No. of Recommendations: 13
Extracted from a recent post in response to a question about brokerages:
I am very fond of this 'cost-plus' model, both as a client and as an investor, since I think it makes for good long-term relationships with clients. I still kick myself for not buying Costco 20 years ago (because it cost 30x earnings; the shares are up 20x since then), and I like this feature in other investments that have a similar philosophy. I'm thinking of Carmax, in car dealerships, where they basically target a $2000 margin which covers all their costs and a small profit, dand don't try to take advantage of you in a million other small ways.) I would be very interested in hearing suggestions about other examples of this kind of business strategy...
Since my question was buried in a post about a brokerage subject that many people may have skipped over, I am repeating it here in a new post. I am very curious to hear if anyone has thoughts about other businesses that use something one could describe as a cost-plus strategy: not aiming for huge profit margins, but aiming at market share gains and customer loyalty by charging prices as low as possible while aiming for a small profit.
Thinking about this, another company that has pursued something similar, with great success, is Amazon. They don't skimp on customer service, they try to keep costs low, and importantly, they seem to have adopted a strategy of passing most of these savings along to their customers. Just like I almost take for granted that I am getting a great price at Costco, I do the same for online purchases at Amazon, and for brokerage activity with Interactive Brokers. I have no personal experience with Carmax, but I get the impression that they pursue a similar strategy. And as a result, the first 3 have built tremendous loyalty for this particular customer, and have also experienced a lot of growth, reinforcing their ability to obtain low costs. And it is probably not a coincidence that all of these have been great investments.
Can anyone think of other companies that seem to follow the same approach?
TIA, DTB
