Case Study - Costco Wholesale Corp. in 2012

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Case Study #2 – Costco Wholesale Corp. in 2012: Mission, Business Model, and Strategy 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? With limited product selection and low prices, Costco Wholesale Corporation is able to use quick inventory turnover and high sales volume as a business model. This business model is appealing, because Costco Wholesale is able to pay their suppliers for their products at a very quick rate, since they have such a high inventory turnover rate. This causes Costco to be capable of receiving payment discounts for paying invoices so quickly. Due to these circumstances, Costco is able to provide low prices for its customers and use the extra money saved from discounts for investing in new inventory or products. 2. What are the chief elements of Costco’s strategy? How good is the strategy? One of the chief elements of Costco’s strategy is extremely low pricing, as Costco’s philosophy is to wow customers with their low prices in order to keep them coming in. Another chief element of Costco’s strategy is a limited selection of privately labeled and nationally branded products, making the types of products widely varied, but the variety of brands within the product categories are very limited. A third chief strategy of Costco is to provide a “treasure hunt” type of shopping environment. Costco only offers 3,600 products, and of those 3,600 – up to 25% are constantly changing, making it a constant “treasure hunt” to see what you can find for each visit with limited time offerings. The last chief strategy of Costco Wholesale Corporation is to emphasize keeping operating costs low. When Costco runs an extremely tight operation with low overhead costs, it is capable of passing those savings along to customers by offering equally low prices for products. This is a very good strategy, because

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