Case 01: Costco Wholesale: “To Continually Provide our Members with Quality Goods and Services at the Lowest Possible Price.”

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Assignment Questions 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model is to have a high sales volume and rapid inventory turnover on a limited selection of products in a wide range of categories. Selling wholesale products sold in cartons, cases, or multi-pack quantity levels in their 140,000 sq ft wholesale clubs. The business model is appealing to large households, businesses, and local restaurants. The business model is not appealing to smaller households that would not be able to purchase enough goods to re-coop the cost of the annual membership. 2. What are the chief elements of Costco’s strategy? How good is the strategy? Pricing – Passing on the savings to members. Limited Selection – A strategy of low number of SKUs, 4,000, vs. 40,000 to 60,000 found at large retailers and supermarkets. This allows a quicker turn over. Treasure Hunt Shopping Environment – 25% of the items are constantly changing. These could include higher end or brand name items with a high price tag. Similar to TJ Maxx, Costco purchased excess inventory from other wholesalers or retailers. Marketing & Advertising – Limited advertising, mainly direct mailings to established members. Growth Strategy – Costco has both growth domestically and internationally in addition to their company owned Kirkland Signature items. Web Site Sales – Web site sales include a 5% surcharge to non-members. Other products not normally sold in the physical stores, can be purchased online. Direct from manufacture deliveries, minimize freight and handling charges. Certain vendors are paid when the product is actually sold, not when Costco receives it, this lowers liability. Membership based helps lower shrinkage by controlling store entrances and exits. Not affected by trends (fashion, technology), the company is able to focus

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