Costco's Business Model Essay

Hunter Avenarius
MBA 705
M4: Case Analysis 2
4/3/23

Question 1
Costco’s business model differs from other traditional discount retailers in various ways. The first way goes all the way back to the roots of the business as they were founded on a principle that they would provide the lowest prices possible for their customers by keeping their costs low. They do this by utilizing a low-price and high-volume philosophy (Neubauer, 2022). Meaning, they are not marking up their items as other stores would, rather, they are keeping their margins slim and hoping to outsell other stores drastically. They can keep their costs low by limiting the products they offer to name brands and even venturing into backward integration and producing their own private

In addition, Costco does a great job in their internal growth process with hiring (Loeb, 2015). Costco’s purchasers do well as they know their store locations and the local demographic’s desires. For instance, in Australia, the Costco there like Vegemite, so they have that there and not in U.S. locations (Loeb, 2015). Costco is smart with their distribution chains as they usually use 65% of local bought and specific products (Loeb, 2015). Globally, Costco has built trust within their brand as customers go to them for quality service, freshness, and a great selection of products. As of 2023, Costco has 850 total warehouses with 158 of them being outside of the United States and Canada (Costco, 2023). Costco is able to scale partially because of their hiring and product selection, but also because they slowly build up their store counts in the same countries over the years by capitalizing and adjusting to each countries cultures and catering to it. For instance, Costco entered Japan in the 1990’s and they currently have 31 stores their which is the most outside of North America (Costco, 2023). This is due to their growth strategy (Parnell, 2014). They get their foot in the door and then scale when success is proven. They are not positioning themselves for retrenchment by growing too fast (Parnell, 2014). With the same