Answer to Question #8317 in Economics of Enterprise for LaMarcus Streeter
Discuss and evaluate Costco’s strategy in terms of pricing, product selection, and marketing and advertising strategy.
Determine whether or not Costco can achieve a sustained competitive advantage with this strategy.
Costco is the fifth largest retailer in the United States. It is focuses on the low price component of their retail value proposition. Marketing and store decorations of Costo are practically non-existent. Margins on branded and private label items are 10% less than most supermarkets and 30+% less than department stores. Costco warehouses are optimized to maximize sales. Luxury items are placed at the front entrance of the store to instil impulse buys. These product line-ups are rotated constantly to further encourage shoppers to buy them now. Food and other essentials that make up 60% of Costco’s sales are placed in the very end of the store. Comfort and ambience are virtually non-existent. Costco always let the customer find a comparable point in price. So Costco always provide some items easy to see in other supermarkets, and set a lower price. So Costco’s customers can easily make comparisons when shopping. This can enhance the value of customer good impression. And feel really affordable. Then feel the shopping value that Costco provide.
Costco’s strategy relies on very precise management of cost, leaving their value chain vulnerable to any severe external changes. Up to this point, Costco is performing exceptionally in this recession despite external pressures on their position: supplier prices have increased; rival firms are vying for Costco’s market share; buyer demands are at an all time low. To initiate changes in its value proposition Costo would have some risks connected with cost savings. the changes within the external environment continue to align with Costco’s retail strategy and managerial preferences. While a price driven value proposition is not the only option to survive this recession, it is the strategy that best-aligns with Costco’s resources and capabilities. Strategic change should be anticipatory rather than responsive, but it should never compromise the alignment between a retailer’s value proposition and its internal capabilities. For now, as long as Costco maintains its discipline towards maximizing their retail value proposition, they will be successful.