Costco Wholesale is the second largest retailer in the country and owes its success to its strategy of being frugal, economical, investing in its employees and distinguishing itself from its competitors with good moral and ethical standards. Costco is able to remain the low-cost leader on many products because of the price reductions they receive by purchasing in bulk from its suppliers. However, because Costco only marks up its products by a maximum of 15%, after accounting for variable and fixed costs, Costco makes little or no profit on many of its products. Eighty percent of Costco's gross profits come from member dues, which helps the company keep product prices low. While some of Costco's techniques may not be industry standard, they have found a system that works well for them and is very successful. Say no to plagiarism. Get a Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get Original Essay Costco Wholesale is the nation's second-largest retailer, behind Walmart; The difference between the two companies is that Walmart has recently found itself facing issues such as labor issues, poor customer service, empty shelves, and declining sales. At the same time, Costco has enjoyed a plethora of positive press while the latest quarterly earnings report (July 2013) shows an eight percent increase in sales and a nineteen percent increase over the previous quarter. 'last year. (Costco, 2013) Costco's success in a declining economy is due to a variety of business strategies. Costco is best known for being a store that customers use to purchase goods and supplies in large quantities; Costco receives a bulk discount from its suppliers in return, allowing it to be the low-cost pricing leader on many products. Each Costco warehouse contains approximately 4,000 different products, which, according to Costco policy, are sold at a maximum of fifteen percent above cost. After accounting for variable and fixed costs such as real estate and payroll, Costco barely makes a profit on many of its products; instead, Costco relies on its dues. Memberships and their dues are a vital part of Costco's business, accounting for approximately eighty percent of Costco's gross profit; The lower the product prices at Costco, the more memberships you will get. To keep prices low, Costco continually exchanges its products if it finds a less expensive alternative; by maintaining continually low prices, the company adheres to the law of demand, creating an increase in demand and quantity; using this strategy, the company attempts to find the perfect equilibrium price and quantity. The benefits of a Costco membership are divided into three differentiated tiers, with the basic membership (gold star level) costing $55 per year and intended for personal use. Other tiers available are the "Business Member" which allows businesses to purchase items from Costco for resale while also costing $55 per year and the "Executive Member" which costs $110 per year but has l The added benefit of receiving a two percent bonus. annual reward on Costco purchases. Having multiple membership tiers is a form of price discrimination that aims to attract and reward consumers who buy in bulk. The two percent annual return from executive members is an incentive to shop more and more often at Costco using price discounts.