Costco - What Makes Them Competitive?
Costco’s key strategy is cost leadership: they want to have the best price on branded merchandise for their customers. This strategy works for Costco as they are attracting an affluent customer who is prepared to spend more per visit and has the financial ability to make larger once-off purchases or to be able to buy in bulk in order to save.
This model is appealing to the public and is successful due to:
- Clearly defined vision – not to hold every possible size or brand, but just selected brands to have cost leadership
- Vision statement – cost leadership & being absolutely focussed on this
- Strong leadership – from the CEO who is focussed on the vision
- Difference – are filling the gap between traditional retailers and wholesalers that is appealing to business customers and middle class people
Lower cost merchandise models can be copied. This means that if Costco doesn’t innovate then the long term business cannot be sustainable.
To stay ahead of competitors Costco can innovate to remain competitive through:
- Strategy – take first mover advantage and roll out their concept to as many nations as quickly as possible to gain market share and to become the dominate player worldwide
- Vision – try to dominate the segment through more private label products to increase margin as well as providing deeper discounts to customers than can be achieved through retailing national brands, therefore gaining more market share
- Difference – evolve the model to house either smaller or larger footprint store dependent upon local conditions – similar to IKEA with larger format stores in the UK, but smaller sized stores in Eastern Europe
