Costco operates membership warehouse clubs in 24 US states, the UK, Mexico, Canada, and Asia. It has over 16 million member households that contribute $400 million in annual fees. Costco aims for high volume and large scale operations with limited product assortments of around 4000 SKUs. This allows for efficient shelf space, fast inventory turns, and low costs. Costco looks for opportunities to expand domestically through new warehouses and membership models. It also looks overseas at locations like the UK, Mexico, and Asia for international growth. Managing the balance between membership services, marketing, pricing, and the core warehouse business model presents dilemmas around maintaining the customer value proposition.

1. In Numbers
Operating Philosophy
Competitive Analysis
Expansion & Growth
Opportunities
Using the List
The Dilemma
Warehouse Clubs
in 24 states (USA),
UK, Mexico,
Canada & Asia
Business- $35,
General Public-
$40 yearly fees
Net income- $312
million on Sales of
$21.5 billion
16 million
households
contributed $400
million in fees
Average 129,000
square foot
warehouse, 4000
SKUs
Food & Sundries
made up 60% of
Costco Sales
Average 1-14 %
margins, earnings
via annual fees
57,000 employees,
Good Staffing
Policies

2. In Numbers
Operating Philosophy
Competitive Analysis
Expansion & Growth
Opportunities
Using the List
The Dilemma
Be Efficient
High Volume + Large
Scale = limited
assortment
Fewer SKU’s | Approx
4000| less duplication
& variety | efficient
shelf space use| faster
turns| low inv. cost
Large package | low
overheads and
expenses | Minimum
Staff
Accept intelligent
loss of sales
High Volume , bulk
package customer –
who know their need
and prefer economy to
brand loyalty.
Small business
-30% membership
- 60% purchases
No cherry picker ; No
product support ; no
fringe products
Take Costs out of
Supply Chain
Test products in a few
locations & roll the
offering out to the rest
of the chain if it
worked.
Worked with
vendors/suppliers to
reduce cost | Helped
vendor in increasing
efficiency in order to meet
Costco’s target cost
Ran Operations itself –
its own depots and
meat processing plant

3. In Numbers
Operating Philosophy
Financial Analysis
Expansion & Growth
Opportunities
Using the List
The Dilemma

4. In Numbers
Operating Philosophy
Competitive Analysis
Expansion & Growth
Opportunities
Using the List
The Dilemma
Domestically
Internationally
Different
Products
Different
Formats
• Presence in 24 States
• Free Trial Mem. Offer
• In 05 foreign countries
• Glocalization
• Warehouses offering
Peripheral Services
• Product-Mix
• Sports, Fitness, Business
Center
• Customer Oriented Services

5. In Numbers
Operating Philosophy
Competitive Analysis
Expansion & Growth
Opportunities
Using the List
The Dilemma
 Customer Feedback System, Maintaining Customer Purchase History,
Compilation of data, providing them ‘Relevant’ deal offerings
 March,1997 – P&G approached Costco with a proposal to purchase this ‘List’
 Costco decided to use this ‘List’ and decided to offer Health Insurance based
‘Executive Membership Services’.
Higher
Membership
Fee
• $100 Exe. Mem.
Fee
• Committed,
High Value
Costco member
High Value
Services
• Savings 20% to
40 %
• Highly
Competitive
Offering
High
Efficiency
• Strategic
Partnership with
Insurance
Providers
• Customer Data
Analytics

6. In Numbers
Operating Philosophy
Competitive Analysis
Expansion & Growth
Opportunities
Using the List
The Dilemma
- Services
- Marketing
- Keeping FAITH
- Increasing Competition
- Service Offering,
Profitability
- Core Business
- Word of Mouth
- Pricing of Services
- Maintaining ‘Price Advantage’
- Infrastructure / Development
Costs