Costco Analysis
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- Date Submitted: 02/12/2011 06:45 AM
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Costco’s business model
1. What is Costco's business model? Is the company's business model appealing? Why or why not?
Costco’s business model depends on high sales volume coupled with quick inventory turnover. Costco operates as a membership warehouse that is based on the concept of offering members the lowest prices on a limited selection of national brands and select private-label products that cover a broad and wide range of categories. This business model is very appealing and appropriate for this type of chain and has many benefits. For one, quicker inventory turnover combined with efficient inventory management systems reduce Costco cost of selling goods. Quick inventory turnover combined with high sales volume allows Costco to sell and receive cash for goods before it has to pay for any of its merchandise, this allows Costco to finance a large percentage of its inventory through the payment terms provided by its vendors rather than having to maintain a sizeable working capital to pay for its merchandise . These saving in its operation enable Costco to pass these saving on to the consumer in the form of low prices. Another reason it’s appealing is because Costco targets high end products thus bringing in high-end consumers into its stores.
1. What are the chief elements of Costco's strategy? How good is the strategy?
Costco uses the competitive strategy the best-cost provider in the wholesale club membership category. The Best-cost strategy combines the drive to be the industry’s low-cost provider and differentiation strategy. This strategy is aligned with Costco’s unique abilities and resources. They are purchasing power, high sale volumes, quick inventory turnover, and excellent customer service. The chief elements of Costco strategy are Pricing, Limited Product Selection and what the company calls “treasure-hunt merchandising”, this is high end products that were acquired in the grey markets from other wholesalers or distressed...
1. What is Costco's business model? Is the company's business model appealing? Why or why not?
Costco’s business model depends on high sales volume coupled with quick inventory turnover. Costco operates as a membership warehouse that is based on the concept of offering members the lowest prices on a limited selection of national brands and select private-label products that cover a broad and wide range of categories. This business model is very appealing and appropriate for this type of chain and has many benefits. For one, quicker inventory turnover combined with efficient inventory management systems reduce Costco cost of selling goods. Quick inventory turnover combined with high sales volume allows Costco to sell and receive cash for goods before it has to pay for any of its merchandise, this allows Costco to finance a large percentage of its inventory through the payment terms provided by its vendors rather than having to maintain a sizeable working capital to pay for its merchandise . These saving in its operation enable Costco to pass these saving on to the consumer in the form of low prices. Another reason it’s appealing is because Costco targets high end products thus bringing in high-end consumers into its stores.
1. What are the chief elements of Costco's strategy? How good is the strategy?
Costco uses the competitive strategy the best-cost provider in the wholesale club membership category. The Best-cost strategy combines the drive to be the industry’s low-cost provider and differentiation strategy. This strategy is aligned with Costco’s unique abilities and resources. They are purchasing power, high sale volumes, quick inventory turnover, and excellent customer service. The chief elements of Costco strategy are Pricing, Limited Product Selection and what the company calls “treasure-hunt merchandising”, this is high end products that were acquired in the grey markets from other wholesalers or distressed...