The paper "Costco Wholesale Corp: Mission, Business Model and Strategy" is a great example of a business assignment. The company’ s business model involved generating high sales volumes and rapid inventory turnover for example through offering low prices to customers on limited selection. Most of these items selected included nationally branded and selected private-label products. The products chosen had been placed in a wide range of merchandise categories. The company’ s management believed in rapid inventory turnover. This is where combining this turnover to operating efficiencies that were achieved through volume purchasing and efficient distribution of goods and through reduction of handling for merchandise in no-frills and self-service facilities.
The company believed that these factors combined would yield a profitable business with significant low gross margins that would be lower than the traditional wholesalers, supermarkets and supercentres (Steven 2005). Company’ s business model Costco’ s high sales volume and rapid inventory turnover were necessary as it allowed the company to sell and receive cash for inventory before it could pay many of its merchandise vendors. Alan and Bill (2006) describe that the company was, therefore, able to finance a large percentage of its merchandise inventory for example through the payment terms used by vendors.
This reduced the problem of having to maintain sizable working capital used to facilitate timely payment of suppliers. The business model used by Costco was therefore appealing because it reduced the problem of maintaining capital and it also enabled the company to operate at lower gross margins. Q. 2 Pricing The major elements of Costco’ s strategy included low prices, limited selection and gaining a treasure- hunt shopping environment. Arthur et al. (2009) show in pricing, Costco is known for selling top-quality national and regional brands at prices consistently below what was being sold by the traditional wholesalers and retailers.
The company therefore aimed at selling goods that could be priced at bargain levels, therefore, providing customers with cost savings. This strategy was good though an item had to be requested by customers. The major element of the pricing method was to cap the company’ s markup on brand name merchandise to get to 14 percent which was less than other stores and supermarkets. The philosophy of Costco was to maintain its customers by wowing them with low prices.
According to Jim Sinegal, the company always looks to see the gulf created between the company and its competitors. He also says that the company maintains its value and that’ s the reason why most people shop at the stores (Alan and Bill 2006). Product selection The company also used product selection in its strategies for example by stocking few goods for example while other stores stocked about 40,000 items to 150,000, Costco only had a selection of about 4000 products in its stores.
Some of its products included rotisserie chicken, prime steaks, fine wines, caskets, toys and games etc. The company also elected the fast-selling models, sizes and colours. The explanation for the product selection was the intelligent loss of sales where among ten customers; two of them would not buy a product since the store only has one size. The company says that is better to give up on one or two customers than sell many sizes which will be difficult to manage. The product selection of the company also included appliances, equipment and tools used for commercial and professional activities.
Alan, B & Bill, R 2006, Costco CEO finds pro-worker means profitability, an ABC News original report on 20/20, viewed 3 April 2011, http://abcnews.go.com/2020/Business/ story? Id=1362779
Arthur, A, Strickland III, J & John, E 2009, Costco wholesale corporation, Mission, business model, and strategy, The McGraw-Hill Companies.
Matthew, B 2006, Why Costco is so damn addictive, Fortune, p. 130.
Nina, S 2004, Company for the people, Seattle Weekly, viewed 3 April 2011, www.seattleweekly.com
Steven, G 2005, How Costco became the anti-Wal-Mart, New York Times, viewed 3 May 2011, www.wakeupwalmart.com/news