For a retailer, its supply chain and logistics are like the backbone of its business. These trends will continue and most likely last longer than the pandemic. Shop by departments, or search for specific item(s). Moreover, there is an important reason that Costco must continue to invest in quality. Based on the case study, Costco would not sell a Tiffany & Co ring as it is not a product at a low price, so it would be unlike Costco to sell a Tiffany & Co ring. As we learned in chapter one of this course, Boxed is using a focused low-cost strategy as opposed to Costco’s low-cost provider strategy. The marketing mix is the set of strategies and tactics that a firm uses to implement its marketing plan. There are monthly coupon mailers and weekly emails to members, and for special occasions, there are direct mailings to campaign for new members. Also, what happens if members stop paying their fees? Many individuals went out of their way (e.g., out of their towns) to travel to Costco to get better deals on items. VAT Registration No: 842417633. Costco’s Kirkland signature brand is also an important attraction for affluent customers. To achieve higher sales volumes, the company needs to maintain higher membership retention rates. If Costco has been able to maintain its popularity and leading position in the US market, it is mainly because it is able to attract customers by providing good quality products at lower prices. Word had gotten around the community by mouth and with the help of the media. This membership only model may be unappealing and be a barrier to some customers who do not have the capabilities to pay the membership fee. Japan has the second-largest consumer market in the world, but it was also a relatively closed market. Even though product differentiation is weak, and the cost of switching is low, the members are relatively small and do not have strong bargaining power in the wholesale club industry. Costco wholesale corporation. Overall, its brand image is an important source of competitive advantage for Costco and has helped it maintain its leadership position in the retail industry. In recent years, the company has been investing in technology to grow e-commerce sales and strengthen its existing competitive advantage. While Walmart follows an open for all approach to retail, Costco is a chain of membership warehouses. It is a critical source of efficiency. Costco Wholesale Corporation is the second biggest retailer in the world, behind Walmart. That is more than 260,000 memberships. Did you know that Costco doesn’t have a large marketing and advertising budget? In fiscal 2019, the company had a total of 42,900 Gold Star members as well as 11,000 business members. “Spencer, have you been in a Costco before? Costco has also made several arrangements to attract affluent consumers. Costco has rapid inventory turnover combined with high sales volume, contributing to higher revenues. Three main topics related to Costco dominated media discussions. The most prominent critique of Costco’s business model centers on Costco’s first element. In this post, we will analyse the main pillars of Costco’s growth strategy. The article mentioned that their Japanese members prefer Costco over local supermarkets for the following reasons: a variety of goods, in-store promotions and amenities, large packaging, price, the spaciousness of store, and customer services. It invests in quality to maintain its popularity among its members. These limited items are all high quality, with 85 percent being name-brands and 15 percent being their private-label (Kirkland Signature). contact: support@notesmatic.com, admin@notesmatic.com. To keep this growth, it is recommended that Costco should keep their operations and management as they are. Costco owes Tiffany more than $19 million for selling counterfeit rings. Costco marketing strategy involves 4ps marketing mix which involves product, place, promotion and price. Costco keeps its product selection to approximately 3,700 compared to its competitors that have 40,000+ in their stores. However, since the company deals in a limited range of products, it has managed a simpler but lean and agile supply chain. There are several warehouse operators across the United States and Canada that offer similar merchandise quality, selection, and price. The third element is Costco's treasure-hunt merchandising. The average club customer is older (e.g., baby boomer). ... Costco Wholesale follows a high-volume-low-margin strategy. To accommodate this, Costco changed some of its packaging types to allow better their members to share among themselves. Therefore, a customer will compare the price of a product that is precisely the same or similar at other competitors to get the best price as the price for switching is low for customers. Costco Marketing Strategy development requires a comprehensive market analysis. The company’s success capitalizes on the main strengths of the business, as follows: 1. Figure 1. Product Strategy of CostCo Wholesale. Members may switch based on convenience and which wholesale club is offering the best deals. Since its foundation, the company has strived to create a culture that cares for the happiness of both the customers and the staff. Two critical elements make the Costco business model effective and efficient. Lastly, Costco’s support activities include the activities and costs associated with human resources, such as hiring and training. It has allowed the company to gain a price advantage that it can pass on to its customers. Costco was ruled guilty of infringing on Tiffany & Co’s trademarked name. Overall, Costco has had steady financial growth from 2000 to 2015. Costco marketing strategy – offer less choices. Costco being one of the largest warehouse service providers with 40 years of infield experience always strive for customer satisfaction. Business Growth strategy of Nike: A case study, Ways To Build a Stronger Business In 2021. Costco’s unique supply chain is what gives it a competitive advantage over competitors as it limits the possession of the goods. By expanding its reach, Costco would be making the barriers of entry harder to overcome and eliminate the threat of e-commerce wholesalers. However, this advantage is limited only to the Costco members. Costco's distribution includes the transporting activities and costs of the goods (e.g., moving goods to sales food via trucks, forklifts, and pallets). People’s reliance on digital technology has grown and they are using online channels to fulfill most of their needs including shopping and entertainment. Costco’s merchandising strategy is to buy products in handful from the vendors and that helps drive cost down for members and lets Costco sell in volume (Harris 2007). Another way would be for Costco to limit its store openings and make a push for more online sales. The Icelandic food retailer, Bonus, dominated all over Iceland due to the abolishment of currency restrictions and the diminishment of wholesaler monopolies. Iceland experienced the 2008 economic crash, and it along with the Panama files revelation, it changed the Icelander’s view towards foreign businesses. Working their supply chains to find better and lower products from suppliers. As there are so many similar features of the wholesale club competitors that there is a weak differentiation between them that increases the risk of members switching between and among the wholesale club competitors. It would be recommended for Costco to strengthen its competitive advantage against these new entrants and current competitors by increasing its online sales presence (e.g., offering exclusive online promotions). First, Costco uses a subscription business model where customers become members or subscribers of the wholesaler club by purchasing a membership. A business enters into a market with its products that are valued in the market. As a part of its business growth strategy, Costco continues to focus heavily on its reputation and image and continues to invest in the areas that maximize customer and staff satisfaction. Gross profit margin had a favorable increase from 11.95% in 2000 to 13.02% in 2015. Retrieved from. The fact that Costco has steadily increased its above-average ROE, even though the recession is a high selling point for new and potential investors and shareholders. It deals in a limited product range as compared to Walmart. Granted, Costco seems to have an impenetrable business model in all types of economies, as will be further discussed in question five, but Costco could then be in a stressful financial situation. Technology has become an important driver of competitive advantage in the retail industry and also an important differentiator for the retail brands that are investing heavily in digitalization and cloud technologies for efficiency and speed. Costco Wholesale Corporation (trading as Costco) is the largest American membership-only warehouse club. This strategy serves to increase the urgency with which shoppers approach purchasing of the products at Costco because if they miss the opportunity to get those products, then they may never get the opportunity to get them at those prices. In fact, on average, Iceland's food prices were 50% higher than in other countries within the European Union. Affluent customers mostly like to shop in bulk and make larger purchases. The second element is Costco's limited product selection. In 2016, membership fees grossed over $2.5 billion. Costco's low rate of days of inventory has also steadily remained the same from 32.09 in 2000 to 32.17 in 2015. Rivalry and competition from substitutes are the two strong competitive forces facing the wholesaler clubs in North America. The company has exceptional employees who receive multiple benefits, wages higher than work compensation in other stores and supermarkets, good human recourse policies that result in high level of service. It would have been vital for Costco to research Japan and diagnosis its environments before launching new stores. The company has maintained a clean and strong brand image, which has continued to grow stronger with time due to a consistent focus on quality and customer service. Financially, it did not seem that Costco was significantly affected by the recession, even though most of Costco's stores are in the United States. Costco’s inventory turnover has remained the same from 11.37 in 2000 to 11.35 in 2015, as shown in Table 1. The company has conducted their market research and found popular market trends (e.g., Internet trend), as discussed in both Marketing Management and Entrepreneur Management. The overall shopping experience matters for the customers like the level of convenience that they have when they are shopping from a particular brand. The company’s culture exists at the core of its competitive advantage. 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