Figure 8 Strategic map of Costco
3.1 Low Cost
1-1 Operating efficiency
There are four small activities in operating efficiency, and operating efficiency is one of the big activities to achieve one of Costco’s goals, low cost.
1-1-1stock-outs and over stocking
Reduce the volume of stock and over stock is one of Costco’s activity to extent its operating efficiency. If Costco have lots of stock, it needs bigger spaces to storage stock and cost will increase by managing stock.
1-1-2Simple-packaged product
Costco use the way of simple-package to cut its cost on package. Packaging products need much cost and waste resources. Customers’ need are products themselves not package. Even, Costco’s customers most are family, they buy products for using
not for being as gifts. Therefore, simple-packaged is one way of Costco to extend its operating efficiency. And then making cost down.
1-1-3No frill, self-service warehouse
Costco is a warehouse store providing no-frill products and store. From this way, it has no extra or unnecessary expenses. Moreover, Costco is a store for self-service to reduce labor cost, this concept is alike IKEA. From these two activities, Costco can increase its operating efficiency even meet its goal, low cost.
1-1-4Volume purchasing of members
Costco’s members are most of family and family need the large volume of products. Selling a big volume of products in one time saves Costco’s labor cost owing to reducing the demand of cashiers. As the result, customers buy for huge volume makes Costco’s operate efficiently.
1-2Bulk-packaged
The products in Costco are all in big volume. By this way, Costco can reduce its storage cost. If Costco sell merchandise by small package, it needs a bigger space to store goods. Consequently, Costco sells products by bulk-packaged can make its cost lower possibly.
1-3Word of mouth advertising
Costco does not advertise itself by TV channel or billboard. But it does not mean that Costco has no advertisement. Costco advertise by their consumers’ mouth. For instance, Costco’s members will tell their friends that buying commodities at Costco is great, no matter on price or quality. Accordingly, Costco has low cost on advertisement.
1-4Procurement
Procurement plays an important role in the part of decreasing the cost. And the following are two ways to help reducing the cost as much as possible.
1-4-1Quantity-ordering and Bargaining power
With the quantity-ordering, Costco can bargains with the suppliers. Due to the big bargaining power, Costco have the ability to order the goods in low prices of cost.
1-5Supply chain cost management, 1-5-1 Reduce transaction cost 1-5-1-1 Retail link
To Costco, supply chain is also a main factor to reduce its cost. In order to manage the supply chain more efficient, Costco negotiates the price of its cost with the retailer directly. By doing so, Costco has the partnership with suppliers. With this kind of supply chain management, Costco reduce the transaction cost.
1-6Kirkland
1-6-1Costco private label brand,1-6-2 hold 20% products in one store
The one reason is because Costco has their own brand which is called Kirkland, they not only provide one merchandise of category with their members but also hold about 20％ products in one store to attract their customers buy and know their private label brand deeply. Otherwise, Costco has introduced new products under the Kirkland brand each year in categories as diverse as food, apparel, optical, and pharmacy.
1-6-3Great products value and quality are equal or better than the national brands, 1-6-4 Produce cost and sell prices lower than other products
Costco tries to let their members know that the quality of their products is equal to or better than other competitors. To attract more shoppers to buy their private products, Costco will put them in each category with each supplier instead of putting their private products in the same area. They let their shoppers to compare the price, quality, and ingredient with other suppliers generously.
1-6-5 Produced by itself (Costco) to control products’ quality and cost
Why they could be so confident with their products when comparing with other
suppliers? The reason is because Kirkland is produced by itself. They clearly know each process of development and control their quality as well as lower price than others.
Even though they reduce cost and price, they will not make their product’s value low.
3.2 Low Price
2-1mark-up less than 15% on every brand name
Costco doesn't mark up their price more than 15 percent on their every product and average markup price at Costco is 11%, which compares with other retailers such as Walmart ( 24% ), and supermarkets ( 30-35% ).
3.3 High Quality
3-1limited&selective product
Costco control their product amounts below than 4,000 types which compares with other retailers such as supermarket (40,000 types) and Wal-Mart (125,000 types)
Costco's product selection is special and deliberated to create the product difference. And their product placement and price discount is not fixed and irregular (For example : Levi's pants has a discount, but if you don't buy it, next time maybe this pants sold out or restore to the original price ) so it can trigger member to have a treasure hunting experience and also creates a sense of urgency to buy.
3-2parnership with supplier
Costco cooperate with suppliers that have high quality and good reputation to manufacture product to satisfy member's needs and maintain Costco's reputation.
3.4 Membership
4-1one-stop shopping
One-stop shopping is customer can buy all they need in one destination. Costco has a variety of product from sundries to boutique to let customer select and also have in-store service such as food court, tire center, gasoline to add the value of membership.
4-2treasure hunting
Costco's product selection is special and deliberated to create the product difference. And their product placement and price discount is not fixed and irregular (For example : Levi's pants has a discount, but if you don't buy it, next time maybe this pants sold out or restore to the original price ) so it can trigger member to have a treasure hunting experience and also creates a sense of urgency to buy.
4-3Nearly 90% members continue their membership in the U.S. and Canada Costco has 91% renewal rates in USA and average 80% renewal rates in the world, it means their members generally approve Costco's membership value and consider that it is worth to be Costco's member and pay the annual fee.
4-4offer a savings to members
Costco have strong supplier's bargaining power and through their economies of scale to bulk procurement the goods at low cost to pass the savings onto its members.