1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?
Costco’s main goal is to continually provide customers with quality goods and services at the lowest possible prices. The company’s business model is to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories (p.C-35). The business model is appealing because of its unique set of practices and its great management. One of reason for its business success is its high sales volume and rapid inventory turnover, which helped the company to receive cash for inventory before it had to make a payment to its vendors (p. C-35). The company generated $71 billion at 544 warehouses in 40 states, Puerto Rico, Canada, the UK, Taiwan, Japan, Korea and Mexico. Its annual sales per store averaged $130 million whereas it’s closest competition; Sam’s club averaged $75 million per store. (p. C32-C33)
2. What are the chief elements of Costco’s strategy? How good is the strategy?
The chief elements of Costco’s strategy are low prices, a limited product line and limited selection, and a “treasure hunt” shopping environment (p. C-35). The company’s strategy is appealing because they entice with low prices to attract more customers. Similarly the company is also based on the limited product or product selection as more products mean more confusion for the customer. This technique helps to create a good relationship with its suppliers. The strategy contains all of the criteria to make Costco one of the successful companies today.
3. Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading the process of crafting and executing Costco’s strategy? What support can you offer for these grades?