Essay, 2 pages (500 words)

Costco case analysis until 2008

Costco has refrained itself from extensive growth by limiting the use of credit cards, initiating a membership plan and by not providing ancillary services that its competitors are providing. This has pegged back the growth of the company and the company needs to adopt certain policies that will keep it ahead of the competition. There are certain strategies that can be implemented by the management of Costco in order to hedge its declining position.
Since Costco is operating at very low margin they cannot afford to charge credit cards and incur high banking fee. This is the reason why it is not charging credit cards because current low margins do not cover this fee. Costco can solve this problem by using both the cash and credit card system of payment, but those people who want to pay using credit cards, an extra 2% should be charged to their bills in the lieu of banking fee. This method will be acceptable to most of the customers as the prices in Costco are already very low and people who use credit card can still make a saving even if they pay for extra 2 percent banking fee. This will help Costco attract a wider customer base and at the same time not lose out on their margins. Costco has also limited itself in the membership program. Special offers and discounts are given only to members of Costco. This is a dangerous policy because many potential customers who want to avail special offer cannot avail them and hence they do not shop at Costco. What Costco can do here is that they should publish and send out special discount coupons through direct mail and magazines. These coupons should be redeemable at Costco stores and this way Costco will serve a wider audience and will be able to attract larger pool of prospective customers.
Many other shops and competitors to Costco provide ancillary services to its customers. However, Costco does not provide these services to its customers. Costco is operating at very low margin which does not give enough leverage to Costco to provide these services. This can be tackled by Costco advertising that should compare its costs with other retailers and should point out that Costco is competing on cost and the value of saving that Costco provides is greater than ancillary services that other retailers provide. This will encourage many more customers to buy from Costco and it will also help to increase Costco’s sales and revenue.
It can be concluded from the above discussion that although Costco is doing pretty well, it needs to look at the external environment and should integrate certain policies that will attract a wider customer base and help Costco improve its financial health. Since, Costco operates at lower margin than some of its competitors it may seem a little difficult but not impossible. Costco can counter its declining positioning by starting to accept credit cards and charge 2 percent banking fee to customers. Similarly it can also extend its membership to general public through coupon and should advertise a lot more than its competitors.

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