Discuss whether or not Costco can achieve a sustained competitive advantage with this strategy.
Discuss the alignment of Costco's mission and strategy. Evaluate whether or not the strategy supports the mission.
Costco's strategy for pricing was to originally sell all product at cost plus a set markup ( I believe it was 10%). In order to negotiate better with suppliers who did not want to offend other retailers Costco and suppliers formulated and offered special "club packs". This enabled the supplier to offer lower prices to Costco and Costco to offer special value to consumers. It also made it difficult for the consumer to calculate their savings but once they did they found savings. Costco attempts to offer supreme value to the consumer on staples, while also having enough novelty/luxury/extra items to intrigue consumers to add more to their cart. For instance, a family can shop at Costco for their groceries but be lured in by the special seasonal patio furniture and floral offers. These items add plus sales to Costco's bottom line. More and more Costco is trying to capture more of the consumer's spending dollar: insurance, tickets, coffins, 6.77 caret diamond rings, wedding flowers, cakes, etc. They pride themselves on quality, selection, and price. The keys to their success are rapid inventory turnover and high sales volume. They drive consumers in with national brands but offer competing private label products at lower prices and equal quality (often manufactured by same vendor). Margins are now calculated at 14% of cost for branded items, 15% of cost for private label. In this manner they are able to increase profit margins. The product is stacked warehouse style, with limited effort in order to further control costs. Although the warehouses are huge one will ...
This detailed solution discusses and evaluates Costco's strategy in terms of pricing, product selection, marketing and advertising strategy. It also evaluates whether Costco can achieve a sustained competitive advantage with this strategy, the alignment of Costco's mission and strategy, and the company's business philosophy, values, and code of ethics. It includes links and examples.