Costco

The average Cost customer is found to be a college graduate earning an estimated $100,000 a year, twice the national average. This shows that their customers are ones ho can afford the yearly membership fee and to spend as they please in the warehouse as most customers find that they tend to overspend as they shop about Cost. Cost is able to create value for its customers by creating a sense of adventure and mystery for the customer who relates a shopping experience at Cost as akin too â€Å"treasure hunt†.Another value Is the low prices of items that customers can buy at no more than 15 percent mark ups as compared to departmental stores that mark up merchandise by 50 percent and supermarkets that mark up their Items by 25 percent or more (Lutz 2013). At times, Cost has special deals for customers by selling branded goods Like Pravda handbags, Carrier watches, Kristin Kelly wedding gowns, barrels of whiskey or even engagement rings, all at specially discounted prices (Lulling 2014). The first area of Cost's value-chain analysis will be the primary activities of inbound logistics and marketing and sales.Cost is extremely proficient and efficient in their procurement system, integrating a mix of human and technical skills and capabilities. One such instance is the development off competent technique of delivering inbound cargo to their designated warehouses within the pan of less than a day to ensure there is no time and cost wastage of leaving the items in the delivery trucks (Cost Wholesale 2010). This leads to higher sales and enables Cost to achieve quicker inventory turnover. As of June 2014, Cost Wholesale Corporation Is reported to have an Inventory turnover of 1 1. Times the national average (Bloomberg Businesswomen Bibb and compared to Wall-Mart Stores Inc which has an inventory turnover of 8. 1 times of the industry average (Bloomberg Businesswomen 2014). Cost is unique because they do not advertise but prefer to save that two percent of he budg et and channel it into more productive areas like employee benefits (Greenhouse 2005). Sales and service-wise, as mentioned previously Cost does not mark up its prices by more than 15 percent and it achieves this by buying in bulk and stocking only a limited assortment of products.A typical supermarket may have about 50,000 different Items for customers to choose from; Wall-Mart has an enormous selection of about 100,000 products but a typical Cost wholesale outlet stocks only about 4000 Items, of which most can be bought In bulk, a small portion as compared to competitors. Castoffs low merchandise count means It carries only choice brands and items and often only in one size. The executives at Cost believe making and confusion and eventually they walk away without purchasing, thus Cost only provides the best brands for each product (Logan and Abeyant 2012).The only gripe about Cost's service is that the lines are always taking too long, seeing as most customers end up over-spending and buying most items in bulk. Procurement is an essential aspect of support activities in the value-chain analysis of Cost. Cost builds strong relationships with its suppliers and tries to ensure that TTS suppliers are providing the best and lowest prices in order for Cost to do the same for its customers. Potential suppliers have to go through long dealing periods and stringent tests are carried out on their products to ensure it suits the needs and wants of Cost's customer base.An example would be thousands of toys waiting for the Cost team to hand-pick over five days the hundred fifty or so final products that will make the cut onto Cost's end-of-year holiday shelves for children. In the name of providing the best prices for its customers, Cost sometimes resorts to hardball arraigning when dealing with the suppliers such as in 2009 when Cost temporary ceased inbound shipments of Coca-Cola beverages as it stated on its website and shelves that Coca-Cola had not provided Cost wit h competitive pricing and Coca- Cola products would not be available until prices were lowered.Coke beverages returned to Cost's shelves in a few prices, but this shows Cost's procurement strength even when dealing with a main supplier (Harvard Law School 2010). The Cost Collaborative Retail Exchange (CRUX) program is a real-time software that allows Cost and selected suppliers to update the inventory anytime anywhere, especially when inventory for an item falls below a reorder point, the supplier is notified and stock is sent out to ensure it meets market demand.Once a product is scanned, the program is updated and inventory managers are notified if the product is close to the reorder point (IR 2013). For the demographics of Cost's customer base, it is divided by income, household size and age. A research done on Cost by a New Zealand market research firm finds that a whopping eight-five percent of wholesale club shoppers belong to the upper income market that are either â€Å"liv ing comfortably' or â€Å"affluent†.Subsequently, seventy-two percent of wholesale club shoppers are typically from a two to four person household. It is also noted that about three-quarters of female wholesale shoppers are younger than 55 years. (Acropolis Research Ltd. 2004) In conclusion, Cost Wholesale has a strong reputation and brand name, provides value through its low prices and for creating an adventure for its customers. With a large market share, it has considerable procurement strength but maintains relationships with suppliers.