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Costco Wholesale In 2008 Mission Business Model And Strategy Case Solution

Solution Id Length Case Author Case Publisher
1899 3680 Words (12 Pages) Arthur A. Thompson The University Of Alabama
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Costco warehouse has been tremendous in terms of managing. It has been enthusiastic towards old employees. Many of the top management of the company are from inside the company, who excelled at their careers in warehouses and learnt the tricks of the business. The HR at Costco is doing a splendid job, and that is the reason behind an exceptionally low turnover rate at Costco (Kim and Lim, 1988). Costco Wholesale Corporation is obviously influenced by the political factors in the regions they are operating. The company is engaged in giving a high wage to the employees due to the policies of the contract by Union (Dess and Davis, 1984). Due to the wage rate and policies the company’s performance is good. Costco is operating in different regions of the world, and policies of the countries play a vital role. Costco has maintained good relationships all over the world (Murray, 1988). It mainly follows the rules and regulations set by United States. The company has formulated its foreign capital policy, industrial policy and technological policy, export policy and the fiscal policy according as per the legislature requirements of the country (Kim and Lim, 1988).

Following questions are answered in this case study solution

  1. What is Costco's business model? Is the company's business model appealing? Why or why not?

  2. What are the chief elements of Costco's strategy? How good is the strategy?

  3. Based on the data in case Exhibit 1 and 4, is Costco's financial performance superior to that at Sam's Club and BJ's wholesale?

  4. Does the data in case exhibit 2 indicates that Costco's expansion outside the US is financially successful? Why or why not?

  5. How well is Costo performing from a strategic perspective? Does Costo enjoy a competitive advantage over Sam's Club? Over BJ's Wholesale? Is so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not?

  6. Are Costco's prices too low? Why or why not?

  7. Does Costo pay its employees too much? Does it make sense for Costo to compensate its employees so much better than the employees at Wal Mart/Sam's Club? Why or why not?

  8. What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company's growth and improve its financial performance?

Case Analysis for Costco Wholesale In 2008 Mission Business Model And Strategy

1. What is Costco's business model? Is the company's business model appealing? Why or why not?

Costco’s business model complete relies on the high sales volume coupled with quick inventory turnover, which is made possible by low prices and limited product selection among a wide variety of Brands available. The current business model is extremely valuable for the chain, and for now it is successful. By gearing the business approach, the company is able to sell different and new products, which sometimes results in quick payment to the suppliers (Zack, 1999). The company also pays discounts which frees up the capital, as the company finances most new inventory purchases with supplier terms. One more benefit of the current business model is that the company does not have maintained high capital all the time or take loans to make payments to suppliers (Narayanan and Fahey, 2005). The process is mainly that it has a direct network of merchandisers, through which all the buying is done directly from the manufacturers and then the inventory is carried by logistics to the warehouses (Miller and Dess, 1993). The warehouses are designed at an average size of over hundred and forty thousand square feet. The labour works seven days a week with the average wage rate on 69 hour per week basis (Murray, 1988).

i. Strengths

Costco which also famously know as Costco Wholesale Corporation is fundamentally a fortune company primarily based in United States. Costco was established back in 1993. s. Costco is certainly one of the largest among the competitors doing the same business. With no surprise, Costco was ranked the third best and largest retailers in United States in 2010 and currently it is ranked the 9th highest retailer in the world, which shows how successful the company is in terms of performance. If we talk about the industry, the turnover rate of Costco is certainly better than the competitors.

Nearly seventy percent of Wal-Mart employees leave after their completion of the first year. Costco is currently engaged in low cost promotion and other marketing activities (Hill and Westbrook, 1997). The low cost strategies have provided an edge to the company as good word of mouth will contribute to the marketing strategies of the company. It helps the company to save considerable fortune that it would have spent on its marketing campaigns (Zack, 1999). The company offers a lot of international and local brands to the customers, trying to sell them at an exceptionally low price (Jackson and Joshi, 2003). The company has always been up to the mark whenever the employees come in the game, they have extremely good policies for the future of the employees. The company like any other business relies on high volume of sales to gain higher profits (Hill and Westbrook, 1997).

ii. Weaknesses

Now coming move for the future of the company. A country like America is always a good region to do business as the government supports and the stability of the government are always a plus (Hill and Westbrook, 1997).

Costco has also some problems which need to be catered for the betterment of the company (Murray, 1988). As we know that the company has a large US based network and also other regions, thus the large operations. The large scale operations sometimes hinder the implementation of changes to the grass root levels. Costco is not spending the required amount of money to advertise (Jackson and Joshi, 2003). As we know, advertising and good marketing is the key to create demand among the buyers and those results in higher sales. The company is certainly lagging behind in the marketing department (Hill and Westbrook, 1997). What we believe is that due to less marketing campaigns and advertisement, Costco is clearly losing the potential customers. Costco has extremely limited focus in terms of its stores and the regions it covers (Jackson and Joshi, 2003).

iii. Opportunities

If we talk about Opportunities, there are many for Costco. Costco can try the expansion strategy and tap the markets like India, China and other Asian countries (Jackson and Joshi, 2003). The results can be extremely fruitful in these regions. Markets like such have immense potential for companies like Costco. Costco can also have web sales centre, which is obviously a trend that will grow from here. The company currently is working on making distribution channels stronger, which indeed is a good (Hill and Westbrook, 1997).

iv. Threats

The biggest threat for Costco is the competitors in the Industry. When we talk about competitors, nothing gets bigger a worse like Wal-Mart. There is a lot of competition in the industry, where companies like Wal-Mart are clearly winning the show (Jackson and Joshi, 2003). Costco does not only compete in one sector or market, but it is also competing with the wide range of small retailers indirectly. Costco is currently operating in a limited number of regions. It will face immense problems in the presence of other market players if it continued the same business strategies.

2. What are the chief elements of Costco's strategy? How good is the strategy?

The general competitive strategy used by Costco is low price selling in the industry than its competitors. The core competency of Costco is low price selling and gaining more competitors (Dess and Davis, 1984). The best low cost provider strategy is a mix of low cost provider and differentiation. The best thing about the strategy is that it is aligned with the marketing strategy and business level strategy (Kim and Lim, 1988). The current strategy is according to the resources of Costco. The company has been successful in good supply chain, good relationship with the suppliers, a massive buying power, high sales volume, and quick inventory turnover and last but not the least excellent customer service. The key to success in the new business era is efficient and incredible customer service (Miller and Friesen, 1996).

Key components of Costco business Strategy:

  • Limited Product Selection

  • Low pricing

  • Treasure Hunt Merchandising

While the Costco is thriving to beat its competitors at the price war game, they are also working on exceptional value to its customers and provide the best customers services. They are focused on giving high value to customers on high end products (Murray, 1988).

5 Phases

The 5 basic steps what the company should be following are:

  1. Create a Strategic Vision

  2. Set objectives aligned to the grass root level

  3. Craft a strategy aligned with the vision

  4. Implementation of the Strategy

  5. Evaluation and Feedback

3. Based on the data in case Exhibit 1 and 4, is Costco's financial performance superior to that at Sam's Club and BJ's wholesale?

Financial Measure








R on Stockholder Equity




Current Ratio




Debt to Equity Ratio




Inventory Turnover




Working Capital




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