Costco Strategy Any Company\'s Success

Costco Strategy

Any company's success depends entirely on the strategic direction the company follows. Each type of company requires a different type of strategy. This is why there are so many types of strategic models. There is no recipe for strategic success. Each type of general strategy must be adapted to the company in case. The strategy must be developed in accordance with the business type, the company's size, and the outcomes that are expected to be attained by following the strategy in case.

The strategy also depends on the timeframe allocated for attaining the established objectives. For example, two similar companies activating in the same activity sector, with similar sizes, can follow completely different strategies. This is because one of the companies has set its objectives for short-term and the other has set its objectives for short-term or medium term.

Also the strategy must be flexible, it must allow modifications. This is because the macro environment may change quickly and frequently. All these outside factors influence the company and its objectives, and therefore its strategy.

The strategy must be able to rapidly respond to such changes in order to counteract their negative effects. Also, the strategies for each department of the company must be in accordance with the general strategy that the company follows. Otherwise, the results of the company's activity could be lower than expected or the objectives cannot be attained at all.

Costco Strategy

In order to have a comprehensive strategy, the company must start by formulating a mission statement on which the general lines of the strategy will be based. Costco's mission is "to continually provide our members with quality goods and services at the lowest possible prices" (Thompson, 2009). As one may observe, the mission statement reveals the factors on which the company's strategy is built on. These factors are:

Quality of goods and services

Very low prices

Continual serving of the customer

The business model that Costco designed was intended to generate high sales volumes and rapid inventory turnover. In addition to this, the business model used by Costco was designed to provide its customers "low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories" (Thompson, 2009).

As a consequence, Costco currently commercializes the following categories of products: appliances, auto products, baby products, beauty products, bed and bath products, books, CDs and DVDs, computers, decor products, electronics, fashion, floral, food and wine, funeral, furniture, gifts and tickets, hardware, health, housewares, instruments, jewelry, office, outdoor, pets, sports, toys, and games.

The reason behind this type of strategy consists in the fact that the company's managers in charge with developing Costco's strategy considered that rapid inventory turnover would allow Costco to increase its profits and to diminish gross margins in a significant manner compared to its competitors. However, this required other tactics, like:

Volume purchasing

Efficient distribution

Reduced handling of merchandise in no-frills

Self-service warehouse facilities

However, the company's strategy was not based on intuition, even if it may sound very simple to base one's strategy on low costs and high quality. In reality, Costco's strategy is based on a very strong set of principles. The company is very much aware it is not recommended to make any mistakes in any area.

The key principles of Costco's strategy are:

Obeying the law

Taking care of the company's customers

Taking care of the company's employees

Respecting the suppliers Costco works with Rewarding the company's shareholders

Each of these issues is as important as the others. The company cannot function in a healthy manner unless it obeys the law. This shows respect for the authorities and for the company's customers that respect the law themselves. Also, this shows an example for other companies and individuals to follow.

The most important element of the company's activity is represented by its customers. The company is trying to expand its customer base and to induce loyalty more and more in the customers' minds.

The company's employees are also very important. Costco is aware of the fact that its human resource is the most important resource that company could have. In order to have satisfied customers, the company must first have satisfied employees. If the company's employees are satisfied with their work conditions at Costco and with their financial reward, they will treat the company's customers with all the attention and respect they deserve.

The company's suppliers are one of the most important aspects of the microenvironment of any company, and Costco makes no exception. The company's suppliers can create a series of negative situations if they do not deliver the goods in time. This creates a chain of complaints that the company cannot resolve. Also, a good relationship between the company and its suppliers on the long-term can bring a series of benefits for the company.

Another important principle that Costco used when developing its general strategy is represented by the company's shareholders and their reward. Certain theories sustain that the shareholders are the most important part of the company and that the company's objectives must be oriented towards increasing the profits for these shareholders.

Costco Financial Position

The strategy was very successful for Costco, given the increased sales that followed. The company's sales evolution over the past five years was the following: $31,621 in 2000, $37,993 in 2002, $47,146 in 2004, $51,862 in 2005, and $58,963 in 2006.

Other examples that prove this strategy was right for Costco are represented by the record sales registered by the company, like: 96,000 carats of diamonds in 2006, 1.5 million TVs, $300 million worth of digital cameras, 28 million rotisserie chickens, 40% of the Tuscan olive oil in the U.S., $3 billion worth of gasoline, and others.

As one may observe, the company is in full expansion and development process. Costco's financial situation is following an ascending trend. And all these in spite of the low prices practiced by Costco. The impressive financial figures reported by Costco were achieved due to the large number of customers shopping at Costco.

In addition to the low prices practiced by Costco, the company is also trying to attract customers by providing an extremely wide range of products and services. In other words, the customers should be able to find in the Costco stores all the items and brands they need, so that they will not search them in competitors' stores. Also, the items that cannot be found in some of Costco's stores can be found online, on the company's website that also provides assistance for the company's customers.

Costco Generic Strategy

The elements that support the implementation of Costco's general strategy include:

Pricing

Product selection

Treasure-hunt merchandising

Marketing and advertising

Growth strategy

Web site sales

As mentioned above, one of the key elements of Costco's general strategy is representing by low prices. Even more, the prices in Costco stores are so low that some of the company's competitors cannot compete in the areas in which Costco activates. This strategy will allow the company to attract a significant number of loyal customers. A large and constant number of customers means significant income from sales. This will allow Costco to continue implementing a low price-based strategy.