The Nature of Business of Costco Wholesale Corporation - Essay Example

As for pricing, the major strategy of Costco is that their prices should be for sure lower than those of the competitors. The company sells its products at prices 15-20% lower than other retailers or department stores. The philosophy of the organization is that while other companies are trying to sell at higher prices, Costco should be always finding ways to sell even cheaper.

The business believes the major advantage of this strategy is that, first of all, in such a way they offer value. Secondly, this allows to make sure there will be no competitors in their niche – the company makes its prices so low that nobody else can enter their market. Thirdly, the goal of low prices is not only to sell today but to be building a brand and a system that will be in the market for years. So, though shareholders’ income might not be as high as that of the rivals, Costco is aiming at long-term income instead of short-term financial success.

The major distribution channels of the company are its warehouses, to which people come and choose products to buy. Another source of sales is their website, which allows them to buy items that might not be available at the warehouse. Another advantage of the website is speeding up the sales process. For example, a customer may upload photos into the online photo center and pick the pictures at the local warehouse in about an hour. Selling at warehouses allows to company to save on fancy retail stores, salespeople, space rental fees, and other attributes of traditional distribution. In addition, the warehouses’ working hours are shorter than those of other retailers, thus allowing Costco to save on labor.

However, though the company seems to be pretty successful, it is exposed to certain risks related to both the country’s economy and the company’s operations mode and strategy. According to Costco, among the greatest risks of the company is strong competition – Costco competes with a great number of retailers, department stores, and other entities that sell similar products. Another risk lays in economic factors, including foreign currency risk, since the company does operate internationally and has many warehouses abroad.  Thirdly, the success of the company’s development is highly dependant on its ability to find good places for their new warehouses. In this aspect, the company is competing with a great number of other organizations. Furthermore, the nature of Costco’s business makes the company very dependant on its suppliers – so the supplier’s performance plays a great role in the success of Costco (Costco Wholesale Corporation, 2010).