The Costco Firm’s Business Model


Costco is a leading global retailer with operations in eight countries. Currently, Costco has establishments in the United States, Canada, Australia, Japan, the United Kingdom, Spain, Mexico, Taiwan, and South Korea. Costco have a stable business model that facilitates smooth internal operations and external relations with consumers. The business model has stimulated the brand to proliferate over the last few years. The emergence of many players in the retail industry, disruptive technologies, and lack of differentiated products fuel high competition. Costco leverages employee and consumer relations to foster sustainable growth and differentiate itself from competitors.

Costco’s Analysis

Costco is dedicated to high volume sales and has adopted the consumer exclusion model. The corporation offers membership to its customers and offers them goods in bulk at competitive prices. Consumers perceive Costco as a team or club that offers the best prices in the market. Non-members cannot purchase goods from Costco or access its cavernous, deep-discounted warehouse (Huchzemeier et al., 2022). Consumers willing to buy goods at a discount pay annual subscription at two-level memberships, including basic and executive. The revenues from subscription fees allow Costco to undersell its products and differentiate itself from its competitors. Moreover, Costco benefits from high customer loyalty due to the club membership and low pricing of its products.

The supply chain for Costco is designed so that warehouses are used to store inventory and shopping centers. The company is selective of the inventory and eliminates the excess and unsold goods to stock only limited products. The retail giant can negotiate lower prices with the suppliers to afford to discount its products (Huchzemeier et al., 2022). Inventory in Costco’s warehouses has minimum signage arranged so that consumers have to move around and explore before accessing the products needed. Therefore, consumers at Costco have a “treasure hunt” perspective when shopping in warehouses (Sarisa, 2021). Costco sells lesser products with exceptional prices that are flexible to make the consumers feel everything around the store is the best deal. The strategy triggers a sense of urgency among its members to purchase impulsively when the deal exists.

Costco’s approach to human resource has the best practices for employee relations. The management at Costco leverage good employee relations to enhance their services and operations. According to Hunsaker et al. (2021), employees create a good experience for the consumers and communicate the values and cultures of the company to the public. The move to improve human capital is intended for exemplary customer services, relations, and loyalty.

First, Costco demonstrates value for employees by providing generous compensation and benefits. Salary and benefits meet employees’ needs on multiple levels hence meeting the overall satisfaction with the employers. For instance, Costco compensates its employees at an average of $20, much higher than the national average in the retail industry of $ 11.39 (Johnson, 2021). Other advantages of working at Costco include health insurance cover, paid holidays, and free membership. Moreover, the workers’ morale is motivated, leading to increased human capital outcomes. Costco’s worker recruitment, promotion, and retention strategies are designed to appreciate high-talent workers while developing low-skilled workers (Hansaker et al., 2021). The key stimulating factors for Costco employees are high pay and promotion opportunities hence improving customer experience.

Costco provides a model corporate culture that other organizations cannot emulate. The corporate culture is built on shared identity, empathy, and understanding at work to connect with the workers (Johnson, 2021). Corporate culture predominantly shapes employees’ attitudes and behavior towards the organization. Costco’s vision is inspiring and provides the foundation for connection with culture. Costco’s core vision is to create an organization that assists people in making ends meet with efficient customer service and is a positive force in the communities where its warehouses are located. The vision pinpoints Costco’s value for the people in the business model.

Employee development improves skills and empowers employees at Costco. Indeed the company records minimal worker absenteeism and turnover. Training ensures all workers in a team are up to par and can effectively execute their duties. For instance, Costco has a 12-week program for merchandising training at the supervisor level that educates critical competencies for a warehouse general manager (Hunsaker et al., 2021). Performance gaps relating to lack of knowledge and skills significantly affect business outcomes. The training allows novice and experienced workers the opportunity to practice their skills. The organizational culture at Costco focuses on excellence in performance through quality service delivery.


In conclusion, Costco is a multinational retail company that leverages internal employee and external consumer relations for success. The business model for Costco is of customer exclusivity to serve only those who have the company’s annual subscription. Costco offers products at lower prices than competitors and maintains high consumer loyalty. The warehouse club retail model is used with an efficient supply chain and inventory management to create a “treasure hunt” perspective among the consumers. The retailer maintains high value for employees, demonstrated in the vision, recruitment, benefit, and compensation strategies. Benefits and compensation empower employees at Costco to improve consumer experience and operational efficiency. Training and development for recruiting and continuing workers improve productivity and eliminate performance gaps.


Hunsaker, B. T., Knowles, J., Baris, R., & Ettenson, R. (2021). Great Strategy Considers More Than Customers and Investors. MIT Sloan Management Review, 63(1), 1-5. Web.

Huchzermeier, A., Wolters, J., & Uphues, M. (2022). Case—The RealPro Customer Benefits Program: Rekindling Shopper Loyalty Through a Subscription Service. INFORMS Transactions on Education. Web.

Johnson, T. (2021). Cultural Differences in Business: How Culture Can Influence Business Operations for American Companies Operating in Spain. Web.

Sarisa, L. (2021). Business strategies in the retail supermarkets industry: A comparative case study analysis of Costco and Aldi. Web.

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