What are retail store chain Costco's target customers, its core competencies, and its strategy for delivering value?

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kipling2448 | (Level 3) Educator Emeritus

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The Costco Wholesale Corporation, established in 1983 is, as the New York Times article the link to which is provided below, attests, considered among retail industry experts the “anti-Walmart” because of its strategy based upon providing the highest quality products at the most reasonable – which does not necessarily mean cheapest – cost, while treating employees like respected members of the company.  While this answer is not intended as an indictment of Walmart, which has been heavily criticized for its low wages and low-quality consumer goods, any discussion of Costco’s success has to include some level of comparative analysis with regard to other similar chains. 

In addition to the aforementioned New York Times article, the Washington Monthly article also linked below summarizes Costco’s business model or competitive strategy well:

“I’m a fan of the store as a consumer, and I also like it as a model of capitalism.  A retailer that delivers high-quality products at rock-bottom prices, and is philosophically and practically committed to treating its workers well in the bargain . . .”

A large part of Costco’s business model involves its philosophy regarding its employees.  Costco is known for grooming its own executive talent from the ground up.  Rather than relying on business school graduates who are well-versed in the theories of economics but have little to no practical experience running a business, Costco’s founders focused on developing talent within its ranks.  It prefers to let its employees learn the business from within and advance up the corporate ranks according to their demonstrated abilities.  That may sound elementary, but it is somewhat unique in many industries, and among its competitors.

Costco’s business model targets the same consumers as Walmart’s equivalent, Sam’s Club, in that both are membership-driven and emphasize bulk purchasing.  By formulating a different strategy for staffing its stores than its competitors and by paying more attention to quality control issues, it hopes to draw consumers away from Walmart/Sam’s Club.  In this, it appears to be succeeding.  Costco’s “footprint” is considerably smaller than Walmarts, but its business model has been a public relations success story, and its revenues and profitability remain impressive.  In time, it could squeeze Sam’s Club more than Walmart can currently appreciate.

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