Costco's Marketing Strategy
Innovation with products to attract new customers and staying focused on Costco core business. Market Analysis Costco is a global company with a strong brand image with good value. Currently, Costco is facing challenges to get market share from online sales competing with Amazon, eBay and Sam’s club. While Costco has a larger customer base, there are some factors that make Sam’s club a more attractive choice for customers, thus making it a potential threat (Team, 2014).
It has had a steady growth in sales and just last year reached over $110 Billion. Costco also prides itself on treating its employees really well with good benefits and higher wages. Compared to Wal-Mart’s Sam’s Club, Costco’s main competitor, Costco has nearly twice as many members. It also offers its members a great 90 day warranty where a member can replace any item no questions asked. It is able to do this because of its great relationships with its
Their current market situation and competitive strategy highlights aspects that Costco has implemented in the organization to increase sales and
The mission of Costco is “to continually provide all of its members with quality goods and services at the lowest possible prices.” This mission statement is directly correlated to Costco’s business model and its strategy. Costco’s mission statement shows that business really pays attention to quality as a huge selling point. The foundation of Costco’s business model is centered around a membership-only warehouse business model, in which there are high sales volume, rapid inventory turnover due to their fee-paying members. Due to this type of business model, Costco wholesale remains profitable even by having significantly lower gross margins than other wholesalers.
Earlier this year, American Express announced termination of the co-branded relationship with Costco. This relationship, which goes back 16 years, would expire March 16,2016. Obviously this decision gave American Express a big hit. On Feb 12 when the news was broke to the public, Amex shares dropped 6%. In this memo, I want to give some advises about how American Express make up the lost after breaking up with Costco.
In addition, Costco does a great job in their internal growth process with hiring (Loeb, 2015). Costco’s purchasers do well as they know their store locations and the local demographic’s desires. For instance, in Australia, the Costco there like Vegemite, so they have that there and not in U.S. locations (Loeb, 2015). Costco is smart with their distribution chains as they usually use 65% of local bought and specific products (Loeb, 2015). Globally, Costco has built trust within their brand as customers go to them for quality service, freshness, and a great selection of products.
Although, Costco has been widely successful compared to their competitors. There are certain aspects where they need to improve to stay ahead of their competitors. Their customer and employment engagement is vital for future success. It could be beneficial for Costco to look into markets in America where they are not present, and even outside the United States.
Costco operates on a membership only basis, therefore customers and businesses must purchase a membership to shop at the retailer. Costco currently has two memberships available, which are their individual membership, also known as Gold Star, and their Business membership, both of which cost $55 annually (10-K, 2015). For $110, a customer can upgrade to an executive membership, where they can enjoy a 2% discount (SWOT, 2015). They currently have around 75 million members, and due to their no-frills approach, low prices, and high quality products they have a high member retention rate of 91% in the U.S. and Canada, and an international rate of 87% (Forbes, 2016). Costco has been steadily growing and their net sales increased from $75,255 million in 2010 to $110,212 million in 2014 (SWOT, 2015).
Almost everyone has heard of the membership warehouse retailer, Costco Wholesale, whether or not you actually choose to shop there. You can find one of their warehouses in over 400 locations around the United States, as well as an additional 200 warehouses in Canada, Mexico, Australia, the United Kingdom, and parts of Asia. Although they are not quite as instantly recognizable as their main competitor, Sam’s Club of Wal-Mart Inc., Costco has attracted somewhat of a cult following due to their unusual business operations. In many financial comparisons, Costco seems to beat out all of their industry competitors. Even in the recent economic downtown, Costco still posted growth in their stock, as well as higher than industry average profits.
Marketing Mix at Costco 1.) Product - Costco offers their customers low prices on selected private and a limited selection of nationally branded products in a wide range of merchandise categories. Costco’s Kirkland Signature private label is known for its quality and value. Costco currently carries more than 330 private label items which make up more than 15% of their sales.
Costco’s business model is centered around offering a smaller range of products at incredibly low prices which attracts the consumer. In order to supplement this lowered profit margin, they require their shoppers, both businesses and individuals, to purchase annual memberships. The membership fee accounts for a majority of the company’s profit. Furthermore, Costco operates its under a wholesale warehouse style which eliminates the need for excess handling and workers in the store. The stores are stocked to carry certain big ticket, ‘limited time offer’ goods so that customers feel the need to take advantage of the deal because it may not be there when they next return.
Few of the ways Costco displays the value of putting employees first is by compensating them above the national average pay grade, investing back in the community and being environmentally sensitive. In 2015 they contributed over $31 million to various organizations. Some other areas are as follows: Employee first: Costco has displayed these value in several ways and they believe in following through on their commitment to the community. They believe in hiring locally to give back to the community.
1. How does Costco differ in the way it treats its employees from other large retailers? Costco differs from other retailers in treating employees on notation of “Take care of employees then they will take care of organization” • Allotting a better pay package with an average pay of 17 $ per hour which is 40 % higher than other retailers. • Covering 85 % of employees with health insurance plans even part time employees who are remained continuous 6 months which is very high in compare to other retailers. • Not having much disparity among employees of various grades in terms of pay scale or fair treatment in firm or growth opportunities etc.
Market Segmentation: To be of value market segments must be measurable, substantial, accessible, differentiable, and actionable (Kotler & Keller, 2012). Segmentation of demographics for Costco is vast as the current product offerings include all genders, ethnicities, incomes. age groups, and social classes. When considering demographics, it is important to consider the average or typical characteristics of the target market. As mentioned earlier the target market or focus for this company is supplying the small- to medium-sized business and targets the middle- to high-end consumer with its private label brand Kirkland Signature.
3.0 Concepts 3.1 Resources and Capabilities In order to achieve and sustain competitive advantage, a business needs both resources and capabilities. Resources are assets that are owned or employed by an organization. The organization utilizes and uses these assets to carry out their business operations. Resources can be grouped either tangible assets or intangible assets.
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