Research and Analysis: Costco Management Strategies Report

This report provides a comprehensive management analysis of Costco, a leading retail warehouse company. It begins with an overview of Costco's history, customer base, mission, and core values, emphasizing its commitment to providing quality goods at low prices. The report then delves into Costco's corporate-level strategies, including resource allocation and organizational design, highlighting its flat organizational structure and participative leadership style. Furthermore, it examines Costco's business-level strategies, particularly its cost leadership approach and single-step distribution strategy. A detailed SWOT analysis is presented, identifying Costco's strengths (low prices, rapid inventory turnover), weaknesses (membership limitations), opportunities (product diversification), and threats (competition). The report concludes by referencing key sources and providing a thorough understanding of Costco's management practices and strategic positioning within the retail industry.

Running head: MANAGEMENT
Management of Costco
Name of the student:
Name of the university:
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Table of contents
Summary of the organization.....................................................................................................3
Customer base............................................................................................................................4
Mission and core values.............................................................................................................4
Vision.........................................................................................................................................5
Corporate level strategies...........................................................................................................6
Resource allocation................................................................................................................6
Organizational design.............................................................................................................6
Business level strategies.............................................................................................................7
SWOT analysis...........................................................................................................................7
References..................................................................................................................................9

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Summary of the organization
Name Costco
Industry/market Retail
Location Headquarters: Issaquah, Washington, United States
Warehouses- 785 worldwide
History Under the guidance of Sol Price and his son, Price Club achieved its
successful launch on July 12, 1976. This launch provided a new
definition to the retail warehouse marketing. The Price Family placed
the club inside the series of airplane hangars. This club was previously
owned by Howards Hughes (Costco.com, 2020). Since then, the
warehouse is in operation under the name of Costco. The first
warehouse operation under the name was launched on 1983 in Seattle
under the leadership of James Sinegal and Jeffrey H. Brotman. It was
in 1993, when Costco and Price Club merged their operations.
Similarity persisted in the business model and size (Costco.com, 2020).
Description of
the products
and services
offered
Choice and prime beef, organic foods, rotisserie chicken and wine
Values  Compliance with the laws
 Understanding and caring approach towards the members
 Respecting the views of the stakeholders and shareholders
Table: Brief summary of the organization, Costco
(Source: Costco.com, 2020)

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Customer base
The customers of Costco belong to middle class. The target customer is also the small
business dealers. According to the annual reports of 2016, the customers for Costco was 86.7
million. It increased to 90.3 million in the following year of 2017, followed by 94.3 million in
the era of 2018. As per the reports of 2019, the customer rates for Costco was recorded as
98.5 million. If the case of trips is considered, the cost per trip is estimated to be $136. This
cost is according to the credit card transactions, which the customers adopt for availing the
services. One of the positive points is that 94 million customers possess the membership card,
which helps the staffs to concretize the shopping experience for the clients and customers
(Costco.com, 2020). Reference can also be cited of the social media marketing, which is a
B2C business adopted for achieving large scale customer satisfaction. Instagram accounts
help the customers to find answers about the effective deals, offers, discounts on the
purchases (Krishnan, Patatoukas & Wang, 2019).
The sales strategy of the business is customer oriented, which is reflected from the
aspects of high quality, low price and effective customer service. Catering to the freshness of
the product, enhances the quality of the products, which itself indicates high customer
attraction. One of the interesting facts is that the savings earned from the income is devoted
for customer usage (Cnbc.com, 2020). The benefits are high on availing the savings, which is
like addiction. Strategic planning is one of the other aspects, making Costco a leader in the
market. Example can be cited of the plan of not just attracting the customers to the shopping,
but it also consists of benefits in the shopping amount for expanding the sales revenue.
Mission and core values
Costco operates with the mission of providing quality goods to the clients and
customers at cheaper rates. Continuous improvement strategies are reflected in the mission.

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Consciousness towards preserving the values of adding flexibility to the performance of the
employees is effective for attaining desirable results. Code of ethics is the central doctrine for
Costco consisting of the values, which are: compliance with the rules and regulations; caring
approach towards the needs of the stakeholders and shareholders and respecting the values
and sentiments of the suppliers (Costco.com, 2020). All of these values enhance the corporate
social responsibility, indicative of gaining trust, loyalty and dependence from the clients and
customers.
It is the duty of the managers to undertake transformative leadership approach in
terms of the continuous improvement for the standards and quality of the business. Believe in
the values is the main aspect for achieving desired results. Realization of the values is
effective for Costco in terms of enhancing the workplace culture. Lindlbauer and Kor, (2018)
is of the view that infusing goal setting theory into the business practices is effective in terms
for assessing the benefits, which can be shared to the clients and customers. Clarity in the
business perspectives is an agent for improving the performance. Using the counter intuitive
retailing strategies is a tactful approach of Costco leaders towards unleashing the craze of the
customers towards investing in the services.
Vision
Costco envisions to be a place where the customers can experience efficient buying
and operating practices through the access of unmatched savings. The main focus of this
vision statement is on the enhancement of customer satisfaction and experience. Value is
intended to be created through the means of pricing (Costco.com, 2020). This concentration
is based on the aspects of efficiency in the operations, unmatched savings and access for
increasing the membership. Efficiency in the operations is aimed at minimising the costs in
terms of attracting large number of clients and customers. This cost reduction is the agent,

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which transcends the business into the aspect of unmatched savings. In this context, mention
can be made of the discounts, which the customers can avail through the means of discounts.
Membership is assistance in terms of availing these discounts easily (Costco.com, 2020).
Corporate level strategies
Like any other organization, the corporate level strategies of Costco is formed of four
elements, which are resource allocation, organizational design, portfolio management and
strategic trade-offs, among which mention can be made of resource allocation and
organizational design.
Resource allocation
Tangible and intangible resources defines the internal environment of Costco.
Tangible resources consist of manufacturing/distribution of the plants, buildings, lands,
specialized machineries, assembly lines, oil fuels, electricity among others. Intangible
resources comprises of employees, managers, factory workers, board of directors and others
(Grünig & Kühn, 2018).
Organizational design
The organizational design and structure of Costco is based on the chain of command
that runs from the top level hierarchy to the lower levels. Minimal layers of management is
effective in terms of practising participative leadership style, the aim of which is to involve
the employees in the decision making process. Flat organizational structure is practiced,
where the top level posts are occupied by the president, Chief Executive Officer and Vice-
President. This type of organizational structure is effective in terms of encouraging the
employees towards producing productive performance. The managers are highly
approachable, which acts as a clarification for the employees in terms of resolving the
queries, which they face in the process of executing the allocated tasks (Lindlbauer & Kor,

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2018). The bottom line relates with the mission statement in terms of exposing caring
approach towards the clients and customers
Business level strategies
Costco works on the strategy of cost leadership, where the main aim is maintaining
consistency in the prices. Using business models is assistance in terms of increasing the sales
volume in the warehouse. Part of the business plan is focused on selling merchandise through
low profit margin. Steady incomes at the profit margin is also a part of the business level
strategy, which helps Costco to expand the customer base. Reference can be cited of the
single step distribution strategy, which caters to the inventory management prior to its launch
for the customer usage. According to the arguments of Grünig and Kühn, (2018), selection of
the high quality items is related to the low prices, which maintains the balance in the
operations. Comparison can be established with Aldi, where the savings is passed on the
customers. Private labelling for the products and services is executed along with the
diversification in the merchandise categories.
SWOT analysis
Strengths
Low prices in the store purchase and online shopping is one of the strengths, which
attracts large number of customers. Rapid inventory turnovers is helpful for Costco to
increase the sales revenue. Intensification in the sales volume is directly proportional to the
increase in the sales revenue. Higher sales volume enhances the efficiency in the operations.
In this context, Phadermrod, Crowder and Wills, (2019) is of the view that minimization of
variations in the costs act as an agent towards increasing the sales volume.
Weakness

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Membership is limited only to the service users of the warehouse club retail members.
Although the customers are encouraged to participate in the purchase at the stores, however,
it is limited as compared to the total number of customers. The non-members feel deprived at
this scheme, which generates the feeling of biases towards the brand, diminishing the brand
loyalty (Reynolds & Phillips, 2017). Along with this, there is limitations in the stock of
products and services, which provides a higher competitive advantage to the brands like
Walmart.
Opportunities
Product differentiation and diversification strategies can be implemented for the
placement of products like rechargeable toothbrushes, ringbell door video and services like
cashback rewards on the use of the VISA cards in the markets of Asian countries. For this,
the means of social media can be effective for expanding the supply chain network
(Costco.com, 2020).
Threats
Entry of new membership warehouse club retailing companies would intensify the
threat of substitutes for Costco. This situation would add vulnerability into the process of
establishing the position in the overseas market. Apart from this, aggressive retail marketing
strategies adopted by the retail firms would obstruct the process of Costco in terms of
enhancing the efficiency in the business (Grünig & Kühn, 2018).

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References
Cnbc.com (2020). How Costco uses $5 rotisserie chickens and free samples to turn
customers into fanatics? Retrieved 25th Feb 2020 from
https://www.cnbc.com/2019/05/22/hooked-how-costco-turns-customers-into-
fanatics.html
Costco.com (2020). About us. Retrieved 25th Feb 2020 from https://www.costco.com/
Grünig, R., & Kühn, R. (2018). Developing and Assessing Strategic Options at the Corporate
Level. In The Strategy Planning Process (pp. 147-162). Springer, Berlin, Heidelberg.
Grünig, R., & Kühn, R. (2018). Diagnosing Strategic Challenges at the Business Level.
In The Strategy Planning Process (pp. 203-207). Springer, Berlin, Heidelberg.
Krishnan, G. V., Patatoukas, P. N., & Wang, A. Y. (2019). Customer-base concentration:
Implications for audit pricing and quality. Journal of Management Accounting
Research, 31(1), 129-152.
Lindlbauer, N. M., & Kor, Y. Y. (2018, July). The Microfoundations of the Corporate-Level
Resource Allocation Process. In Academy of Management Proceedings (Vol. 2018,
No. 1, p. 16193). Briarcliff Manor, NY 10510: Academy of Management.
Phadermrod, B., Crowder, R. M., & Wills, G. B. (2019). Importance-performance analysis
based SWOT analysis. International Journal of Information Management, 44, 194-
203.
Reynolds, T. J., & Phillips, J. M. (2017). A review and comparative analysis of laddering
research methods: recommendations for quality metrics. In Review of Marketing
Research (pp. 150-194). Routledge.

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