Good Business Rules From Costco

July 11, 2007

37Signals, the makers of Basecamp, has five business lessons from the CEO of Costco. I was a member of Costco for a year, but could never eat enough to make shopping there worthwhile, although the prices and experience were good. I know the first time I went in I was surprised to see the wines, cheeses and champagnes; I had gone in thinking that Costco would be like Sam’s Club, but found out its more like Whole Foods.

All of the rules are worth reading, but what struck me the most was keeping the margin down. When thinking about Evenlevel, one of the questions we debated was how to price the cars. Some of the cars are five to ten thousand dollars below the average market price. One idea, which we quickly discarded, was to have a dynamic pricing algorithm that instantly moves the price up, yielding higher margins. That’s not us.

Instead, we moved everything to a flat $999, although our margin is more like $749. We keep prices simple and low. We’re also trying to build a company that will be in business 50-60 years from now.

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