide consumers with reasons for frequent shopping.

Costco practices treasure-hunting merchandising, where the products are continually evolving. The merchandise buyers of Costco are increasingly making one-time purchases of goods which appeal to the company consumers. This strategy aims at enticing shoppers towards spending more than they might through providing irresistible deals towards keeping the mix of treasure-hunt or featured items which change regularly. The members of Costco have quickly learned on buying treasure-hunt specials, which are of interest to them since the items are likely unavailable in their shopping trip (Kovacic-Fleischer, 2017). In many situations, Costco has not obtained the upscale treasure-hunt details from high-end producers such as Waterford or Calvin Klein. An issue for Costco buyers is searching for opportunities in sourcing these items legally in the gray market from distressed retailers or wholesalers aiming to get rid of slow-selling or excess inventory. According to the management, these practices ensure the marketing expenses were low relative to those of discounters, supermarkets, and retailers. Costco's strategy also focuses on low-cost emphasis where the costs of operation are at a bare minimum. Costco offers better values and lower prices by eliminating all the costs and frills connected with conventional retailers and wholesalers. An issue for Costco's low-cost emphasis strategy where the management has ensured all the warehouses are located is easily accessible by residents and small businesses (Gamble, Peteraf, & Thompson, 2014). At the same time, Costco Company is avoiding prime real estate sites for containing land costs. Shoppers are attracted to the low prices and selection of merchandise of Costco. Additionally, the company's shorter hours of operation compared to those of discount retailers, supermarkets, and traditional retailers have led to lower labor costs compared to the volume of sales.

There are apparent issues in the strategies of Costco Company. The low prices of Costco alongside the reputation of making the shopping experience at Costco a treasure hunt has made the company not take part in extensive sales and advertising campaigns. The marketing and promotional duties are restricted to monthly members, unique campaigns, and in-store sampling. Costco has also operated websites in Canada, United States, United Kingdom, and Mexico. The goal was enabling members to shop for in-store products online and offering members with ways of obtaining services and products of high value. The examples of items which members purchase online at low prices of the company included beds, outdoor furniture, sofas, kitchen appliances, hot tubs, and billiard tables. Members also use the website of the company for services include digital photo processing, travel, prescription fulfillment, and the auto program of Costco (Shepherd, 2016). Moreover, Costco has formed direct buying relationships with different manufacturers of national brand-name supplying the Kirkland Signature goods. The merchandise buyers of Costco are alert of the opportunities of adding products for the quality producers and vendors. Costco has not experienced difficulties obtaining enough merchandise. Another vital issue for Costco are the types of memberships, such as Gold Star and Business. Members can purchase from any warehouse, but these issues are apparent in countries such as Canada where there are restrictions.

Common Issues With Costco's Strategy

A significant problem with the business model of Costco Company is the reliance on memberships. The membership strategy works best provided the members return to the company and promote bulk purchases of items as they have done in the past. However, there are other issues which impact this trend. Consumers could decide to move their memberships to its rivals such as the Sam's Club of Wal-Mart Company. There are apparent costs which are same for the association, with reasonably similar discounts. The only actual difference is selection, which is connected to the preferences of the consumers. Therefore, if there are changes in the range of products, Costco risks losing out. Additionally, Costco Company competes against specialty retailers such as Petsmart, Whole Foods, and Office Depot. Clients soliciting for these products have preferences for the outcomes of the retailers over Costco's products. Another critical issue in Costco's strategy is omnichannel experiences (Shepherd, 2016). Presently, retailers have adopted the omnichannel focus, where customers are using various connected devices in shopping online, researching on products, and comparing prices. While the emphasis of Costco Company on warehouse gives room for build discount to retailers for lower prices, there are no actual translations to the kind of omnichannel experiences expected for customers. Currently, Costco is making significant investments towards achieving the omnichannel objective. However, there are no guarantees that Costco's efforts will realize success or that these changes are implemented in time for the competitiveness of the company.

Another issue that is apparent from Costco's strategy is the delivery of bulk items. When consumers purchase in bulk, the transportation of everything to their homes could be challenging. For people living in urban areas, and who are not able to park near families with young children, the transportation of bulk goods is a daunting task. Costco provides some online services. However, rivals such as Amazon Company have Prime service, while Jet has services which offer free shipping for the same deals as Costco's. For example, Amazon provides free shipping for two days, while the Prime Pantry service accounts for $99 yearly alongside other advantages such as streaming video. At the same time, Jet lacks membership fees while having many deals, which are the same as Costco's and amazon companies (Loftsdottir & Mixa, 2017). There is also an issue with consumer preferences for Costco Company, which are continually evolving. Costco Company applies the warehouse approach, where it purchases specific goods and services in large quantities while trying to ensure swift selling. However, this only works for Costco if it maintains the high sales volumes. With changing consumer preferences, Costco will have many unwanted and perishable goods. Moreover, Costco Company faces issues with its geographic dependence, with the performances heavily reliant on the North American business. The sales in Canada and the United States of America account for 87%, with the organization depending on the California population. Therefore, the slow demands of the state could affect the top and bottom lines of Costco Company.

Costco Company also faces issues such as the older customer base which is not the center of the company's products. Costco has a broad customer base, but it is more focused on the baby boomers. With the customers aging, they spend less. Therefore, Costco Company must attract younger clients such as Generation X and Y, who are tech savvier clients. To this end, Costco Company has some opportunities towards addressing these issues. The first opportunity for Costco is attracting younger clients aged between 19 and 34 years towards achieving more extended earnings and sales at Costco (Shepherd, 2016). The organization is inviting tech-savvy consumers in different ways by ensuring convenience for shopping through services such as InstaCart and Google Express. Costco also provides higher-quality, better brands on the clothing aspect of the business activities. Costco has also used promotions such as Living Social which attracts the younger consumers. Additionally, Costco has also provided organic foods that appeal to more health-conscious and younger consumers. Resultantly, Costco has seen new signups from clients in the recent quarters. Costco is also grappling with the opportunity of international expansion, where it has plans of growing internationally and domestically. The existing store base of Costco Company is over 670, but the management aims to attain 1,200 ware...

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Research Paper on Costco: Providing Exceptional Products, Excellent Service, and Strict Ethics. (2023, Jan 29). Retrieved from

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