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This a presentation on reputed Costco wholesale corporation that sells a variety of products on membership basis. This case presentation is based on the case provided on Strategic Management by Thomson.
Citation preview
Group: B
Name ID
Sobrata Halder ### 05-005
Abu Syed ### 05-006
Priyanka Tarafdar Bristi ### 05-007
Rifat Tanmoy ### 05-008
Topics Covered
Serial No. Topic
01 Oraganization’s Basic Information
02 Vision
03 Mission
04 Abell’s Model
05 Strategies
06 Warehouse Operations
07 SWOT Analysis
07 Compensation Policy
08 Workforce Practices
09 Business Philoshopy, Ethics & Code of Ethics
10 Competition
Organization’s Basic Information
Costco Wholesale Corporation is a membership-only warehouse club that provides a wide selection of merchandise.
Founded:September 15, 1983, Seattle, Washington, United States
Founders: Jeffrey H Brotman, James Sinegal
Organization’s Basic Information Continued….
Headquarters: Issaquah, WA
Main Feature: Membership Based Wholesale Business
Organization’s Basic Information Continued….
As of 2008, It had 544 warehouses in 40 countries & it’s sales totaled $71 billion.
As of 2008, about 53.5 million individuals, 29.2 million house-holds, 5.6 million business had membership card.
Vision
Present
5 years later
10 years later
The route a company intends to take in developing and strengthening its business in future.
Vision
“Our business is to give the customer the best value we can.” – Jim Sinegal, Founder of Costco
“We're going to be a company that’s on a first-name basis with everyone.”
Business Model
Membership FeesPurchases By Members
Revenue Generation
Low Prices Limited Selection Of Quality MercahandiseWide Range Of Merchandise Categories
Rapid Inventory Turnover
Volume PurchasingEfficient DistributionReduced Handling Of MerchandiseNo-frills, Self-service Warehouse
Operating Efficiencies
Operating EfficienciesRapid Inventory TurnoverRapid Inventory Turnover
Profit & Value Generation At a Very Low Gross Margin
Mission
Costco’s mission statement is – “To continually provide our members with quality goods and services at the lowest possible prices.”
Boundary Boundary
Present Offerings, Types of Customers Served, Geographic Coverage
Mission - Application Of Abell’s Model
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Who?
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Costco targets independent small business owners and large rich families
Customers are both national and international
Target customers are mostly Asian & Hispanic.
Typically customer visits 8-11 times per year
What?
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Moderate & High Quality ProductsRelatively Low PricesProduct VarietyEfficiencyConvenienceTrust & Loyalty Good Service Level
How? - Strategy
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
The cornerstones of Costco’s strategy are low prices, a limited product line and limited selection, and a “treasure hunt” shopping environment.
Strategy? - Membership
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Executive Member - $ 110
Gold Star Member - $55
Business Member - $55
Membership -
fee is refuandable at any timehelps to maintain a pool of consistent customers enables to maintain low margins
Strategy? - Pricing
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Sells top quality national & regional brand products at prices consistently below traditional wholesale or retail outlets.
Keeps member coming into shop by wowing them with low prices .
Stocks items that help members save costs.
Strategy? – Pricing Continued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Maintains an average margin of 14% where competitors charge 20 to 50%.
Uses low pricing as the core competency. Tries to lower price from $9 to $8 where
competitors try to increase the price from $9 to $11.
Wall Street analysis has criticized Costco’s pricing strategy that they are satisfying customers at the expense of shareholders.
Strategy? – Product Selection
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Provide members with a selection of only 4000 items.
About one-fourth of Costco’s line of 4000 proucts constantly changes.
Uses ‘treasure hunt’ technique- buy now or it won’t be available here next time.
Sources high price & quality products from other wholesellers or distressed retailers looking to get rid of excess or slow-moving inventory.
Strategy? – ProductSelection Continued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Costco’s Offerings
AppliancesBaby, Kids & ToysClothing & AccessoriesComputers & PrintersElectronicsFood & Gift Baskets
FuneralFurnitureGift Cards, Tickets & FloralHardware, Auto & TiresHealth & Beauty
Jewelry & Watches
Office ProductsPatio, Lawn & GardenSports & FitnessTravel & LuggageHome & Décor
Strategy? – Marketing
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Low prices, membership and treasure hunt strategies makes it unnecessary to engage in extensive advertising or sale campaigns.
Strategy? – MarketingContinued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Word of mouth- existing members tell friends & acquaintances about their shopping experience at Costco
Hey Sam, do you know Costco Wholesale is selling various brand HDTVs at 30% discount??
Really so? Are those original?Of course. Then I will buy one.
Okay. But you will have to be a member if you want to buy.
No problem, I’ll be.
Strategy? – MarketingContinued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Promotes selected merchandises to existing members using direct mail program (“The Crostco Connection”- a multipage mailout containing selected merchandise saving coupons).
Strategy? – Growth
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Costco’s strategy to grow sales & profits has three main elements:
Open more new warehouses. Build an ever larger & fiercely loyal membership
base. Employ well-executed merchandising technique to
increase purchases by members.
Expansion is both national & international.
Strategy? – GrowthContinued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Financial Growth
Strategy? – GrowthContinued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Membership Growth
Strategy? – GrowthContinued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Warehouse Growth
Online Sales
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Web Sites:www.costco.com (for US)www.costco.ca (for Canada)
Warehouse Operations
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Warehouses are operated on a 7-day, 69-hour week.
Warehouse managers are delegated authority over store opeartions
Uses cross-docking in inventory movement
Arrived merchandise are directly moved onto the sales floor from warehouses
Warehouse OperationsContinued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
For transactions, Costco accepts cash, most debit cards, American Express, and a private-lebel Costco credit card.
Accepts merchandise returns.
SWOT Analysis
Low price
Strong brand
Excellent merchandise
Exceptional employees
54 million members
Economies of scale
Efficiency
S
Strentghs
SWOT Analysis Continued…
WeaknessesBurden of high wages paid to workersLow price marginsE-commerce activitiesSmall Marketing budget compared to
discount retailers and Super Markets
w
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
SWOT Analysis Continued…
OpportunitiesExpand into more foreign stable marketsMergers & AcquisitionsMassive supplier pool
Barriers
Opportunity
New Markets
New Suppliers
Mergers & Acquisitions
SWOT Analysis Continued…
ThreatsAggressive price competition by rivalsPolitical complications in foreign marketsCannibalization
Compensation
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
In September 2008, Costco had 70000 full time employees and 57000 part time employees worldwide. Costco’s compensation package includes: Basic pay Bonus Other benefits Executive compensation
Workforce Practices
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
The top management always tries to have a satisfied good workforce.
It was company policy to fill at least 86% of higher level openings by promotion from within actually thr percentage ran close to 98%.(2008)
They also make a point of recruiting at local university.
Only the skilled people move up to the higher positions.
Business Philosophy, Values & Code of Ethics
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Jim Sinegal had ingrained five simple and realistic business principles into Costco’s corporate culture and operation manner. The following are excerpts of these principles and operating approaches:
Obey The Law Take Care Of Our Members Take Care Of Our Employees Respect Our Suppliers Reward Our Shareholders
Business Philosophy, Values & Code of Ethics Continued…
Revenue Generation
Obey The Law
*Comply with all laws and other legal requirements.
* Respect all public officials and their positions.
* Comply with safety and security standards.
* Exceed ecological standards required in every community.
* Comply with all applicable wage and hour laws.
* Conduct business in legal and proper manner in and with foreign countries.
* Not offer, give, ask for or receive any form of bribe or kickback.
* Promote fair, accurate, timely and understandable disclosure in reports filed.
Business Philosophy, Values & Code of Ethics Continued…
Revenue Generation
Take Care Of Our Members
* Provide top-quality product at best prices.
* Provide high quality, safe and wholesome food products.
* Provide their members with a 100% satisfaction guaranteed warranty on every product and service.
* Assure to sell authentic product which represents the performance.
* Make their shopping environment a pleasant experience.
* Provide product that will be ecologically sensitive.
* Provide best customer service.
* Give back to their communities through employee volunteerism and employee Contribution.
Business Philosophy, Values & Code of Ethics Continued…
Revenue Generation
Take Care Of Our Employees
* Competitive wages.
* Great benefits.
* Safe and healthy work environment.
* Challenging and fun work.
* Career opportunities.
* Harassment or discrimination free atmosphere.
* An open door policy to resolve issues.
* Opportunities to give back to their communities through volunteerism and fund raising.
Business Philosophy, Values & Code of Ethics Continued…
Revenue Generation
Respect Our Suppliers
* Treat all supplier as they would expect to be treated.
* Honor all commitments.
* Protect all supplier assigned property.
* Not accept any kind of gratuities from a supplier.
* Avoid actual or apparent conflicts of interest.
Business Philosophy, Values & Code of Ethics Continued…
Revenue Generation
Reward Our Shareholders
Costco believes that their shareholders are their business partners. They can only be successful so long as they are providing them a good return of their investment. They pledge to operate their company in such a way that their present and future stockholders, as well as their employees will be rewarded for their efforts.
Competition
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Costco's main competitor is Wal-Mart's Sam's Club. BJ’s, a smaller retail warehouse chain, also competes with Costco and Sam's Club.
The three companies share a similar business model, selling high volumes of merchandise at low prices in a membership-only warehouse club.
Each company sells a similar array of general merchandise, including food, apparel, and gasoline.
Competition Continued…
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Sam's Club operates 591 warehouse clubs nationwide and earned $44.4 billion in revenue in 2007.
BJ's operates 177 warehouse clubs across 16 states in the eastern U.S. In 2007, the company earned $9.0 billion in revenue.
Market Positions of Rivals
Revenue Generation
Profit & Value Generation At a Very Low Gross Margin
Ope
ratin
g M
argi
n
Number of Locations
Higher
Lower
Few Many
BJ’s
P
Costco
Sam’sClub
Pricesmart Inc.
Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue