Case Study: Costco's Managerial & Business Strategy Analysis

This case study provides an in-depth analysis of Costco's managerial strategies, primarily focusing on their integrated approach that emphasizes value creation for both customers and employees. Using Long and Singh’s model, the analysis highlights how Costco's strategy of offering high-quality products at competitive prices and providing above-average wages to employees contributes to its success. The study further evaluates Costco's behavior and attitude model, aligning it with their integrated managerial strategy and justifying it through Porter's Typology, particularly cost leadership and differentiation focus. The case study concludes that Costco's strategies are well-aligned with their organizational behavior, leading to sustained competitive advantage and international market presence. Desklib offers a wealth of similar solved assignments and resources for students.

Running head: MANAGEMENT STRATEGY
Management Strategy
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Answer 1:
Part 1: Evaluation of the Cosco’s managerial strategy using Long and Singh’s model:
An evaluation of the managerial strategies of Costco Wholesale Corporation, which is the
world’s second largest retailer after Walmart based on Long and Singh’s model shows that the
managerial strategies is aimed at enhancing benefits to employees and customers. The business
strategy of the wholesale supermarket revolved around offering quality products to customers at
prices which are cheaper than the competitors of Costco. This enables the supermarket chain
earn immense revenue by serving both middle and upper class customers. The company redirects
an immense part of the revenue towards paying high wages to its employees. The analysis of the
case study shows that this managerial approach has significant positive impacts on the
organization’s business turnover. The first outcome is that it allows the company attract upper
class customers by offering them premium quality products at low prices. The second outcome
can be inferred as the outcome of the first outcome. Generation of high revenue enables the
American supermarket chain provide its employees higher wages than the industry average
(Business.Financialpost.Com). This motivates its employees to perform better and enables the
supermarket retain talented employees. The outcome of this efficient employee and customer
management is the international presence of Costco and its acquisition of second position in the
global wholesale market.
Part 2: Kind of managerial strategies chosen by Costco, reason and jsutification:
The managerial strategies which Costco uses can be categorized as integrated strategy
which stands on enhancing the value creation to the consumers by offering superior quality
products at lower prices. According to Handfield, Robert B., et al., integrated strategy can be

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defined as the managerial strategy in which originations keep the cost of production or offering
services low. They are as a result able to fix low sale prices without compromising on the quality
of products. This strategy enables firms to offer premium products to both upper and middle
class customers at low prices. Foss, Nicolai J., and Tina Saebi opines that attracting upper and
middle strata consumers enables the business firms applying integrated strategy earn immense
revenue which provides a wide substratum to diversify their cost of operations, thus increasing
the profit margins earned for sale of goods. An analysis of case study of Costco provided would
show that the supermarket chains maintains low cost of production by avoiding high advertising
expenses and keeping employee turnover expenditures low (Stone). Costco charges low prices
for its goods and attracts large consumer base. It can also be reasoned that Costco uses
integrated managerial strategy considering that the fact that the company maintains low
variety of stock of goods and emphasizes on quality and cost benefit to consumers
(Forbes.Com). This strategy enables the supermarket keep its brand acquisition costs low
and leverage its pricing competitiveness. Thus, it can be justified from the analysis that
Costco uses integrated managerial strategy.
Answer 2:
Part 1: Evaluation of behavior and attitude model of Costco:
The behavior and attitude model of Costco stands on integrated managerial model. This
can be pointed out from the fact the American supermarket chain maintains low prices for its
products yet retains high quality. DaSilva, Carlos and Trkman point out in this respect that
maintaining high quality and low cost of products enable the supermarket chains enhance value
of the customers’ purchase. Thus, it can be pointed out that as far as Costco is concerned, its

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attitude model seeks to enhance value of the customers’ purchase. This value creation chain has
enabled the supermarket chain create value and earn immense revenue.
Part 2: Behavior Costco is trying to encourage and its alignment with managerial strategy:
Costco is trying to encourage a customer and employee centric centric organizational
behavior. The supermarket chain adopts two significant practices namely, value creation to
customers and value creation to employees. Firstly, the supermarket chain offers high quality
products at low prices. This strategy enables the supermarket chain create value for the
customers and generate high revenue. The second pillar of the managerial strategy of Costco is
employee value creation. The supermarket chain pays its employees high salary which motivates
them to perform higher and serve customers more efficiently. It can be pointed out that the
two pillars of behavior which Costco encourages are well aligned with the integrated
managerial strategy of the organization. This is because providing higher rates of wages to
employees than competitors enhances the motivation of the latter to serve customers better. The
supermarket chain is able to maintain low employee turnover expenses and retain its employees
being poached by its strong competitors like Walmart. Again, efficient customer services enable
the supermarket chain retain customers and prevent the competitors from poaching them to a
large extent. Thus, it can be inferred that the attitude of Costco towards customers and
employees are aligned with the managerial strategy.
Part 3: Justification of managerial strategy based on Porter’s Typology:
It can be justified that Costco’s managerial strategy draws its strength of Porter’s
Typology or Generic strategies. Salavou points out that the Porter’s Typology of Competitive
Strategies is grounded on four aspects namely, cost leadership, differentiation focus, cost focus

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and differentiation focus. As far as Costco is concerned, it can be pointed out that the
supermarket aims to maintain cost leadership by maintaining lower cost of production.
Similarly, it charges lower prices for its products which differentiates it’s from its competitors
like Walmart. Moreover, it offers high premium quality products at this low prices which
differentiates it from its competitors. The supermarket carries out continuous market research
which enable it to remain abreast with the changing demand patterns of customers. Costco
instead of marketing an immense product line focuses on selected varieties of products within
each product line aligned with the needs of the customers. This enables it to achieve
differentiation focus and differentiate it from its competitors which are not able to focus on both
quality and prices simultaneously. Thus, the discussion can be closed by mentioning that the
managerial strategies of Costco are well aligned with Porter’s Typology.

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References:
"Business.Financialpost.Com". Business.Financialpost.Com, 2018,
https://business.financialpost.com/executive/c-suite/a-stick-and-a-carrot-at-the-same-time-why-
costco-pays-twice-the-market-rate. Accessed 24 Sept 2018.
"Forbes.Com". Forbes.Com, 2018, https://www.forbes.com/sites/glennllopis/2011/01/31/the-
costco-factor-to-win-the-business-game-you-need-to-change-how-you-think/#201c8753626d.
Accessed 22 Sept 2018.
DaSilva, Carlos M., and Peter Trkman. "Business model: What it is and what it is not." Long
range planning 47.6 (2014): 379-389.
Foss, Nicolai J., and Tina Saebi. "Fifteen years of research on business model innovation: How
far have we come, and where should we go?." Journal of Management 43.1 (2017): 200-227.
Handfield, Robert B., et al. "How can supply management really improve performance? A
knowledge‐based model of alignment capabilities." Journal of Supply Chain Management51.3
(2015): 3-17.
Salavou, Helen E. "Competitive strategies and their shift to the future." European Business
Review 27.1 (2015): 80-99.
Stone, Brad. "Bloomberg.Com". Bloomberg.Com, 2018,
https://www.bloomberg.com/news/articles/2013-06-06/costco-ceo-craig-jelinek-leads-the-
cheapest-happiest-company-in-the-world. Accessed 24 Sept 2018.