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).
Figure 1: Statistics of Gold star and Business membership growth
(Source: Costco.com, 2016)
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).
4. SWOT analysis
In order to understand the internal strengths, weaknesses and external threats and opportunities of the company SWOT analysis is a crucial tool. It is a framework with the help of which the management of the company can take necessary actions by identifying the strengths and weaknesses of the firm (Costco.com, 2018).
Here is the SWOT analysis of Costco Wholesale Corporation which could help the management to identify the strengths and weaknesses.
Strengths: The main internal strengths of Costco Wholesale Corporation to lead in the wholesale market are;
The main business strategy to offer quality service to their customer in a cost effective way is the main rock solid platform of their business. The company offers very good quality products from the company’s web store or from the retail outlet in a cheaper price (Costco.com, 2018).
As Costco offers good quality products at a lower price, their sale volume grows rapidly, hence their revenues also grows faster.
Costco Wholesale Corporation operates efficiently in the wholesale market in spite of their high volume of sales (Costco.com, 2018). They are bound to deliver high quality products to the customer to maintain the rapid growth.
Their minimized variable cost of all products is helping to increase the efficiency of their operation by increasing the sale volume.
Weaknesses: Though Costco Wholesale Corporation is one of the biggest wholesale retailers. Their operations have some weaknesses too. Those are;
The business of Costco Wholesale Corporation is very much concentrated to that customer who has the membership of Costco (Costco.com, 2018). The customer can get the necessary products at lowest price only if they have the membership of Costco.
As Costco Wholesale Corporation offers attractive cost effective products only to their members, hence they are unable to capture the mass non member customer.
Limitations in products and services are another weakness of Costco. The variety of products is limited in Costco Wholesale whereas in other retail like Wal-Mart, there are many options for the customer. Due to the lack of various options the customers of Costco turn their heads to the other retail (Costco.com, 2018).
External Opportunities: In order to operate in a long term basis in the market, a firm has to explore various opportunities that are available in the market. The opportunities in the external market by adapting which Costco Wholesale Corporation can gain more revenue are;
Costco Wholesale Corporation is operating largely in the market of US, which leads them unable to capture a huge customer section of Asian continent. They have to understand the effectiveness of the Asian market and make a plan to operate in this market in order to increase their turnover (Costco.com, 2018).
They have to expand the operation of their e-commerce website beyond the market of US, UK, Japan, Taiwan, Spain, Mexico, South Korea and Australia.
Costco Wholesale Corporation has to make a variation of their product and services with an attractive offer to increase the interest among the customer to use their products (Costco.com, 2018).
External Threats: One of the great barriers to the business of Costco’s retail market is the external threats. The threats that lead Costco to limit their operations are;
Viewing the success of Costco Wholesale Corporation in the retail market other new wholesale retails are opened which leads a decrease in sale of Costco.
Other newly opened wholesale retailer also gives an attractive offer to the customer to capture the business in retail market, which is a big threat to Costco (Costco.com, 2018).
From the above detailed study of the business model and strategy and from the SWOT analysis it reflects an overview of the company through this project. From this research the business operations of all warehouses of Costco Wholesale Corporation can be measured. An idea of how they are able to hold a remarkable place in the business of retail store can be drawn. It is also observed from this study that how the management of Costco setup various strategies and implement them to their business to maximize their profitable amount in an increasing manner (Al Subaih, 2015, p.64).
This study shows that how Costco follows a suitable business model to run their retail business sharply. With the help of an appropriate business model and applying suitable strategies they are very much able to meet the customer satisfaction, hence increase the sale of the products (Kadota et al. 2018, p.2).
This article shows that how Costco serves their customer by supplying cost effective products consistently to gain notable amount revenue every year (Rowlinson, 2017, p.45).
This study flashes the light on how the company uses their strong points to serve the customer better in order to earn more profit. How they can able to transform their weaknesses into the area of strengths to achieve the ultimate goal. How they can utilize the available opportunities and overcome the present market threats to leads their company to the ever best position (Maenhout and Vanhoucke, 2016, p.107).
The above article is all about the business strategies that are followed by the Costco Wholesale Corporation to excel their business worldwide. Though Costco ruled over the retail business with the help of some certain strategies and they make a remarkable good in their field, but there is always a scope of improvement in this ever changing world.
It is recommended to Costco that they should reduce the membership cost to increase the sale. Due to a high membership price, many consumers abstain from being a member of Costco. They choose other retailer to buy the household products.
As the non-member of Costco has to purchase the product at high price, hence they are automatically biased towards other retailer. It causes a greater loss in profitability. In order to avoid those losses, it is recommended to Costco Wholesale Corporation to introduce some exciting offers to the general customer. It will bring their interest towards Costco.
It is concluded from the above brief study about Costco Wholesale Corporation and their business operation strategy based on effective business model that, to rule the market a company has to deliver cost effective products. The main focus of an organization should be not only delivering products at lowest price but they also have to maintain quality of the product.
A firm should aware of the quality of their products while make it cost efficient to the customer, as a large number of customer can afford a slightly higher price but not ready to compromise with the quality.
It is also concluded from the study that, a firm has to identify their weaknesses, strengths, market threats and opportunities and take necessary actions to serve better in the market.
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