Case Study of Costco: Critical Analysis of Business Model

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Costco’s business model is a distribution model. The model is a low cost with limited but high-quality products. Bigger volume purchasing, a huge range of product category and only available to customers with membership. The model is appealing as its main idea is to have a high volume of sales by providing members low and competitive prices on limited but top quality products (John E. Gamble & Margaret A. Peteraf, 2018).

Strategy elements include low pricing and selection of products. They provide low and competitive prices for their customers with membership. With this strategy, they attract more members that also help them in maintaining the existing members. Another strategy i.e. merchandising helps business to attract more customers to spend more money on the products that you do not always see on sale by giving special deals on them.

According to my view, when it comes to CEO, he was effective. I would give him an A grade in implementing strategies in an exceptional manner. The Stats suggest that he possessed great people skills, which played a great role in building great relationships between him and his employees and customers. He was approachable and always willing to help customers. He was always able to communicate his vision clearly and concisely. He was the one who brought Costco to the position it is today. Figure 2.1 that states he was able to set goals, the vision, which leads to making the strategy. He was exceptional at observing the strategies and evaluation of performances from his employees (John E. Gamble & Margaret A. Peteraf, 2018).

The core values that were stressed on includes taking care of members, as they are the main reason for the existence of this company, Taking care of employees by creating a culture of maintaining the relationship between employees and management. Giving respect to suppliers as maintaining the relationship between the company and suppliers is important for the organization to prosper. Finally yet importantly is by providing support to the stockholders by allowing them to invest and get benefit from it (Douglas R. Satterfield, 2015).

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Within North America, there are four major wholesalers include Costco, Sam’s Club, and Walmart. I believe rivalry or competition among the competitors is the strongest competitive forces as all of the rivals are having a similar kind of business model that is trying to attract more and more members by offering lower and competitive prices. Other factors that influence the number of potential customers or members are having more number of locations. More the number of locations, more the chance for the company to influence potential members and other competitors have then lesser chance to make any impact.

Costco is performing financially very well. Exhibit 1 data states that they have a current ratio of 1.05, which means they can meet their current liabilities. The assets turnover of 11.54 means that Costco only holds onto the inventory for less than 12 days. The ROE shows $0.13 of gain per dollars of net assets (John E. Gamble & Margaret A. Peteraf, 2018).

Exhibit 2 data shows that the expansion of Costco globally (outside U.S) is financially more successful. Since the company has globalized, the operating profit and revenue have rapidly increased.

Costco is performing strategically well too. Costco does not have any competitive advantage over other competitors, especially when there is no rival warehouse located in the area where they are located. Costco’s main strategy is to attract more and more members whenever they open a new location. I believe Costco’s strategy to win is by opening more locations and attracting more members both locally and globally that will influence sales numbers.

Costco’s compensation is on the higher side as compared to its competitors. Employees of Costco get great compensation and benefits package that includes health and so many other benefits. Surprisingly, Costco employees are getting great compensation even with a lower price margin on the products. The main reason behind this is the principles of Costco to take care of customers and employees as well.

References

  1. John E. Gamble, Margaret A. Peteraf, - Essentials of Strategic Management: The Quest for Competitive Advantage-McGraw-Hill Education 6th Edition (2018).
  2. Satterfield, D. R. (2015, February 3). Core Values: Costco. Retrieved from https://www.theleadermaker.com/core-values-costco/
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Case Study of Costco: Critical Analysis of Business Model. (2022, July 14). Edubirdie. Retrieved April 13, 2024, from https://edubirdie.com/examples/case-study-of-costco-critical-analysis-of-business-model/
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