1. Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading the process of crafting and executing Costco’s strategy? What support can you offer for these grades? Refer to Figure 2. 1 in Chapter 2 in developing your answers. I believe that Jim Sinegal is a very effective CEO. His company was the first U. S. company to ever reach 1 billion in sales in less than six years. He exhibited leadership skills and engaged with team members at other Costco Stores. He believed in calling one another on a first name basis and had an informal dress clothes to avoid the typical boss attire.
Sinegal did things that most bosses don’t do, and these things allowed him to be an effective leader. I would give Sinegal an “A’” in strategy. Instead of following the competition, he choose to make prices lower. Most competitors constantly think of ways to increase product prices, but Costco feels that lower prices drive more customers through the door. Although they had the opportunity to make more profit off of higher price margins, Costco kept smaller margins, to keep their prices low. Costco also provided a limited selection of fast selling product, which helped lower cost and also allow them to be more efficient.
Costco’s treasure hunt merchandising instilled a sense of urgency in customers because there was no assurance that the product would be available for long. Allocating ? of treasure hunt items allowed for increased the likelihood that each customer would purchase one of these items. Because Costco’s centers a lot of their business in remaining low cost, they do not spend too much money in advertising. Costco uses the word of mouth advertising to lure more customers in, which is another approach to keep cost low. Sinegal manages his strategies by ensuring that excellent employees are brought upon his team.
He attracts quality employees by ensuring that they are paid well and have a multitude of benefits. After they are brought onboard they are treated respectfully by policies, procedures and various training. Costco also has an open door policy, which ultimately makes employees feel comfortable to voice any concerns, or questions they may have. In turn, this will make feel them happy while in the work place, thus leading to more productivity. Overall Sinegal sets good performance targets, crafts and executes various strategies, and makes corrective adjustments that reflect a positive performance. . How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Sam’s Club? Over BJ’s Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not? From a strategic perspective Costco is performing efficiently. They are using a low cost, high quality product to achieve high sales. They spend very little money on anything extra because they want their customers to enjoy low cost items. To intend to grow sales and profits they by building an even larger and fiercely larger database.
This will allow Costco to expand offerings of private label products so that customers have a place to shop for low practical business and household supplies. Yes Costco does have a competitive over Sams Club. They offer lower price items, upscale treasure items, member privileges, American Express payment, and overall customer service appeal. Yes Costco does have a competitive advantage over BJ’s Wholesale as well. They offer prescription filling services as well as all the stuff mentioned above. I believe that Costco has a winning strategy.
Time and time again successful companies are taking a low cost, high quality strategy to out beat their competitors. Costco provides customers with a one-stop shopping experience while setting prices significantly lower than their competitors, and getting extra revenue by placing products in a prime location. Costco has taken a large portion of the market share and will continue to do so in the future, as long as they continue their current strategy. 3. What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company’s growth and improve its financial performance?
In order to sustain the company’s growth and improve its financial performance Costco needs to open more locations in business booming areas. By adding more locations, Costco stores would continue to see an increase in their total revenue. In addition, they should consider trimming back on their lucrative fringe benefit packages. Costco currently offers its employees the following benefits: •Health and dental packages •Convenient store pickup •401K Plan •Dependent care reimbursement •Long term disability program •Short term disability program •Life insurance Stock purchase plan •Health care reimbursement plan •Long term insurance plan •Counseling Services With Costco offering high compensation and bi-annual bonuses, I think that they should cut back on some of the benefits that they offer. This alone would allow them to still keep their employees happy, but also cut some cost. Lastly, I think Costco should add additional merchandising techniques to entice customers to purchase additional big ticket items. Merchandising should be based on placing items in various locations, or more appealing signage.