Strategic Plan: Costco

Strategic plan- Implementation, Strategic Controls, and Contingency Plans Costco
Charisse Brown
Dr. Robert Stokes- STR/581
August 14, 2015
Table of contents
Executive summary
Costco wholesale gives its members the opportunity to purchase high-quality products at a low price. To achieve the retailer’s objectives the there is emphasis on respecting the customers, employees and vendors and obeying the law. Pricing differentiates Costco from other wholesale/ retail membership clubs with the customers mainly buying in bulk. The customers tend to be treasure hunters, and the limited selection of products has allowed Costco to sell the fast moving products in its outlets. Additionally, Costco has sought to expand into new markets and boosting online sales, as customers increasingly shop online. Looking into the internal and external factors affecting the operations of Costco helps the management to implement strategies. This is because Costco’s management can take advantage of the opportunities to gain a competitive edge, but also dealing with the threats. The online platform will also enhance the growth strategy for the customers who prefer online shopping, and this is an opportunity that can be exploited. This highlights product differentiation. The internal environment of Costco is based on offering a diverse product mix at an affordable price, while ensuring that the staff is highly motivated as this affects their performance. Overall, the strategy plan is to be implemented to leverage on Costco’s strengths and using a contingency plan to mitigate risks resulting from uncertainty.
Company background
Costco is a membership wholesale club that allows the members to buy high-quality goods at affordable prices. The organization acts as a retailer allowing the members to shop, with Costco also following a code of ethics to accomplish its mission. The code of ethics further highlights the organization’s objective of obeying the law, taking care of the members, employees as well as respecting the vendors (Costco, 2015 a). Ethical practice then allows the company to reward shareholders through following conscious business practices that integrate the interests of diverse stakeholders.
To gain a competitive advantage the company has built upon improving its operations based on increasing membership fees, having minimal markups, quality service offerings and employee satisfaction. Since the wholesaler stocks quality merchandise it has attracted many treasure hunters who seek to get value for their money (Logan & Beyman, 2012). This is particularly for those who purchase in bulk, as the selection of merchandise is meant to benefit those who prefer bulk buying. At other times, there are free samples that make it easier for the members to choose from the merchandise being sold.
Mission statement: "To continually provide our members with quality goods and services at the lowest possible prices,” (Costco, 2015)
Costco’s features
Pricing
Pricing often differentiates a business from its competitors and is also a marketing strategy that helps the management to target a specific market. Costco has relied on low prices compared to other wholesale and retail outlets. This is an important element since the items sold are selected depending on whether the members can bargain and this provides huge cost savings. As such, relying on a lower markup compared to the wholesale/ retail outlets has meant that the members take advantage of the discounts. Even in cases when the company stocks brand names the quality of the items is high with the pricing following the same strategy. Low prices wow customers and customers then associated the retailer with high-quality products sold at a lower price. This is related to the need to give the customers the value for their money, and customers shop at Costco as they associate it with the great values. The quest for keeping low prices does not Costco’s commitment towards the customers, employees and suppliers, and the management philosophy ensures that is followed through (Dyck & Neuber, 2010).
Even though, the company relies on low prices and markups, rivals might mistake this strategy as one that does not reward shareholders. Price positioning will result in better customer loyalty, improve Costco’s market share and drive membership renewals (Costco, 2015 b). On the contrary, the low prices draw more customers buying in bulk and this has resulted in consistent profits over time. As such, the pricing strategy may be beneficial more than previously thought, since it focuses on the long-term approach rather than simply maximizing profits in the short-term. There is a risk that raising prices would turn away the members and potential customers. Additionally, the rivals might then lower their prices to drive out the company in markets where the Costco’s products are considered pricey.
Product selection
Costco uses the strategy of selecting limited stock of products, and combined with discounting, the items are chosen depending on whether they are fast selling. However, there is a broad spectrum of products, but it is the range that is smaller compared to its rivals (Logan & Beyman, 2012). Since the customers buy in larger in quantity the limited number of brands does not affect sales since one customer purchases more than what others buy in other retail outlets. This increase the company’s efficiency as they leverage on the low margins. In order to attract more customers it is necessary to offer more ancillary businesses, and this allows those customers who do not buy in bulk to shop at the ancillary business next to the warehouses. Limited selection is also beneficial as the consumer is left to select from the fewer products on display. A large selection of products might cause confusion, and consumers tend to choose specific brands
Treasure-Hunt Merchandising
The quality of the merchandise at Costco means that treasure hunters will still be attracted to shop at the wholesale outlets. Even though, the company offered a limited number of items, as the products keep on changing. The items are chosen to sell out quickly with the members having a chance to purchase at a bargain price. This includes top brand products and high-end goods, and they appeal to the customers. This is because they are more likely to spend on such products as they associate the price on the luxury products as an irresistible deal. The customers can shop for the less common products while also purchasing the other items in bulk. There is urgency for the treasury hunters to buy before Costco runs out of stock for the upscale products. Costco does not always seek the products from the high-end manufacturers, but rather look for opportunities to but at a cheaper price where companies have slow-selling inventory (Daft, 2008).
Marketing and Advertising
Since the company’s clientele are treasure hunters and Costco sells at low prices, the current marketing and advertising strategy seeks to minimize costs associated with marketing. Marketing and promotional campaigns mainly focus on direct mails and direct marketing for specific products. As such, when opening the new stores there is a need to contact potential customers. When Costco acquires new members then the marketing will focus on follow-ups with the word of mouth effective. This has made it easier to minimize marketing expenses compared to the other retailers, supermarkets and discounters.
Growth Strategy
As the company opens new retail outlets in new areas of operations, it has become necessary to focus on the market differentiation strategy, which was identified as the key to growth. Additionally, market development is necessary to ensure that Costco is more competitive as it expands. Besides expansion, offering more options in the existing outlets means that there will be maximum utilization of space as Costco seeks to stock more products. Expanding the range of offerings will depend on...