Costco Wholesale Corporation Case Study

Introduction

Costco Wholesale Corporation is a global retailer company that deals with a variety of merchandises. Currently, the company operates warehouse clubs in eight countries (Loeb, 2018). Inclusively, the company is ranked as multi-billion dollar investment, scoping the second position as the most significant retailers in both the United States and the World (Page, 2018). The company has adversely progressed in levels of investment as well as membership within the years 2011, 2012 up to the year 2016. An average of 598 membership warehouses was recorded in the year 2011 with a monetary investment of about $89 billion (Thomson, 2016). Progressively, the revenues of the year 2015 were about $116 billion and a record of 686-warehouse member, a signal of good business (Thomson, 2016). Therefore, it essential to understand the strategies that the CEO Jack Wetch applied in this company, to influence the growth of revenue, and to initiate a positive attitude of employees in services and good delivery fighting of his rivals in competition, BJS Companies (Thomson, 2016). Moreover, we are keenly going to analyze the company’s culture, compensation and workforce practices, enabling us to understand how they have assisted in the achievement of the organisational goals and objective.

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Leadership Strategies and their Contribution to Business Growth

The leadership style of a manager will determine the relationship between the investors and the employees to the company. Strategic leadership is a strength that Jim Sinegal possess. According to the author, Jim was humble and always dressed casual making him easy to approach (Thomson, 2016). He was committed and engaged in his work including receiving calls directed to him; this contributed to team building in the company as he acted as a role model (Thomson, 2016). The authors continue to explain that Jim appreciated his employees and at no given time did he pass them without saying “Hello”. Correspondingly, Sinegal understood the importance of speaking from the heart when he does not agree with decisions from the directors or employees. Additionally, Jim delegated and empowered store managers by questioning them about different products and instructing them to do further research on the same during his visits, a contribution to corporate strategy within the business. Jim acted as a pacesetter in the company by delegating relatively reasonable wages for all warehouse employees and senior management. He believed that the best way of earning a substantial salary was through reward and compensation from hard work. Different from other corporate companies, executive compensation was about $350000 and bonuses of about $190000, a friction wage in comparison to other big corporations as per the year 2011 (Thomson, 2016). However, strategic equity compensation programs closed the gap through dedication to work. Costco is known to be one of the best paying company in the United States with employees earning an average of $21 per hour, and each worker receives health benefits (Page, 2018). This helps in the motivation of employees and just as the success of the business shows; it is progressively working for the business.

The Ultra-Low Pricing Strategy and its Effectiveness

Comparatively, Costco’s ultra-low pricing strategy has always been a vital tool in maintaining its competitiveness within the aligned business strategies. Using the Kirkland signature brand, a product is believed to sell at an average of 10.6% or less as per the buying price (Page, 2018). This creates a philosophy of keeping a flow of customers with the intention of making huge volumes of sales. However, the Costco pricing strategy faced tremendous challenges as they consistently misinterpreted discount percentages without considering membership fees resulting to reduced profits to stakeholders; something that comes short as per the expectation of the mission of the business (Thomson, 2016). Regardless of the low-profit-margin, the objective of the company was attained as Jim always aimed at creating a gulf at prices about their rivals, to the point that the competitors ‘Bjs companies’ termed them crazy. Similarly, this contributed to customer promotion, as the prices offered were affordable. Some analysts believes that the ultra-low price strategy is a poor method of business as it only makes the customers happy (Thomson, 2016). However, the author suggests that the CEO at the time was creating a foundation for a lasting business by improving customer relationship rather than a short-lived industry through building a competitive advantage.

Sales Strategies in the Business and their Impacts

Sales strategies is an additional resource in the business strategies set. The Costco companies ensured that there is a variety of goods within their stores to maximise their sales in a small market segment. The availability of online sales and website where potential customers can buy products has however increased their sales in the year 2018 with 12.8%, from $9.1 billion in 2017 to $10.2 billion (Loeb, 2018). An impressive 28.5% online sale in the quarter year of 2017 was recorded as a fraction of total sales. Similarly, e-commerce increased by 35% for the overall 24-week period of sales in that year (Loeb, 2018). Customer satisfaction was an inclusion of the strategies implemented with consistent discounts being offered to products such as gasoline, something the BJS companies fail to implement in their business. Optimum sales through low-cost emphasis were established by maintaining low operating costs giving room for discounts. The business location was also well implemented with working hours being made suitable for both customers and workers to improve sales. In articulation to the sales strategy, the growth strategy also aimed at increasing sales by increasing the number of warehouses both domestically and internationally, beating their close rivals the BJ’s wholesale Club. This resulted in a recorded 10% and 7% fiscal growth in the years 2011 and 2015 respectively due to opening up of new stores (Thomson, 2016).

Product Promotion and Customer Follow Up

Marketing and advertising were included during the strategising process of the business. Due to the low prices offered in Costco, it was essential to increase the levels of sales (Thomson, 2016). The necessity of extensive sales campaigns and advertising was, therefore, necessary to improve sales for suppliers in comparison to their competition. The strategies used were in-store product sampling and direct mails to prospective new members. Besides, the loss leader strategy enables the company to keep going by sending out a weekly flyer with fantastic sale splashes, which only cost less than one dollar to print but motivates customers to visit the stores. Contrary, their rivals use expensive banners on streets and gazettes, therefore, spending more in operation cost. Costco also engages in media advertisements, through magazine publications for member awareness on new products; an example is Bloomberg article which reported that Costco earns only fourteen million dollars in profit although selling seventy million chickens (Page, 2018). The opening of new warehouses was promoted through unique campaigns that familiarized newly established stores. Additionally, the marketing department dedicated itself to following up on customers’ needs, through messages distributed on payrolls. Members also assisted in the publicising of their stores through passing information to friends something that helped in product promotion (Page, 2018).

Conclusion

The Costco companies’ strategic methods in marketing, leadership and sales have contributed significantly to the fulfilment of the mission of this company. Customer relationship and employee relationship has influenced progress in sales. The marketing strategies used are cheap but effective in developing online sales and local sales as computed by the figure from the current financial review. Despite the ultra-low price, the commercial level of the company is maintained due to the enormous sales made with intervals of 24-week assessments. The foundations laid by the previous CEO has also assisted in the management of the business since everyone is considered during formulation of strategies. Last, excellent salary and wages have guaranteed optimum dedications of the employees to their store.

 

References

Loeb, W. (2018). Costco’s Sales Growth Continues With Strong E-Commerce Numbers. Retrieved from Forbes: https://www.forbes.com/sites/walterloeb/2018/03/09/costco-sales-growth-continues-with-strong-e-commerce/#314df2a84064

Page, V. (2018). Costco’s Business Model Is Smarter Than You Think. Retrieved from INVESTOPEDIA: https://www.investopedia.com/articles/investing/070715/costcos-business-model-smarter-you-think.asp

Thomson, A. (2016). Costco Wholesale in 2016: Mission, Business Model and Strategies. Alabama: University of Alabama.

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