A core tenet of Jim Sinegal’s philosophy was to limit Costco’s product gross margin to ~14%. This ensures COST maximizes the “slope of value”, the value per item relative to input costs and competition. Sinegal always puts customers first. In an IP interview last year, a Former Senior Executive at Costco suggested Craig Jelinek’s pricing philosophy was drifting from Sinegal’s original principles:
…every item, in every region, in every geographic area stands on its own; that’s how Costco functions. Some regions make 12% on an item and some regions might make 8% and some might make 13%, depending on the distance from manufacturing. Craig let one of his SVPs talk him into weighting the average of the margin – not the cost, not the sell – to reach, say, 13% on an item if it showed a significant value in the marketplace. That meant some regions might make 10%, depending on their volume and some regions might make 16% or 17%, which is outside the bounds of the philosophy of the company that has been in force for over 40 years. - Former Senior Executive at COST
We recently interviewed a Former EVP at COST, who worked closely with both Sinegal and Jelinek, to explore differences in their character and further test the hypothesis that COST’s pricing philosophy may be evolving.
Put simply, the Former EVP also believes Jelinek is more liberal when it comes to marketing and pricing:
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