Costco’s Business Model | Free Essay Examples (2024)

Costco’s business model is very different from the traditional discounted retailers. Costco usually uses a member-based model where customers are required to pay an annual fee to access the company’s products in its stores. To pay the prize, Costco offers high-quality products to its clients at a reasonably low price (Sarisa, 2021). In this business model, clients must pay a recurring fee for a specified time, such as monthly, quarterly, or after six months, to become members of the company. The customers who pay annual fees has got an advantage since they can access services like discounts that are not available to non-members. Additionally, the customers who have paid the annual fees receive special treatment compared to others. An example of special treatment is early access to products and services.

There are differences between Costco’s business model and traditional discount retailers. First, Costco uses a member-based business model where clients are supposed to pay an annual fee to access the stores. On the other hand, traditional discount retailers do not require membership, where members pay an annual fee. Second, Costco has a limited selection of products compared to traditional retailers (Sarisa, 2021). Costco offers limited products to its customers, but the products are of high quality. The company is mainly focused on selling valuable, high-quality products.

For this reason, the company deals with a small number of brands that will be easy to check for quality. On the other hand, traditional discount retailers deal with a wide selection of products to attract a large number of customers. The discounted goods are not of high quality, which is why the retailers sell them at low prices.

Bulk packaging is the third difference between Costco’s business model and traditional discount retailers. Since Costco sells a small selection of products, they usually buy them in bulk and sell them in large quantities. On the other hand, traditional retailers usually sell products in small quantities. Another difference between Costco and traditional retailers is Low Markup. Costco buys goods in bulk or large quantities and still sells them in bulk. Costco mainly generates its revenue from the annual membership fee.

On the other hand, small retailers generate their revenue solely from the goods they sell. The final difference between Costco and traditional retailers is the supply chain. Costco uses a unique supply chain where they buy goods directly from producers or manufacturing, therefore, getting a chance to negotiate the prices (Sarisa, 2021). On the other hand, traditional retailers buy goods from wholesalers, so it is rare for them to negotiate for lower prices.

In the coming, the membership-based business model used by Costco will likely be successful. This is because this type of business model is beneficial to not only the company but consumers too. On the side of the company, the Member-based business model enables the company to predict the revenue and create loyal customers. This type of business offers buyers access to exclusive products and services (Sarisa, 2021). Additionally, it is convenient and flexible. The only thing that Costco company should focus on is online subscription services since everything is expected to move online in the coming years.

Costco can compete successfully on a large scale outside Canada and the United States. The company operates in other countries besides the United States and Canada. The countries in which Costco has competed successfully include; the United Kingdom, Mexico, and Japan (Kumar et al., 2022). Therefore, it is not new for the company to operate in other countries. Operating in the mentioned countries means that Costco has the ability to adapt to other market conditions and what the customers need. Therefore, the company will use the same abilities to compete on a large scale in other countries across the world.

It is undeniable that there are several challenges that the company will face when deciding to compete on a large scale in other countries. However, there are possible solutions to handle the challenges. First of all, it is undeniable that Costco deals with a few selections of products. But since the products are of high quality, they will attract customers. The second challenge that Costco will face when competing on a large scale is adapting to local laws or regulations in foreign countries (Kumar et al., 2022). These laws and regulations also vary from one country to another. Since Costco has been able to handle these challenges in the countries where it is currently operating, it can still handle them when deciding to compete on a large scale. However, it will be time-consuming, and Costco will need to incur some expenses.

Another challenge a company faces when competing on a large scale is consumer preference and local buying habits (Kumar et al., 2022). For instance, in some countries, local customers might prefer buying products in small packages, and Costco mostly deals with bulk goods. This can be a challenge to the company. Still, since it has addressed the customer preferences in current countries and adjusted its product size, it will do so in the international market. Lastly, the competition can be intense since Costco has to compete with well-established international competitors and local retailers (Kumar et al., 2022). However, the only way to handle this challenge is by offering unique, high-quality products that appeal to customers.

References

Sarisa, L. (2021). Business strategies in the retail supermarkets industry: A comparative case study analysis of Costco and Aldi.

Kumar, A., Kar, S. K., Mishra, S. K., Bansal, R., & Harichandan, S. (2022). Costco wholesale: the global expansion dilemma.Emerald Emerging Markets Case Studies.