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Costco - A Strategic Review and Assessment

The company's pricing approach attempts to remove as many distribution dollars as possible.
             Product Selection is another differentiating factor amidst Costco's strategy. Rather than stock hundreds of thousands of products that typical big-box retailers like Target or Wal-Mart might do, Costco limits its active merchandise offerings. Selling fewer items increases sales volume and helps drive discounts (Lutz, 2014, para. 8). Less than four thousand items are sold in a typical Costco warehouse –all in maximized quantities and minimized pricing. These range from name brand products to company private-label Kirkland products – most with large quantity warehouse packaging (Thompson et al., 2014). .
             Costco energizes its customer base by creating a treasure hunt buying environment. This aspect of their strategy ensures that members will never quite know what might be found as a valuable bargain upon their store visit. Furthermore, members have been conditioned to recognize that just because the item is available on a given day, it may not be available a day or two later. This is due to the fact that certain products were acquired in one-time purchases that Costco buyers knew would appeal to their members (Thompson et al., 2014). At the heart of this strategy was the hopeful inducement of purchase for bigger ticket items and to attract buyers to spend more than they otherwise might. .
             As with many discounters, Costco assumed a low cost emphasis within their operating strategy. By managing their value chain better than their competitors, Costco was able to eliminate typical acquisition expenses that other discount retailers endure. For example, even though Target may be able to purchase aggressively, their business model demands well-organized store shelves that also require additional shipping, receiving and handling costs. Those costs are non-existent in the warehouse model, with cross-docked distribution and direct to selling-floor pallet drops.


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