Costco Wholesale is the nation's second largest retailer and owes its success to their strategy of being thrifty, thrifty, investing in their employees, and separating themselves from competitors with good moral ethical standards. Costco is able to remain the low-cost price leader on many goods thanks to the price reductions they receive by buying in bulk from its suppliers. However, because Costco only increases its products by a maximum of 15%, after accounting for variable and fixed costs, Costco makes little to no profit on many of its products. 80% of Costco's gross profits come from membership fees, which helps the company keep product prices low. While some of Costco's techniques may not be the industry standard, they have found a system that works well for them and is very successful. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Costco Wholesale is the nation's second-largest retailer, behind only Walmart; the difference between the two companies is that Walmart has recently been facing problems such as labor issues, poor customer service, empty shelves, and declining sales. At the same time, Costco has enjoyed a plethora of positive press coverage, as its latest quarterly earnings report (July 2013) shows an 8% increase in sales and a 19% increase over last year. (Costco, 2013) Costco's success in a down 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 in exchange receives a wholesale discount from its suppliers, allowing Costco to be the low-cost price leader on many products. Each Costco warehouse contains approximately 4,000 different products, which, according to Costco policy, are sold at a maximum of 15% above cost. After accounting for variable and fixed costs such as real estate and wages, Costco barely makes a profit on many of its products; instead Costco relies on membership fees. Subscriptions and related fees are an essential cog in Costco's business, accounting for approximately eighty percent of Costco's gross profit; the lower the prices of goods at Costco, the more memberships you will get. To keep prices low, Costco continually swaps out its products if it finds a lower-cost alternative; by keeping prices constantly low 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 broken down into three tiers of differentiation with the basic membership (Gold Star level) costing $55 per year and intended for personal use. Other tiers available are "Business Membership" which allows businesses to purchase items at Costco for resale by paying $55 per year and "Executive Membership" which costs $110 per year but has the added benefit of receiving a 2% bonus % annual premium on Costco purchases. Having multiple membership tiers is a form of price discrimination intended to entice and reward consumers who buy in bulk. The 2% annual return on executive membership is an incentive to shop more and more often at Costco using price discounts that non-executive members don't have access to, while pushing Costco's total revenue higher due to the fee higher association. Like its competitors in the market.