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The Business Model and Market Strategy of Costco

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Question 1

Costco’s adopts a business model that is based on a best-cost strategy. Basically they utilize low-cost provider approach which consolidates that with making quality for the different partners by concentrating on incredible client benefit, a strict code of morals, regarding suppliers, remunerating shareholders, treating representatives like family and an in number feeling of ecological stewardship. The focal center of their plan of action rotated around high sales and quick stock turnover (Thompson, 2012). This is an exceptionally engaging plan of action as it gives the capacity to work beneficially at much lower horrible edges by securing merchant volume buying assertions and proficient appropriation.

Question 2

Costco adopts a strategy that consists of;

  1. A limited selection of nationally branded and private-label products,
  2. A treasure hunt shopping environment,
  3. Ultra-low prices,
  4. Low working cost emphasis, and geographic expansion

In light of ultra-low expenses, they lured a greater population of rich customers. This is evident in 2010 to 2011 where the net sales increased by roughly 10%. However ROS from 2000 to 2011 indicates raise in sales but cost have not been contained as successfully. This is demonstrated by the enduring ROS deterioration of 2000 ROS of 1.96% to 2011 ROS of about1.63%. With such a little ROS, any addition in variable cost could be frustrating (Thompson, 2012).

Question 3

Jim Senegal developed a Strategic mission and values to continually provide Members with quality goods and services at the lowest prices possible that lead to opening of the first Costco. The objectives of his strategy were focused on ultra low prices, a treasure hunt, limited product selection, shopping experience, low working costs, and geographic extension. Jim’s success in executing the company strategy is evident by the 2011, 10% annual sales growth, and 12.2% boost in net returns (Thompson, 2012). The negative implications of Costco’s approach execution exist due to low dividend yield frail profitability, and reasonable liquidity in comparison to the wholesale discount selection store production. I would award Jim grade A regarding his ability to execute strategy successfully. He has numerous unique ideas. Moreover every idea is high-quality and constructive. Jim Sinegal always maintains a key administration thinking which keeps members to come in and shop by small price. He thinks to offer value for their clients is more significant than get more funds. He thinks they ought to let their workers get extra money and healthier benefit.

Question 4

Jim adopted 5 operating principles that center on fair business practices.

  • Abide by the law.
  • Take care of members through honoring the trust extended by the members by membership fee.
  • Take care of our employees as the most significant asset
  • Respect for suppliers through, honoring commitments and approach rapport from a win-win viewpoint.
  • Incentives to shareholders

Question 5

The stiff competition from other firms is the strongest competitive force that Cotco faces in its quest to survive in the market. There exist numerous similar business magnates offer similar services and goods as Cotco. These firms tend to offer the goods at a relatively lower price in a bid to win customers from Cotco. According to Thompson, (2012), other firms go to the extent of cutting down the prices to low that they end up making huge losses as a result of lofty expenses with respect to the revenue generated. All these are tactics to win themselves more clients and hence acquire a huge market share. There is stiff competition among Costco, BJ and Sana club. All the three rivals strive to lure better share of members and also offer shopping and merchandise experience. As evident above the rivalry revolves around two main factors. The two include product selection and low prices. These formed the basis of competition among the mogul firms with each firm working extremely hard to win customers to its side. Some firms would produce high quality products at relatively cheaper prices compared to the rest of the firms in a bid to lured clients (Thompson, 2012) .Despite the fact that the cost may be higher at an alternate retailer, the scope of items is more noteworthy and builds the likely accessibility of adequate substitutes. The demographic client base of the wholesale discount retail market is agreeable with and grasps the fortune chase shopping knowledge.

Question 6

2011 Sales Growth


Costco realized a 14.1% sales increase and 17.4% operating income increment due to 10.4% rise in membership charges. This permitted for a 12.2% rise in net revenue


Gross Margin 12.6industry 3.0% industry 36.0%; Net Profit Margin 1.6%, industry 5.0%; %; Operating Margin 2.7%ROE of 11.6% is weak taking since industry average is 20.6%. 2011 (Thompson, 2012)



Current Ratio of 1.14 hence the business can pay its current liabilities in with liquid assets in full one time. The business average is 2.4. Working Capital of $1.6M is positive thus a stronger liquidity since it is higher than the Company’s annual net income.

2011 Leverage


Debt-to-Equity Ratio 17.1%, industry 62.7%. Low down leverage ratio and elevated times-interest-earned ratio of 21.03 is exceedingly striking for future creditors which will make way for more depot extension.

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