Ethics
Costco’s Code of Ethics 1. Obey the Law 2. Take care of our members 3. Take care of our employees 4. Respect our suppliers |
Corporate Social Responsibility
· Environmental concerns: 1. Gas Reduction Policy 2. Spill Cleanup 3. Recycling · Costco’s Charitable Workplace Giving Program |
Strategy
Outline
Intro Costco’s strategy has been the driving force behind its success. The company employs several key strategic elements: Pricing, Product selection, Treasure Hunt dynamic, Low cost emphasis, Geographic Expansion, Marketing & Advertising and Supply & Distribution § Pricing Costco’s business model insisted on low prices for quality merchandise. This increased the volume of customers. The company only stocked items that could be priced at bargain levels, which is how the low prices could be achieved. § Product Selection Costco does not sell as much products as a Walmart Supercenter or a Super Target. Instead, the company only provides members with a selection of approximately 3,600 active items. Of this amount, 85 percent were quality brand-name products and 15 percent were the company’s private-label Kirkland Signature brand. Kirkland Signature was launched in 1995. In 2011, Kirkland Signature items accounted for 20 percent of sales. Percentage of annual net sales accounted for by major category of items is as follows: Sundries 22% Hardlines 16% Food 21% Softlines 11% Fresh Food 13% Ancillary and Other 17% § Treasure Hunt Costco uses a method called “treasure-hunt merchandising”. The strategy is used to make customers want to spend more than they usually would by offering irresistible deals on durable items or name-brand specials and, further, to keep the mix of featured and treasure-hunt items constantly changing so that bargain-hunting shoppers would continually visit Costco, not just for periodic “stock up” trips. This treasure hunt strategy creates an experience for members as they shop with the anticipation of always finding something new. |
§ Low Cost Emphasis
Co-founder and former CEO of Costco, Jim Sinegal, stated that Costco is able to offer prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing, and accounts receivable. He further stated that the company runs a tight operation with extremely low overhead which enables them to pass on dramatic savings to their members. § Growth & International Costco is the leading warehouse retailer in the U.S, earning close to 70% of its revenues from the region. Costco’s growth strategy is mainly to annually increase sales at existing stores by 5 percent or more and to open additional warehouses both domestically and internationally. Costco operates in nine countries, however internationally; its primary focus is on Japan, Taiwan, and Korea. Costco intends to further its international growth by expanding into China; however, the company is still debating whether or not American brand will appeal to China. This move into China will be very calculated. The company uses the late- mover strategy by observing how other companies such as Best Buy, Wal-Mart and Starbucks adapt to Chinese consumers before making their move. § Marketing & Advertising As mentioned before the company focuses on low price and a “treasure-hunt” environment, hence it is unnecessary for it to engage in extensive advertising or sales campaigns. Promotional activities such as the following were the bulk of the marketing program: monthly coupon mailers to members, weekly e-mails to members from Costco.com, occasional direct mail to prospective new members, in-store product sampling, and special campaigns for new warehouse openings. § Website Sales The online retail market in the U.S. has grown rapidly since 2004 and the long term outlook remains optimistic. Costco’s main strategy for its online business is to offer distinct products on the e-commerce site to keep its customers interested. About 80%-90% of its products offered online do not overlap with the store’s inventory. E-commerce sales account for 2% of Costco’s net sales. § Supply & Distribution Costco buys most of the merchandise it sells directly from the manufacturers. The merchandise goes directly to the warehouse or to one of the company’s cross-docking depots that served as distribution points for nearby stores. |