Answer to Question #8317 in Economics of Enterprise for LaMarcus Streeter

Question

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.

Answer 1

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.