Costco's Business Model and Strategic Analysis: A Case Study

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Assignment Questions
Assignment Questions
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Assignment Questions
1. What is Costco’s business model? Is the company’s business model appealing? Why or
why not?
Costco’s business model is based on two fundamental business strategies and elements. The
business is processed on the practice of generating high sales volumes and rapid inventory
turnover. This practice in the industry is supported as the fee-paying members are provided with
low prices for the limited selection of national and international products. The business model
entailed different strategies such as rapid inventory to support the increased number of sales. The
business successfully operated with low operating costs as an efficient distribution system, and
merchandise in no-frills strategies was adopted in the industry. The company created procedures
of self-service warehouse facilities to transact the products from one store to another. A
combination of these multi-dimensional strategies is an integral element of the business model
for Costco.
The business model also included operations at profitability due to the element of significantly
lower gross margins as compared to the competitors in the market. Costco was recognised as a
strategised market leader to consume the market shares and provide with a sustained rate of
growth for the shareholders and the investors. The competitors such as mass merchandisers,
traditional wholesalers, supermarkets and supercenters were outperformed by the business model
and strategy of Costco. The model included the flagship membership fee in the business model
which contributed to sufficient supplementary revenues for the business to operate for daily
functions. The business model also included for high sales volume, and rapid inventory turnover
enabled cash sales which supported for paying the vendors for the merchandises and the
payments. This business strategy provided with a scenario of early payment discounts and

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Assignment Questions
vendor advantage of trade terms. The payment terms offered by the members enabled to finance
the inventory rather than maintaining a sizeable working capital for operations and functions.
Yes, the company’s business model is appealing as it a genius mix of different strategies
providing with opportunities to overcome the business struggles through efficient and effective
management of the business and its operations.
Q2. What are the chief elements of Costco’s strategy? How good is the strategy?
The chief elements of Costco’s strategy include for Pricing, Product Selection, Treasure Hunt
Merchandising and Low-Cost Emphasis. The pricing strategy developed by the business
attracted tones of consumer flooding in each time a new product was included in the store. The
products were available at individually lower prices, and this created a riot in the industry. The
products were procured through great trade terms with the vendors and opportunities of flexible
working capital were operated. The prices were lower as compared to the competitors, and this
generated a higher volume of sales. The product selection included for selected national and
multi-national merchandises and products. Selected and special products were made available in
the stores which represented for speciality and bargained priced for the products. A lesser
number of alternatives were available for the products which supported large numbers of sales.
The product list included for quality and branded products which attracted consumers.
The strategy is good and has provided with different opportunities to increase business growth.
Q3. Do you think Jim Sinegal was an effective CEO? What grades would you provide him?
I do think Jim Sinegal was an effective CEO as he developed effective business models and
strategies to support the development and growth of the business. He developed an effective
business model that included distinguished business approaches such as Pricing, Product

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Assignment Questions
Selection, Treasure Hunt Merchandising, and Low-Cost Emphasis etc. These strategies provided
long term growth and benefits for the business by providing higher volumes of sales and
effective trading relations with the vendors to support effective payments of the heavy inventory.
I grade him as an excellent business executive and manager as he followed up on the process and
approaches of strategy formulation and strategy execution process. Jim Sinegal developed a
practical and strategic mix of mission, vision, and values for the business to support for a long
term vision and direction for the business processes. By developing such competitive and
strategic approaches of business operations crafting strategies and achieving the business goals
was simplified. The business very easily gained a competitive edge over the competitors and
embarked a distinguished position in the market.