According to Thompson (2016) the primary elements of Costco’s strategy are to provide low prices and unique items (with low prices.) Costco has managed to combine these elements, market them to loyal, mostly affluent customers, and do so in a manner that minimizes expenses.
Costco is not alone in its market by any means, facing two direct competitors in the United States in the form of Sam’s Club and BJ’s Wholesale. Additionally, Costco also faces indirect competition from other retailers, including Walmart, Target, and even online retail giant Amazon.com (Thompson, 2016).
Costco’s strategies have proven effective in keeping it at the top of its market, despite several rivals with nearly identical business plans. The fact that Costco owns
Not only is it expensive to hire and train new employees; it can also dilute an organization’s culture as well. According to Mayhew, high turnover does not allow employees to form strong relationships, and hampers new employee development techniques such as mentoring and training.
Costco also prefers to promote from within the organization (Thompson, 2016). This ensures that management is well adapted to the corporate culture, understands the corporate values, and can pass along these traits to incoming workers. Another possible benefit is employee motivation – Costco workers know that they aren’t in a “dead-end” job.
I believe that Costco’s membership fees are its most important revenue stream. According to Thomson et al, (2018) Costco earned just over $2.5 billion in revenue from membership fees alone in 2015. With a total revenue of 113.6 billion, the membership fees account for a mere 2.8% of total revenue. However, the total revenue from membership fees is $2.5 billion – not a small sum of money.
Data in the table below (Thompson, 2016, pp. C-28) presents the operating profit margin from 2015, as well as a hypothetical operating profit margin from the same year without the revenue from membership
Promotion: Costco doesn’t have any conventional marketing/ promotion strategies like their competitors as they are not big on advertising. They email and mail their members flyers and product descriptions which help them maintain their customer retention. However, they don’t actively advertise to new customers, primarily relying on their current customers to advertise by word of mouth like Kimberley Peterson, the
Costco Wholesale Corporation was an uncommon type of retailers called wholesale clubs. These clubs differentiated themselves from other retailer by requiring annual membership purchase. Especially in case of Costco, their target market is wealthier clientele of small business owners and middle class shoppers. They are now known as a low cost or discount retailer where they sell products in bulk with limited brands and their own brand. The company is competing with stores like Wal-Mart, SAM’s, BJ’s, and Sears.
Costco Wholesale Corporation is an international chain of membership warehouses operating on the concept that offering members lower prices will produce high sales volume and rapid inventory turnover (“Annual Report” 4). While Costco warehouses are designed to help reduce costs for small-to-mid-sized companies, memberships are also available for individuals (“Company Profile”). The two memberships offered by Costco include Business and Gold Sta...
“Culture is not the most important thing. It’s the only thing.” (Gabler, The Magic in the Warehouse, 2016). It has been said that “Costco acts more like a cheerful cult than a hard-driving business.” (Gabler, The Magic in the Warehouse, 2016). Costco hasn’t wavered from their founder’s strategy of promoting within; over 98% of their management started their careers with Costco. This strategy clearly works; the environment is one of family not just coworkers. They are loyal to the brand and motivated to work hard and climb the corporate ladder. Costco sees this as ensuring the future of their values which in turn ensures their
Petco on the other hand is competing with PetSmart and other pet food stores and maintaining their percentage in the market. The company’s competitive strategy relating to its internal analysis is to expand its market to other animals: Horses, Cattle, and Hamsters to Tarantulas.
Kohl’s also boasts a loyal customer base and strong brand equity. These strengths are critical to offset their weaknesses. Flaws include an imbalance on sales for men’s products and a lacking online presence. (Kohl's Corporation, n.d.) Another way that Kohl’s is actively counterbalancing their negatives is by capitalizing on opportunities. Kohl’s has found that their beauty sections are an immense source of opportunity. As a result, the company is expanding those departments in an effort to capture those sales that would otherwise go elsewhere. (Wahba, 2014) Finally, Kohl’s keeps the knowledge of their threats at the forefront of their decision-making. They understand that their coupon system can be abused and cause profit losses. They also recognize that price wars in their industry can also be very damaging. As a result, they are working towards more secure methods of offering savings and strategically making efforts to remain the leader for price setting. (Wahba,
In the warehouse segment, Wal-Mart’s Sam’s Club competes harshly with Costco. Costco has fewer warehouses but greater sales and revenues. Costco customers also shop at Costco more frequently than Sam’s Club customers and, on average, spend more each visit as well. Costco’s dominance may be the result of better innovation. Costco offers luxury items and was the first to sell fresh meat and produce, and gasoline. This is important because innovation is a key factor in assessing competitors in an industry.
Key Issues: At the end of 2012, Costco was a successful business; however, there are some issues that they would need to deal with. These issues mainly arise from their previous successful ventures as a warehouse wholesale company. The first issue is that Costco has competitors that can actually be and are a threat to their success. Competition allows a company to improve itself and prove its prowess to its customers. However, when a competitor is able to provide the service at a much reduced cost, problems will arise.
Keeping a high turnover rate, companies will continue to lose money until they decide to deal with the issue. Through some adjustments and implementations of the programs to lower turnover rates, the company can see a significant change in their costs and what they might actually save.
Customer loyalty is another competitive advantage. Trader Joe’s doesn’t provide membership card to the customer, however customer still would like to choose Trader Joe’s just because of this
Voluntary and involuntary turnover have an effect on organizations. Rapid changes in job descriptions, organizational structures, and inter-organizational competitiveness increase the importance of studying turnover and its relationship with organizational change. According to Leana and Van Buren (1999), "the loss of key network members can severely damage an organization 's social fabric and perhaps eradicate its social capital altogether." When businesses lose a high number of employees, problems can occur, costing the company time and money. Some of the costs incurred are associated with training, drug testing, physicals, and orientations to hire replacements that may take several months to learn the job and to achieve competency. There is a saying, “Good help is hard to find---and harder to keep”. This saying refers to good organizations trying to reduce turnover when the competition for retaining good employees is intense.
Under this element, the company integrates different technologies into its processes, and this, in turn, leads to an increase in the efficiency of the operations of the company. For example, in its distribution system, Costco utilizes the cross-docking technology to help in the conveyances of products in the different locations. This ensures that there are no product delays in the respective markets (Guo, 2016). Accordingly, Costco can attract more customers who prefer the warehousing services provided by the company. Overall, Costco exploits the Porter’s value chain elements to increase the productivity and efficiency of its operations while also lowering the cost of margins related to the operations of the organization (Guo, 2016). These benefits result in different competitive advantages to the company which in turn increases the profitability of the organization. For each of the Porter’s value element, the different stakeholders of the company are also impacted
Cosmo-cosmetics Co. uses $0.246 out of every sale dollar to cover variable expenses, leaving $0.753 as a contribution margin to cover fixed costs and make a profit. (Note: 75.3% is the contribution margin as a percentage of sales)
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
673), retention management must be based on three types of turnover, voluntary, discharged, and downsizing. Not all businesses are freighted by turnovers, for some it is the way of life and cost is built into the budget. However, for others any type of high turnover can be detrimental for company profit, employee wage and benefits offered. First, let’s take a look at voluntary and involuntary turnover that affects retention. Voluntary turnovers are caused by many different reasons. Turnover may result from topics such as job dissatisfaction, job mismatching, knowing that job opportunities are plentiful. Two reasons that I will discuss more are micromanagement and employee loyalty. Like stated before in the introduction, when employees are dissatisfied, possibly due to being placed in an area that doesn’t fit with their skill set, one is more likely to seek new employment. Another part of turnover is discharging and downsizing. Discharge is just that, members being discharged due to discipline and job performance. While downsizing turnover is a result of business being overstaffed (Heneman III, Judge, Kammeyer-Mueller, 2015, pg. 675). There are also other reasons for voluntarily employee turnover, such as generation differences when it relates to employment. The current generations are more likely to see a job as one piece in their life puzzle rather than as the first, indispensable anchor piece without