CONTENT
INTRODUCTION………………………………………………………………………………….1
ANSWER 1: STRATEGIES FOLLOWED BY COSTCO………………………………..2
ANSWER2: STRATEGICAL ADVICE………………………………………………………3
INTRODUCTION
Costco is a wholesale cash and carry, which functions through warehouses using a
membership only service. The high quality, private label merchandise is sold by the
company to businesses buying for marketable use as well as individuals that are
members of specific employment groups , for example NHS or government
employees. The basis of the business is to attain high sale volumes and fast inventory
turnover, offering a limited array of merchandise, with a widespread product category
at low prices. Furthermore, Costco operates customer services vacillating from health
insurance to financial planning. The major competitor of the company is Wal-Mart's Sam's club within the US, though they have 200 more stores operating in ten more
states than Costco , Sam's club does not havr the same returns. Yet there is still a
endless battle for increased market share with newer entrants such as B'J's Wholesale
Club (Hughes, 2007). Operating worldwide the company has divisions in the US,
Canada, Mexico, UK, Taiwan, Japan and Korea, Australia and an internet site
working in the US and Canada. Some of the stores contain pharmacies, food courts,
opticians, photo centres, travel desks and hearing aid centres within the warehouses.
The company also operates 307 petrol stations with some US and Canada stores.
Called as the only company Wal-Mart fears James Signal (2004) of Costco has
'captured a class of urban sophisticates, who trade up for exiting products and trade
down to private labels of more prosaic products. (UKEssay, 1970)
ANSWER 1
GENERIC STRATEGIES FOLLOWED BY COSTCO
Overall Price Leadership strategy is followed by Costco. Price leadership is attained
by implementing a effective strategy using constant efforts to cut costs, without
excluding services or products which customers perceive to be important. There
strategies include;
 Reduce advertising costs to keep merchandise price low, using 'word of mouth'.
 High employee salaries to retain employees and decrease new staff that would
require training.
 Merchandise stock on pallets to decrease labour and allow for maximum sales.
 Inventory system notices items that are reaching thresh hold for re-order.
 Just in time approach to decrease over stock, buying direct from manufacturers
and sent directly to warehouses within 24 hours.
 Provide less prices through volume buying.
 Willing to change manufacturers to attain the best possible price on a product.
In order to sell 'at the low possible prices' Costco follows various pricing strategies i.e.
bargaining with dealers and only adding a maximum mark up of 14% to each product,
even in cases where request is more.
Following is the data showing that Costco use price leadership strategy.
Costco's increase in net income by 1.1% to $266 million and profits soared to $71.4
Billion compared to Sam's club at $46.8 billion and B'J's at $10 billion for the first
fiscal quarter ended Nov 22nd 2009 (Business News, 2009) compared to Wal-Mart
net sales which rise by 1.2%.
Costco grew above his competitors because he followed price leadership strategy and
kept a check on his prices. (UKEssay, 1970)
ANSWER 2
STRATEGIC ADVICE TO THE COMPANY
Following are the advices given to the company: The major threat to Costco presently is the threat of substitutes especially in
discount stores and supermarkets and the substitute to this is online speciality
stores which can start through lower working costs and manufacturing abroad
thus growing the power of existing buyers.
 To compete with the risk of e-commerce businesses a further expansion in the
online sales capability is likely to rise the company's strengths. Cannibalisation
is unlikely to happen until the industry becomes completely drenched in the US
in which case the company can then be ahead of rival companies through the
internet or through worldwide development.