1. With respect to competitive strategy, identify and evaluate Costco's target customers, its core competence, and how it builds synergy and delivers value.
2. Would you rate Costco's competitive strategy as pursuing differentiation, cost leadership, focus, or some combination? Why?
In 2010, Costco's reputation for rock-bottom pricing and razor-thin profit margins helped the company maintain its position as the nation's fourth-largest retailer and the No. 1 membership warehouse retailer, with 572 stores (425 in the United States), 142,000 employees, and 55 million members. Sales reached $76 billion, up 9.1 percent, reflecting, in part, a unique corporate culture that doesn't just pay lip service to the value of its employees, but maintains a reputation for honoring that value. CEO Craig Jelinek, successor to founder and longtime CEO James Sinegal, believes that the secret to Costco's success lies in the many ways the company overturns conventional wisdom. Despite Wall Street criticism, the company is devoted to a well-compensated workforce and scoffs at the notion of sacrificing the well-being of its employees for the sake of profits. Average hourly wages of around $20 smash those of competitors ($10-$11.50 per hour). Costco's competitors attempt to improve profits and shareholder earnings by keeping wages and benefits low. As a result, Costco enjoys a reputation of having a loyal, highly productive workforce, and store openings attract thousands of high-quality applicants.
Jelinek is a no-nonsense CEO whose annual salary ($650,000) is a fraction of the traditional pay for large corporate executives and dramatizes an organizational culture that attempts to minimize disparity between management and workers. Luxury corporate offices are out of the question. It is the "in the trenches together" mind-set that defines Costco's corporate culture, contributing to a level of mutual support, teamwork, empowerment, and rapid response that can be activated for confronting any situation. A dramatic example occurred when employees instantly created a Costco emergency brigade, armed with forklifts and fire extinguishers, whose members organized themselves and rushed to offer first aid and rescue trapped passengers following the wreck of a commuter train behind a California warehouse store.
Whether attracting employees or customers, the need for public relations or advertising is nonexistent at Costco. Sinegal told a reporter for ABC News that the company doesn't spend a dime on advertising, with over 140,000 enthusiastic employee ambassadors spreading the word about Costco to friends and neighbors.