In his book, “Firms of Endearment – How World Class Firms Profit from Passion and Purpose”, Raj Sisodia, talks about how world-class companies operate by a guiding vision of service that takes into account all their primary stakeholders; customers, suppliers, partners in the supply chain, communities where they operate and investors. These companies follow a stakeholder relationship model rather than a traditional stockholder biased model. At all levels of the organization, these companies exude the passion of their leaders for doing good while doing well.
Costco, a warehouse club headquartered in Issaquah, Washington, is an example of a company that successfully employs this model. Costco has created a brand the stands for quality and great prices. They wow their members. Costco is able to offer lower prices and better values by eliminating frills and passing savings on to their members. Costco is only open to members and their guests. Memberships start at $55 per year. Today, Costco operates over 600 warehouse stores.
1. Put the Member First. This seems obvious, but consider Costco’s $1.50 hot dog. It has been the same price since 1985. To keep costs and prices low, Costco execs built their own meat plant and bakery. Essentially, Costco completely changed the way it did business for just one product. And that’s in spite of the reality that most customers wouldn’t notice slow price increases. The decision was about doing the right thing for customers, not impressing them or even keeping them loyal. That’s a true customer focus.
2. Eliminate the frills. Costco warehouses have concrete floors and the same boxes that products arrived in are used to hold customer purchases. Shelving is simple and steel and you often have to pull your own goods out of the original shipping containers. But when you can get top-notch produce and meat at prices noticeably less expensive than standard grocery stores, it’s not about the ambience.
3. Offering the best. When you’re saving serious money on Dom Perignon champagne or lobster tails and high quality meat, it stops being about finding bargains. By choosing to offer luxury goods at warehouse prices, Costco has gained a cachet even among those who regularly shop retail.
4. Private Label Products. The Kirkland brand, Costco’s generic product label, is one of their smartest decisions. It’s because Kirkland products are often better than the recognized brands, but cost significantly less. Large volumes allow Costco to source and offer exceptional deals with Kirkland products.
5. Rewarding employees. Costco pay its employees significantly more the Wal-Mart. Costco also provides exceptional benefits including medical with subsidies for spouse and dependent coverage, dental, vision and a 401(k) plan. This leads to much lower turnover and higher profit per employee.
6. Valuing suppliers. Unlike other retailers, Costco works closely with its suppliers to help them discover ways to run their businesses better. The company is committed to supplier diversity and makes extensive use of regional sources for fresh meat and produce. The magazine sent to Executive Members, Costco Connection, has numerous articles that recognize suppliers for their ethical and smart approaches to their business and their products.
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