Costco Strategy Essay

Costco

The case notes that Costco's mission is "bringing the highest quality goods at the lowest possible prices while providing excellent customer service and adhering to a strict code of ethics…" and then the mission outlines the code of ethics. The company's operations clearly stick to this mission statement. This is possible because the mission statement is clear, and it specifically relates to what the company does. It hits upon a number of different elements of the business that essentially define what it is that Costco does.

The second element is that Costco does these things. The strategy of the company is to be a low cost provider, so a lot of what Costco does is related to that. When we examine the mission, we see that Costco is basically framing the low cost strategy against a backdrop of relatively high quality goods, good customer service and solid ethics. These last three things are basically a framing mechanism, however, that explains the parameters of the business. The business itself is still a low cost provider and so most of what Costco does supports that. It utilizes its strong bargaining power with suppliers to get low prices while delivering a reasonable standard of quality.

One of the more interesting aspects of the strategy is the human resources policy. Costco differs from other low cost providers in that it doesn't try to have a low labor cost, but rather it wants to have low labor turnover, because it believes that the costs associated with turnover are higher than the costs associated with good wages (McArdle, 2013). The result is that Costco has about the same productivity from its workers as other low cost providers do with their low-wage workers. The result is that Costco is able to fulfill more than one aspect of its mission -- it can provide low costs with higher service standards, something that other low cost providers struggle with.

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The business model for Costco is to offer a cost leadership position (Quick MBA, 2010).There are many aspects of Costco' business that specifically support this. The first is that it pays its employees a living wage, and this creates a high degree of loyalty. Costco therefore has much lower turnover than many of its peers, and the result is that the company has a higher level of efficiency from its employees, and they provide good customer service for a company with a low cost strategy.

Costco further supports the low cost strategy by offering relatively few SKUs. What this means is that the products that it does offer tend to sell quickly. Costco is therefore able to actually sell goods before it has to pay for them, creating a situation where it can get early payment discounts on goods that it has already sold, something that is of tremendous financial benefit. Further, this means that Costco is able to offer very low prices, which helps it to compete, because in the low cost business having the absolute lowest prices is an essential component of gaining market share.

Another element is the treasure hunting. This serves two purposes. The first is that it actively engages the customers in looking for bargains, which engages them bit more in the shopping process, giving them something of a value-added shopping scenario. Further, it reinforces in the minds of the customers that Costco is a steep discounter with the lowest prices, because they can go looking for these incredible bargains in the Costco store. Finding one incredible bargain is something that customers are more likely to remember than the fact that some items are the same price at Costco as they are anywhere else.

The low cost of the stores is also a key part of the business model. To succeed as….....