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Case Study: Costco Wholesale's Customer Satisfaction

Instructor: Scott Tuning

Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.

Wholesale giant Costco has often been an industry leader or innovator in customer satisfaction. This case study will examine some of the strategies used by the company to improve and maintain high-levels of customer satisfaction.

Costco's Background

Wholesale giant Costco has always done things a little differently than other players in their industry. Many of these relatively unique practices are the results of the company's knowledge and experiences relating to improving and maintaining high levels of customer service. Let's look at a few of these innovative, and sometimes novel, ways that the company has accomplished this.

Costco takes a unique approach to ensuring customer satisfaction.
costco store

Buying in Bulk

Costco is perhaps best-known for offering its customers substantially reduced prices on goods bought in bulk. For this reason, customers shopping there will notice that the number of available brands is often limited, and that they are usually required to purchase large quantities in order to realize their savings.

In order to keep customers satisfied despite the limitations of wholesaling, Costco uses a complex but accurate algorithm that analyzes data from customer's purchasing habits as well from their own stated motivations for purchasing. The analysis produces highly accurate data about the relationship between customer satisfaction and pricing.

Costco then uses this data to place as many products as possible into the pricing ''sweet spot''. Pricing products in this window results in a win-win for both Costco and its customers.

Quality Products

Closely related to Costco's pricing sweet spot is their product brand selection. Just as Costco's pricing strategy overcomes any potential dissatisfaction with buying in bulk, the company's brand selection strategy overcomes any potential dissatisfaction associated with the limited selection.

Costco does this by carefully selecting brands for which customers feel quality is high. A recent study demonstrated that Costco's position as a customer satisfaction leader was related to their perceived high quality products.

Store Layout and Maintenance

Another source of exceptionally high satisfaction for Costco customers is the layout and cleanliness of the facilities. Customers rarely have to squeeze through narrow aisles, deal with improperly shelved products, or use dirty facilities. Customers have consistently reported that Costco performs better in these areas than most of their counterparts.

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