Krogue (2015) admits correctly that it is very challenging for the business and practically hard to be the best in all three dimensions: quality, price and service. This paper provides an analysis of the customer value delivered by Costco based on the Customer Value Assessment Tool. Costco is one of the companies that developed such a business model that allows it to create the following unique combination: the lowest price for the quality product and exceptional customer service.
Costco operates 723 warehouses and runs an online business. In 2016, the company's membership has grown to 87 million cardholders globally, which is equal to seven percent of annual growth (Costco Annual Report, 2016). Another impressive figure is that 90 percent of members prolong their membership each year. Especially, since Costco offers low-priced high-quality products on a limited selection of nationally branded and private-label products in a wide range of merchandise categories (Costco Annual Report, 2016). The result is a faster inventory turnover and the increased sales volumes
The Customer Value Assessment Tool includes the evaluation of four components: service, quality, image, and price. Each area has several questions to estimate with a 1-4 score, where 1 means that the company always meets the statement, 2 most of the time, 3 some of the time, and 4 means that the company's policies never meet the statement.
How it works
The first dimension of the Customer Value Assessment Tool Perceived Service Quality corresponds to the fact that customers perceive Costco services as appropriate and timely. The company uses focus groups to find out opinions on the level of the company's service quality among the various cultural and demographic groups. Costco usually conducts customer satisfaction surveys on its own to reveal the weaknesses in its operations. At the same time, as a retail giant, it is a subject of the numerous customer satisfaction surveys conducted by specialized agencies. As the MarketWatch (2017) indicated, Costco has won the first place in the Specialty retail category, outperforming other 26 companies. The company's customer satisfaction score is 83 percent, which corresponds to the 2 percent annual growth.
Moreover, Costco invests in the professional growth of its employees, in particular, in the form of trainings for improving customer service and handling difficult customers who are not rare guests in the warehouses. The trainings also include the teaching of the best practices in various situations related to the customer service. As for the electronics products, Costco cooperates with the well-known brands, such as Samsung, Dell, and Nikon. Additionally to the proved quality of these long-established brands, the company offers customers free setup help and technical support, which are carried out through Costco Concierge Services (Costco Official Website, 2017). Member Service Center as well as Customer Service available via a website are always ready to answer any question related to the Costco operations.
As a result, Costco employees know that the company highly values them. However, the customers and their satisfaction need a primary focus, which is confirmed by the company's return policy. This policy is frankly unique, and it is not only words. Indeed, customers can return any product except for some electronics) with or without a check and after the extensive time after the purchase. Costco also provides 100 percent risk-free customer satisfaction guarantee (Costco Story, 2017). The company is ready to refund membership fee in case the customer are not satisfied with the promised quality, price, or service at any time. Thus, the score for this dimension is 1.
The second dimension Perceived Product Quality reveals the fact that products the company offers are dependable and meet or exceed the customer expectations. According to the Costco Story booklet (2017), the promise that Costco makes to each member is that the customer will appreciate the value and the quality of the products supported by the Costco service. The company argues: If we fail to deliver on that promise, well refund your money. It's that simple (p. 3). The operations of Costco are driven by the unwavering commitment to deliver the above-mentioned promise to the members, employees, communities, and suppliers. The company's dedication is to deliver an opportunity to enjoy quality products and services at an exceptional value, additionally creating exclusive extras. Costco selects premium merchandise and sets the high level of service. The customers are ready to pay a membership fee, as they are reassured to receive exceptional savings from the company.
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Costco also strives to surprise its customers by finding interesting treasure hunt products frequently. Consequently, it is not a rare fact when Costco members share the news about the latest find in the warehouses. On some electronic products, the company increased warranty period up to two years from the moment of purchase. The wow factor also relates to the luxury products that Costco specialists select to offer the customers at the Costco prices. These may include designer apparel, delicious wine, or stylish home furnishings (Costco Story, 2017).
Additionally, Costco organized six-day delivery of fresh food to guarantee the high quality of fruits and other items. Meat is the exclusive pride of Costco: the company is glad to fascinate customers with the highest quality of various meat kinds at Costco prices. Moreover, the company asks clients not to search for the organic stores as the company offers organic products and other healthy foods choices in its warehouses. Costco vends warehouse-made bakery too (Costco Story, 2017).
It is also worth noting, that after becoming extremely successful in retailing of nationally branded products, Costco developed its own brand Kirkland Signature (Krogue, 2015). The quality of its products is much better than that of the similar products of the competitors, but the price is significantly lower.
The primary focus of Costco is to team up with the several key providers of merchandise to negotiate exclusive deals for the Costco members. In order to inform customers about details, the company has launched online platform MyCostcoServices.com and proposes print versions in the warehouses as well (Costco Official Website, 2017).
Another useful option proposed by Costco to the business members is the opening of 15 specialized locations for business purchasing. The quantities and assortment differ from the traditional Costco warehouses. Additionally, the professional marketing manager will assist the business buyer with the choice of the products that satisfy its needs. The purchase can be made either in a brick-and-mortar warehouse or online.
As a result, the score for this dimension is between 1 and 2. The score 2 was given to the issues that constantly need improvement, which Costco already carries out. They include the implementation of the core principles of continuous improvement approach, which is very hard to achieve for such a giant company, and monitoring of the supplier's performance to meet the quality needs.
The third dimension Perceived Image corresponds to the commitment that the company has to the stakeholders involved. According to the sustainability section of the Costco Official Website (2017), the company's mission is to continually provide our members with quality goods and services at the lowest possible prices. Costco also follows the Code of Ethics, which obliges it to comply with the law, take care of its employees and members, esteem partners, and reward those shareholders who invest in the company. Costco gives jobs to more than 210, 000 employees globally. In the United States, its employees work for the company for 9 years on average, and more than 60 percent work for 5 and more years. The same can be said about the international operations in the UK, Canada, Mexico, South Korea, Taiwan, and Japan. Experienced employees and their loyalty play the important role in the Costco business operations.
Furthermore, the company understands that employees welfare is the key to its growth and continuing success. Costco tries to pay wages at a competitive level and gives additional benefits. Moreover, the leadership of Costco believes that attraction of the great employees and their retention is the essential step to the company's business success. Therefore, by choosing to pay employees well, the company invests in the minimizing of the turnover in the long-term run and maximizing employees commitment, productivity increase, and loyalty.
Essentially, Costco follows the philosophy of the necessity to promote employees from within the company. It reports that more than 70 percent of current warehouse managers began as the hourly workers (Costco Official Website, 2017). The majority of the regional and corporate office staff is also the employees who started their work in Costco warehouses, Business Centers, and depots. Thus, inclusive working environment and workforce diversity are in the center of the Costco organizational culture.
The company's core principles include value, simplicity, fairness, striving to do the right thing, and member service. Costco introduced the Open Door Policy according to which any employee can openly discuss and receive support from the representative of any management level. The company also organized a confidential ethics hotline to deal with the arguable issues and to give advice to the employees on dealing with the ethical challenges at work. The employees share the Costco culture basics, and they penetrate any business operations at Costco. As Tschohl (2015) underlined, Costco outperformed the closest competitor Sams Club with more excellence in service as well as the unique return policy. Finally, Costco employees are friendly and committed to keeping customers satisfied and loyal. Consequently, the score for this dimension is between 1 and 2. In this dimension, the score 2 also was given to the issues that constantly need improvement, which Costco already carries out. They include some imbalance between working hours and private life.
The fourth dimension Perceived Value-Based Price is the area that defines whether the company set such a price that attracts customers to make purchases. According to the membership section of the Costco Official Website (2017), by attracting small businesses and a limited number of other audiences, Costco succeeded in gaining additional buying power. The company's operating philosophy has remained simple: keep costs down and pass the savings on to our members (Costco Official Website, 2017). Continuous efficiency quest, tremendous buying power, and large membership base result in the lowest possible prices for the customers without compromise on quality or service. A special place in a discussion of the Costco customer value should be given to the return policy at Costco, which Tschohl (2015) and Krogue (2015) proved personally. The customer service managers friendly and without any hesitation return money on the products if the customer is not satisfied with its quality. The authors claimed that it might be an unprecedented procedure that can hardly be found elsewhere.
Additionally, Krogue (2015) underlined that Costco chose just a few vendors and negotiated such contracts that would cover the necessary level of price, quality, and return expenses. The Costcos formula is that the company targets those customers who can afford to buy higher volume packaging. According to Krogue (2015), Costco outsells everyone else as they focus the buying power of their customers at a volume nobody else can match. It is accompanied by the fun environment, fast access, and simple returns.
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On average, Costco holds near 3,700 stock keeping units in one warehouse, which is significantly lower than the other retailers propose. The limited assortment is combined with the high operating efficiency. They are achieved by effective distribution, volume purchasing, self-service, and no-frills warehouse facilities in which the handling of merchandise is reduced (Costco Annual Report, 2016). Compared to other retailers, Costco operates at lower gross margins. Its payment discipline is characterized by post-payment, which means that the goods are sold faster than the company's payment deadline to the vendors expires. Thus, Costco involves less working capital and finances increased volume of orders for vendors through the balanced payment terms with the suppliers (Costco Annual Report, 2016). In order to reduce costs and offer the customers the minimal prices, the company uses cross-docking point of goods consolidation that is called depot. Additionally, it eliminates multi-step distribution schemes and thoroughly plans selling space in the warehouse to increase economy and efficiency. Costco also reports limited inventory losses in comparison with the competitors due to the strict control of the entrance and exit with the members cards. Lastly, members can pay with debit or credit cards, checks, or cash. In this dimension, Costco is the undisputed leader with 1 as the final score.
The results of the conducted analysis of customer value and its score equaling 1 evidence that the official ratings of the customer satisfaction and position of Costco as the leading company in wholesale retailing are true. The company has a unique business model that succeeded to combine price, quality, and adequate service to exceed the customer expectations.
To conclude, Costco is committed to delivering high-quality goods at the lowest price possible with the 100 percent risk-free customer satisfaction guarantee. By keeping the level of its service high, Costco promises that customers will be satisfied with all three parameters of the business it conducts: products price, quality, and service.