Bus-421-OL-Jimmy_Morgan-Assignment #2

Bus-421-OL-Jimmy_Morgan-Assignment #2 - Jimmy Morgan,...

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Jimmy Morgan, Business Policy, BUS -421-OL (Dec 2010 thru Feb 2011) Case Study Assignment 2 “Costco Wholesale in 2008: Mission, Business Model, and Strategy” 1. What is Costco's business model? Is the company's business model appealing? Why or why not? According to Gamble, Strickland, and Thompson (2010) “Costco Wholesale in 2008”, “Costco’s business model was to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories” (p. C-35). Costco’s business model is appealing because when you focus your attention on lower prices, rapid inventory turnover, higher sales volume by store, and reduced handling of merchandise, you create value to the members and make the company successful. 2. What are the chief elements of Costco's strategy? How good is the strategy? Costco’s pricing strategy is to “Cap the margins on brand-name merchandise at 14 percent (compared to 20 to 50 percent margins at other discounters and many supermarkets. The margins on Costco’s private-label Kirkland Signature items are a maximum of 15 percent” (p. C-35). Their strategy is to keep their members coming back to shop by keeping their heads turning with the low, low prices. Costco’s merchandising strategy is to provide its members with a selection of merchandise of only about 4,000 items. They also look to create a “Treasure-hunt shopping environment was to entice shoppers by offering irresistible deals on luxury items. They kept about one-fourth of their line of 4,000 products constantly changing. Costco’s strategy is very good because they are always looking for ways to create a competitive advantage over their competitors. 3. Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading the process of crafting and executing Costco's strategy? What support can you offer for these grades? Refer to figure 2.1 in chapter 2 in developing your answers. Mr Sinegal is not your everyday run in the mill CEO. Just his visiting stores during the week and focusing on proving the highest quality good at low prices separated him from most CEOs. He has managed to grow his retail warehouse club into one of the largest in the world. He has proven that you can provide consumers with low prices does not have to mean cutting wages for your employers or and not making a profit. Mr. Sinegal has accomplished this by cutting cost elsewhere in his stores. Costco stores carry less variety and keeps inventory cost down. However, Costco stores entice consumers to spend more than they want by devising irresistible deals on luxury items. Nonetheless, striving to have the lowest prices is not what really sets Mr. Sinegal apart from other CEOs. He is constantly seeking ways to take better care of his employees. He treats them with the utmost respect and spends a great deal of his time visiting stores in order
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Bus-421-OL-Jimmy_Morgan-Assignment #2 - Jimmy Morgan,...

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