...Costco Case Study Costco Case Study In a time of global financial turmoil and shifting demographics, Costco must find ways to attract and retain customers to maintain market share and profitability. In the last 27 years Costco has become the fourth largest retailer in the United States and the eight largest in the world. By the end of 2009 it had 413 stores in the USA, 77 in Canada and 21 in the UK, 9 in Japan and 7 in Korea Australia has one and Taiwan has six (not including joint ventures in Mexico). The American and Canadian operations supply 93% of their net consolidated sales in 2008 and 2009 and 92% of the operating income. Declines in California or in Canada would be a serious blow to the company’s bottom line. The economy is taxing and retail sales are down for all major retailers. Costco must continue to respond effectively to all competitive pressures and adapt to changes in the industry. With higher interest rates, higher consumer debt loads, energy costs, inflation, cost to find and retain employees, and reduced consumer confidence in the market Costco faces a tough economic environment which can affect demand for their products and services. In addition, commodity prices like gasoline and food can shift dramatically. Costco has no assurance of vendor supply for merchandise and thus they are vulnerable to changes in the terms of sale, pricing and access to new products is not guaranteed. Out of stock positions can lead to loss of sales and consumer trust. Costco...
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...Costco Case Study The chief elements of Costco’s strategy are low pricing, limited product selection, and a treasure hunt shopping environment. • Pricing: a key element of their pricing strategy is to cap its markup on brand-name merchandise at 14% and markups on their private label items can be no higher than 15%. This strategy keeps customers coming in to shop by enticing them with low prices. • Product Selection: this portion of the strategy only provides members with a selection of about 4000 items. Their product range covers a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors. • Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its way to surprise and excite its visitors with limited availability designer items. This solves two major challenges faced by warehouse stores – with products sold in such huge quantities, why visit regularly and why buy now. While Costco strives to beat the competition’s pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. This strategy works well for Costco, given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000. However, these customers are also value conscious, as evidenced by the members who opt for executive memberships, although it costs more per year, to take advantage of a 2% discount on most...
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...Question 1 What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model focuses on selling limited selection of products at low prices, often at very high volume and rapid inventory turnover. These goods are bulk-packaged and marketed primarily to large families and businesses. Costco does not carry multiple brands or varieties where the item is essentially the same. It provides members with a selection of only about 4000 items, this results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors. Costco’s business model is appealing because rapid inventory turnover, high sales volume per warehouse, low prices, reduced handling of merchandise, are all elements that create value to a Costco’s members, and make the company successful. Question 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: Costco’s pricing strategy is to cap the margins on brand-name merchandise at 14 percent (compared to 20-50 percent margins at other discounters and many supermarkets. The margins on Costco’s private-label Kirkland Signature items are a maximum of 15 percent. Costco’s strategy...
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...COSTCO ASSIGNMENT QUESTIONS 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco operates on a low-cost business model, which is extremely successful for them. They strive to keep their customers coming back by providing them with the lowest possible prices every time. They also focus on providing their customers with products they will actually want and will buy. This is a very appealing business model because since they run on a membership fee and because of their extremely fast turnover rates, they know that they will be financially stable for a while. We can also see that their business model is effective based on their financial statements, so we know that whatever they are doing is working for them as a company. 2. What are the chief elements of Costco’s strategy? How good is the strategy? The chief elements elements of Costco’s strategy include: low-cost, providing their customers with active items, limited selections of brands, “treasure hunt experience” and company expansion. I believe that because of their super low prices, they make a large amount of their money from the membership fees, without that they might not be nearly as profitable. However, because of the treasure hunt experience, geographical expansion, and product selection they do have a good strategy and allows them to be successful. 3. Do you think Jim Sinegal has been an effective CEO? What grades would you give him in leading...
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...a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors. • Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its way to surprise and excite its visitors with limited availability designer items. This solves two major challenges faced by warehouse stores – with products sold in such huge quantities, why visit regularly and why buy now. While Costco strives to beat the competition’s pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. This strategy works well for Costco, given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000. However, these customers are also value conscious, as evidenced by the members who opt for executive memberships, although it costs more per year, to take advantage of a 2% discount on most purchases. While this group only accounts for about a fourth of the company’s memberships, they represent nearly half of its net sales. Financial Perspective The gross margin currently falls into the normal range for this industry. In 2001 the gross margin was 10.4% and as of August 2010 the margin was 13.8%. The increase indicates Costco has become more efficient in their negotiation of pricing when...
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..., costco Founded in 1983 by Jim Sinegal, Costco is the worlds leading wholesale warehouse retailer. A membership based club, “Costco provides a wide selection of merchandise, plus the convenience of specialty departments and exclusive member services, all designed to make your shopping experience a pleasurable one.” (Costco.com/about). In 2013 Costco reported net sales of $31.77 Billion in the fourth quarter and $102.87 billion during the 52-week fiscal year (Yahoo Finance). Does the company’s strategy reflect the company’s mission? Costco’s mission: “To continually provide our members with quality goods and services at the lowest possible prices” (Thompson, pg. c-11). Costco’s strategy: Pricing – Costco strives on keeping prices low and only stocks merchandise that is priced to reflect this strategy. They often buy goods at bargain prices as “one-off” and/or bulk deals. This allows the company to price their goods at an exclusive cost. Costco does not believe in marking the goods up to make more money, but instead believes that the lower costs will allow for a faster turnover and a “wont find this deal again” attitude. Product Selection – By keeping a small selection of active items (nearly 3,600) including brand names and store brand goods, Costco is known for selling limited quantity options and typically in bulk. This strategy is called “intelligent loss of sales” and they believe that by stocking large quantity of a good with no other option, they will only lose 1...
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...CASE 17 COSTCO CASE STUDY Case study questions 1. What generic business level strategy (Chapt 5) is Costco pursuing. Explain your choice. Companies that target one or a few segments and try to be the low cost player in that segment are perusing a focus-low cost strategy. Such companies tend to produce a more basic offering that is relatively inexpensive to produce and deliver. This helps to drive down their cost structures. Costco sells a limited range of merchandise in large warehouse type stores. A Costco store has about 3,750 SKU’s compared to the average 124K SKU’s at an average Walmart supercenter. Costco offers consumers the ability to make bulk purchases of basic goods like dog food and breakfast cereal at lower prices than found elsewhere. As of 2011, Costco maintains the number 1 spot in industry inventory turnover ratio, and number 3 in the retail sector. Thus, we can conclude that Costco definitely does a good job tailoring its products to the needs of the segment and, in doing so, is able to successfully undercut the cost structure Walmart achieves with their colossal economies of scale. 2. Describe four functional-level strategies that Costco has implemented to support their business level strategy. Label the function (marketing, production, R&D, etc - see Chapt 4) under which the strategy falls. Human Resources Strategy - Costco pays their employees substantially more than what other competitors in industry as well as the sector pay. Along those same...
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...focused on the three case studies about Costco, Dove, and L’Oreal which was very interesting. First off in discussing Costco and after reviewing the case study their mission is to always provide great quality goods and services at the lowest prices possible. Costco, over the years has continued to provide quality manufacturers together to give great products to their customers. According to the reading, in comparison to stores such as Wal-Mart that has up to 150,000 SKUs, Costco has 4,000 SKUs that they focus on because they only provide the fastest –selling flavors, sizes, models and colors. Overall, their business model focuses on a high volume of sales, rapid inventory turnover, very low prices, and better product manageability. Costco has such a great business model because they work with manufacturers directly which cuts out the middle man and also creates a more efficient process. It also eliminates many additional costs having to use a distributor. I found it very interesting that of Costco’s 4,000 SKUs, 3,000 of them come from Staples and the rest from the the Costco “Treasure Hunt” of special temporarily offered items. I did not realize that this was the case for Costco but it has proven to be very successful because Costco is able to provide the best quality items that are in demand at the time which will always keep Costco relevant because they are selling what people want at the best price which undercuts everyone else. Furthermore in the case studies, we discuss Dove’s...
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...Costco was the td largest retailer in the United States and the eighth largest in the world. They have a similar strategy like the other wholesale industry stores of selling top-quality merchandise at lower prices than other stores. To sustain the company’s growth Costco needs to keep adding stores every year. They make more money in memberships per year than they do in net sales. Where they add the new stores is important. Adding more stores internationally could increase market shares and make them more powerful. It would also increase the currently 10% operating income for stores outside of the United States. London, India, and Japan are good places to add stores. They could also stores internationally close to where other wholesale stores are currently located for competition. Also to improve the company’s financial performance they need to add new store services. They cannot rely on only memberships to keep them in the black. A great goal to have is to make sure all stores have a fueling station right outside the store. They strategically place all of their stores in high traffic areas so a gasoline station with all of the stores is a vital move for the future. Adding services like check cashing, money gram and ATM’s will boost financial performance also. Since they do not accept all credit cards, acquire a way to get money to pay for the items they are going to purchase in one place is a great tool for a...
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...Costco case study and strategic analysis Costco Wholesale Corporation (Costco), one among the few largest wholesaler giant differentiates itself applying unique strategies relating to production and operations, and marketing which make it stand out from the rest of the retailers who are also said to be competitive in the retailing and wholesaling business globally. Costco is one of the innovative wholesalers teamed by very dynamic management team and dedicated, motivated and satisfied workforce with the mission “to continually provide its members the best quality products at the lowest possible prices” (Costco Annual Report 2006). Some of the fundamental principle of the Costco is that they obey the law, they take care of their members, they take care of their employees, they respect their suppliers, and finally they reward their shareholders. Some of the reasons how Costco can serve those highest quality goods of national brands for the lowest possible prices is that they eliminate different cost associated with delivery expenditures, account receivable, inventory, sales people, and fancy buildings. And they successfully operate themselves in the competitive environment serving not only an individual customers but also a legal customers (a company), and small business customers. Costco believe that society and the community is one of the key factors of their success. Therefore, they are willing to give back to their community and the society in terms of quality goods in...
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...beginning of the 21st century, its CEO/ Chairman, Yang-Ho Cho undertook various transformation initiatives - for instance, improving service quality and safety standards, technology integration, upgrading pilot training, better business focus; putting in place a professional management team, improving corporate image through sponsorship marketing, etc. He gave a new corporate direction in the form of '10,10,10' goal. However, Korean Air is held up by a slew of challenges. Among which are inefficiencies of - Chaebol system of management, possible clash of its cargo business with its own shipping company, limited focus on the domestic market and growing competition from LCCs. How would Korean Air manage growth as a family-owned conglomerate? The case offers enriching scope for analysing a family business’s turnaround strategies, with all the legacy costs involved. Pedagogical Objectives • To discuss the (operational) dynamics of Korean Chaebols - their influence/ effects on the country’s industrial sector and the economy as a whole • To analyse how family-owned businesses manage the transition phase - from a supplier-driven economy to a demanddriven economy • To identify all the possible reasons for Korean Air ’s turbulent times and assessing whether they are controllable or not • To critically evaluate Korean Air ’s transformation efforts - in terms of growth, productivity and cost cuts, especially the efficacy of '10,10,10' goal in a family-run business • To identify various challenges...
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...Chapter 1 Case Study: Harmonix Embrace Your Inner Rock Star Little more than three years ago, you had probably never heard of Harmonix. In 2005, the video game design studio released Guitar Hero, which subsequently became the fastest video game in history to top $1 billion in North American sales. The game concept focuses around a plastic guitar-shaped controller. Players press colored buttons along the guitar neck to match a series of dots that scroll down the TV in time with music from a famous rock tune, such as the Ramones’ “I Wanna Be Sedated” and Deep Purple’s “Smoke on the Water.” Players score points based on their accuracy. In November 2007, Harmonix released Rock Band, adding drums, vocals, and bass guitar options to the game. Rock Band has sold over 3.5 million units with a $169 price tag (most video games retail at $50 to $60). In 2006, Harmonix’s founders sold the company to Viacom for $175 million, maintaining their operational autonomy while providing them greater budgets for product development and licensing music for their games. Harmonix’s success, however, did not come overnight. The company was originally founded by Alex Rigopulos and Eran Egozy in 1995, focused around some demo software they had created in grad school and a company vision of providing a way for people without much musical training or talent to experience the joy of playing and creating music. The founders believed that if people had the opportunity to create their own music, they would jump...
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...Chapter 1 Case Study: Harmonix Embrace Your Inner Rock Star Little more than three years ago, you had probably never heard of Harmonix. In 2005, the video game design studio released Guitar Hero, which subsequently became the fastest video game in history to top $1 billion in North American sales. The game concept focuses around a plastic guitar-shaped controller. Players press colored buttons along the guitar neck to match a series of dots that scroll down the TV in time with music from a famous rock tune, such as the Ramones’ “I Wanna Be Sedated” and Deep Purple’s “Smoke on the Water.” Players score points based on their accuracy. In November 2007, Harmonix released Rock Band, adding drums, vocals, and bass guitar options to the game. Rock Band has sold over 3.5 million units with a $169 price tag (most video games retail at $50 to $60). In 2006, Harmonix’s founders sold the company to Viacom for $175 million, maintaining their operational autonomy while providing them greater budgets for product development and licensing music for their games. Harmonix’s success, however, did not come overnight. The company was originally founded by Alex Rigopulos and Eran Egozy in 1995, focused around some demo software they had created in grad school and a company vision of providing a way for people without much musical training or talent to experience the joy of playing and creating music. The founders believed that if people had the opportunity to create their own music, they would jump...
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...contemporary organizational issue you find intriguing. Use one field site or example for the entire paper. Also, be explicit about the level issue. For example, if you are using the concept of personality then it is an individual level issue. A list of concepts and their related levels is provided in a separate document. Focus of paper-related requirements: Outline: Submit a formal outline for your paper, complete with references. The purpose of the outline is to help you organize your content, which also results in increased clarity, improved logic, and better structure of the paper. There may be adjustments from this document to your final paper, but at this stage the paper should not require major revisions. Final Paper: Use a case study format for the structure of your paper. Identify and analyze issues using course concepts, and propose recommendations for the organization you are focusing on. Use of course concepts 1. Use a minimum of 8 concepts for the paper. Include a list of the concepts you used at the beginning of the paper. 2. Briefly define each concept you use within the text (a paragraph or two). 3. For each concept, write a diagnosis at one level (e.g., the person level). For example, you might write “The employee misses work frequently due to stress from conflict with her supervisor.” Note, stress and conflict would require definitions.) 4. For each concept, write a solution or solutions. Identify the level(s) you addressed in Step 2...
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...Calendar Overall for Case-Study Presentation & Mid-Term Exam – MGT 4760 (Strategic Management) Sem 1, 2012/2013 Sec 8 (M-W) No. | Week | Topics | Class Day | Date | Schedule | Details | | 1 | Chapter 1: The Nature of Strategic Management | 1- Mon 2- Wed | 10/912/9 | | | | 2 | Chapter 2: The Business Vision and Mission | 3- Mon 4- Wed | 17/919/9 | | | | 3 | Chapter 3: The External Assessment | 5- Mon 6- Wed | 24/926/9 | | | | 4 | Chapter 4: The Internal Assessment | 7- Mon 8- Wed | 1/103/10 | Quiz 1 (Chapter 1.2.3) | | | 5 | Chapter 4: The Internal Assessment | 9- Mon 10- Wed | 8/1010/10 | | | | 6 | Chapter 5: Strategies in Action | 11- Mon 12- Wed | 15/1017/10 | | | | | BREAK(22/10 – 28/10) | 13- Mon 14- Wed | 22/1024/10 | | | | 7 | Chapter 5: Strategies in Action | 15- Mon 16- Wed | 29/1031/10 | Case Presentation Session 1Case Presentation Session 2 | Group 1:L: Lia Hilaliah (Case Study 3)Group 2:L: Mas Syairah bte Mohamad (Case Study 5) | | 8 | Chapter 6: Strategy Analysis and Choice | 17- Mon 18- Wed | 5/117/11 | | (Mid-Term Exam 7/11 Wednesday)Seminar Room 1.1 | | 9 | Chapter 6: Strategy Analysis and Choice | 19- Mon 20- Wed | 12/1114/11 | Case Presentation Session 3Case Presentation Session 4 | Group 3:L: Mohamed Sheikh (Case Study 9) Group 4:L: Izzati Nor binti Salleh (Case Study 14) | | 10 | Chapter 7: Implementing Strategies: Management and Operations...
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