This assignment is about the business model and strategies of Costco Wholesale Corporation based on the financial report of 2016. This study here reflects the business strategies that are taken by the management of the organization. Those strategies are effective for the company to hold a prestigious position in the business market of United State or in greater view in the business market throughout the world. From this study it will be clearly understand that what business strategy could be more appropriate for a wholesale firm like Costco Wholesale Corporation to stand in the top of the list of most successful business firm.
Costco Wholesale Corporation has started to operate in Seattle, Washington in the year 1983. Gradually they spread their business in other eight countries like UK, Canada, Mexico, Taiwan and South Korea (Costco.com, 2016). The company is bound to deliver a high quality and cost effective household products to their customer. Costco Wholesale Corporation has flooded the market of US in terms of their products such as electronics goods, computer accessories, home and kitchen appliances, tires and automobile accessories, many home improvement and gardening products, office usage products, many personal usage products like clothing, watches and sunglasses, jewelry and many more. The company at first was serving as small businesses in San Diego with the name Price Club in the year 1976 (Costco.com, 2016).
Later when Price Club and Costco had started to operate together as a single organization from 1993, they started to generate a sale of 16 billion dollar annually. The operation of Costco Wholesale Corporation is based on the most simple but best effective market strategy. The main focus of the company is to provide efficient product at comparatively lower price to meet the satisfactory level of their customer. With the help of this wonderful business strategy, Costco’s sale exceeded 64 billion dollar in recent fiscal years (Costco.com, 2016).
Costco Wholesale Corporation is one of the largest wholesale retailers all over the world. They have 663 retail stores around the globe (Maenhout and Vanhoucke, 2016, p.107). Behind the success story of Costco, there is a suitable business model which is followed by the management of Costco when building a business strategy for the firm. This ideal model leads Costco to one step ahead from their competitor.
Membership: Costco follows the subscription business model. In this model the customer must have a membership which costs around 55 dollar in US, to buy any product at low price. A very popular strategy to earn a handsome amount of profit which is also followed by many gyms, newspaper and telecom companies (Rowlinson, 2017, p.45).
From the above statistics it is observed the rapid growth of both the Gold star as well as Business membership from the year 2012 to 2016 according to the financial report of 2016 of the company. At the end of year 2012, where the total number of Gold star member was 26,700, which is increasing gradually in every following year and reach to 36,800 in the end of year 2016. For the statistics of the total number of business member it was 6,400 in the end of 2012 and reach to 7,300 in the end of financial year of 2016 in an increasing rate (Pishdad-Bozorgi and Beliveau, 2016, p.179).
Consistent Low Pricing: Costco Wholesale Corporation is very much aware of capturing the mass customer. In order to keep interest of the customer towards them, they maintain the lower price throughout the year. Other competitors of Costco lower their product prices in some certain occasion (Azhar et al. 2015, p.15). Thus providing a consistent lower pricing for the products to their member Costco gives the value for money to their permanent members.
Loss Leader Strategy: According to Bygballe et al. (2015, p.22), this strategy helps Costco to sale other products as well when a customer is tends to buy a product. A weekly sale splash offers something in very cheap rate with an item with higher value. This strategy attracts more customer hence sales increase accordingly.
High Wages: Costco gives an average of $21 per hour of wages to their employees along with health benefits. As the employees get a decent amount of wages, they serve their level best to increase the profitability of Costco. With this high wages an employee is very much interested to serve as a long term basis which is beneficial for Costco. It costs about 40- 150% of annual salary of an employee to train a new employee (Mollaoglu-Korkmaz et al. 2014, p.17).
Fewer Stock Keeping Units: In order to limit the expenses on manpower and maintenance Costco Wholesale Corporation adopt a strategy called fewer stock keeping units. There are two benefits of this strategy.
Firstly, with lower number goods they need smaller space for the warehouse. With a small sized warehouse, they need less manpower to organize the business (Al Subaih, 2015, p.64).
Secondly, fewer stock keeping units helps to increase the purchasing power. With a limited space, suppliers sold their product at a low price to keep their brand value which increases the sale (Harrison and Lock, 2017, p.11).
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