In 1997 Protects changed Its name to Cost Companies Inc. And then again to Cost Wholesale Corporation after their relocation to Washington. Strategy Cost was planned using a strategic villas of providing affordable high-quality products with a quick turnover rate while participating in responsible and sincere selection, and a treasure-hunt shopping experience (Gamble & Thompson Jar. , 2009, p. 217). Cost remains competitive by offering low prices to their members and by provide good pay and an excellent work environment to their employees.
Cost is able to offer lower prices and better values by eliminating all the frills and costs satirically associated with the conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing, and accounts receivable. Senegal was quoted saying that, “We [Cost] run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members (Gamble & Thompson Jar. , 2009, p. 221). Cost’s pricing strategy has allowed them to develop a cost-based advantage over their competitors.
Using a low-cost provider strategy, Cost was able to achieve lower overall costs than their rivals and appeal to a broad spectrum of customers (Gamble & Thompson Jar. , 2009, p. 36). This strategy in line with limited selection enabled Cost to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercomputers. Part of Cost’s strategy was to provide only a limited selection to their members; about 4,000 items. Although the number of items where limited, the store carried a broad range of products from steaks to caskets to fine Jewelry.
Cost is known for selling in bulk or large quantities. By doing this Cost is able to lower their business sots and keep lower sales prices on their products. Cost’s merchandise buyers remained on the lookout to make one-time purchases of items that would appeal to the company’s clientele and that would sell out quickly. (Gamble & Thompson Jar. , 2009, p. 220) With the ever changing inventory, Cost customers are encouraged to make purchases that day, because the next time they visit, the item may not be in stock. This strategy helps increase sales as well as continues to bring customers back in to the store.
Analysis Cost’s strategy has proven to be successful allowing them to rise above their imitators in terms of stores, sales volumes, and members. Cost has had steady growth in sales and earnings going as far back as 1995 as shown in Cost’s financial reports published on their corporate website. Also, Cost’s stock had substantial growth between 1995 and 200 and has shown steady growth trends since them (Yahoo Finance, 2013). Their member renewal rate was approximately 89. 7% in the U. S. And Canada, and approximately 86. 4% on a worldwide basis in 2012, consistent with recent years (Cost, 2012, p. 11).
Cost’s strong financial performance, stock rice trends, and customer retention are all indicators that their strategy is in line with their visions and objectives. Many of Cost’s strengths are held with their low prices, limited selection, and their employees. Cost prefers to hire from within and focused on career longevity and development for their employees. It was company policy to fill at least 86 percent of its higher-level openings buy promotions from within; in actuality, the percentage ran close to 98 percent, which meant that the majority of Cost’s management team members were home grown (Gamble & Thompson Jar. 009, p. 226). Even with their many strengths, Cost still had some weaknesses. Their warehouses appeared to be very industrial, with concrete floors and merchandise displayed on wooden pallets. Cost also relied heavily on word-of- mouth advertisement, which saved the company money in terms of marketing, but during peak shopping periods are also a deterrent for new member or renewals. Some members may not see the benefit to saving in bulk if they have to wait in extremely long checkout lines.
Cost has a specific member demographic in mind and normally attract more affluent customers. The average member had an income of nearly $75,000 a year. This provides Cost with the opportunity to have more revenue by catering to those with a higher disposable income. In similar terms, they are missing out on an entire customer base, in the lower income earning families, because they are often not able to pay the membership fees or afford to pay “bulk” prices in order to save money.
Cost’s biggest threat has proven to be their competitors. In their 2012 Annual Report Cost states that, “our inability to respond effectively to competitive pressures, changes in the retail markets and member expectations could result in lost market share and negatively affect our financial results. Some competitors may have greater financial resources, better access to merchandise and greater market penetration than we do (p. 14).
Conclusion According to Cost’s 2012 Annual Report, net sales totaled almost $97 billion over 600 stores worldwide, for the year (p. 25). Their membership fees increased more than and Cost has about 26. 7 million households and 6. 4 million businesses that have paid memberships with the company (Cost, 2012, p. 11). Cost’s strategic equines and management plans have allowed them become one of the largest wholesale giants in the industry and it is these strategies that set them apart from their competitors.
