Disclaimer: This report was written by a student and is not an example of our proffesional work. One of the differentiating factors that has helped the company build an outstanding and unique identity is its customer service. A few days after the grand opening, there was a national holiday where the store was crowded and packed with customers. Costco is a membership based warehouse chain. (January 19, 2018). *You can also browse our support articles here >, http://dx.doi.org/10.13106/ijidb.2018.vol9.no2.7, https://www.sfgate.com/business/article/Will-millennials-kill-Costco-and-Sam-s-Club-12511119.php, https://integratedmp.com/vision-statement-compass-future-practice-success/, https://opinvisindi.is/bitstream/handle/20.500.11815/664/2665-3718-1-PB.pdf?sequence=1&isAllowed=y, https://www.vault.com/company-profiles/retail/costco-wholesale-corporation, https://money.cnn.com/2017/08/14/news/tiffany-costco-lawsuit/index.html, Developing a Business or a Career in Business. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. Costco’s Winning Business Model Strategy Costco has built a devoted foundation of customers with low prices and workers with high wages. This also helps the company save on its operating expenses. IMP. Costco has several market opportunities to grow and expand into. Decorates and writes … The company has been successful at generating strong results using an efficient supply chain management model. The high inventory turnover reflects positively upon the company as it indicates the company is selling items quickly, and they are not in Costco's possession long as indicated by their days of inventory. Costco’s net sales, total revenue, and total income have all steadily increased. In this area, however, the brand has still to do a lot to catch up with the latest trends. The wholesale clubs can make a nice profit by keeping prices low and keeping the barriers for new entrants low. 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. This supply differs from the traditional supply chain as the goods are not transported from the manufacturer, distributor, warehouse, and retailer. Find your ideal job at SEEK with 6 costco jobs found in Sydney, New South Wales. In this post, we will analyse the main pillars of Costco’s growth strategy. These are the main factors that the company has been enjoying higher membership retention rates. Rivalry and competition from substitutes are the two strong competitive forces facing the wholesaler clubs in North America. 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. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers. Retrieved from. Overall, Costco’s strategy is working as it has been ranked as one of America’s largest retailers (Thompson, C-26). 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. Unlike Walmart that targets a large and varied customer segment composed of people from diverse classes including middle class, upper middle and upper class, Costco targets mainly the affluent class consumers which are the largest part of its customer base. Costco’s value chain begins with the supply chain that includes the activities and costs of purchasing goods from various manufacturers/vendors. Costco’s main source of revenue is the United States market followed by Canada. Apart from that, it also helps the company generate stronger word of mouth which results in higher sales and more sign-ups. To export a reference to this article please select a referencing stye below: If you are the original writer of this report and no longer wish to have your work published on the UKDiss.com website then please: Our academic writing and marking services can help you! As mentioned in the case, a critique of Costco’s pricing strategy was that the margins are so small that it deprives shareholders. Study for free with our range of university lectures! As learned in Business Law and Ethics, a generic term is a commonly used name (e.g., Aspirin). Once goods arrive at the warehouse, they are put on the sales food for members to buy from. Costco keeps 20 to 25 percent of its items unique by not always stocking them. The Japanese found shopping at Costco a family event where they spend a long time in the store shopping and enjoying their leisure time. This encourages the bargain-hunters to spend more on the unique and enticing deals more frequently. A representative five-forces diagram for Costco (see Figure 1) is followed by an assessment of each force’s strength or weakness. that would raise their prices like their competitors. The first element is Costco’s ultra-low pricing. These competitive forces indicate that the industry is average. Wait… what? The fourth element is Costco’s low-cost emphasis. Costco's distribution includes the transporting activities and costs of the goods (e.g., moving goods to sales food via trucks, forklifts, and pallets). These trends will continue and most likely last longer than the pandemic. Another important segment of consumers that Costco targets are small businesses. Net income increased from $631 million in 2000 to $1.4 billion in 2011 to $2.3 billion in 2015, which is a 277% increase. The supplier switching costs are low for this wholesale industry. The marketing mix is the set of strategies and tactics that a firm uses to implement its marketing plan. Below is the pricing strategy in Costco marketing strategy: Costco offers products which are widely available. This has enabled the company to create higher customer satisfaction and gain higher loyalty from both customers and staff. Overall, the collective strength of the five competitive forces is attractive. Company Registration No: 4964706. View all our costco vacancies now with new jobs added daily! Table 1 Costco Performance Ratios (2000-2015). Costco's low-cost leader strategy was successful yet again. & Wang, S. (2018). 750 warehouses are empowering pioneer businesses to store their finished goodsand ship them across the … The overall shopping experience matters for the customers like the level of convenience that they have when they are shopping from a particular brand. 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. The purpose of this paper was to find out if Costco’s “treasure hunt” strategy was effectively attracting customers and increasing spending per visit. Costco does not depend on a specific supplier. Costco was ruled guilty of infringing on Tiffany & Co’s trademarked name. Total revenue from membership fees increased from $32.1 billion in 2000 to $88.9 billion in 2011 and climbed to $112.2 billion in 2015. This shows that Costco’s commitment to quality has paid well in the long run. The price for food remained high. Costco’s growth strategy also depends on product quality. You can view professional samples here. Let’s zoom in: This is the toothpaste selection at Costco… There are also many more benefits apart from shopping for quality products at wholesale prices which attract affluent customers. People’s reliance on digital technology has grown and they are using online channels to fulfill most of their needs including shopping and entertainment. Price leadership is achieved by implementing a successful strategy using continual exceptional efforts to reduce costs, without excluding services or … We're here to answer any questions you have about our services. The price of fuel at Costco’s was about 15 percent cheaper than the average gas prices in Iceland at the time this article was published. Costco's typical pricing strategy is to undercut competition and make up for this with high volume sales. 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. The threat of new entry, supplier bargaining power, and wholesale club member bargaining power are all weak competitive forces. Costco’s supply chain management strategy has made consistent growth possible for the brand. 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. Since the company does not have a sizable marketing budget, its focus remains on attracting and retaining affluent customers. Costco is among the leading physical retailers in the United States. He graduated with a Hons. By targeting affluent customers, the company is able to generate strong revenue while dealing in a much-limited product range as compared to Walmart. It does not mark up any of the products more than 14% compared to other supermarkets and department stores that mark upto 25% – 50%. Costco has also made several arrangements to attract affluent consumers. Could millennials kill Costco, Sam's Club? View all our costco vacancies now with new jobs added daily! Costco’s sales and marketing strategy include in-store advertisements (e.g., sampling and signs). The retail industry in the United States is marked by intense competition and apart from Walmart and other retailers like Target, Costco is also facing increased competitive pressure due to the rise of the e-commerce brand Amazon. The competitors are losing money by holding onto their goods longer. The retail industry in the United States is marked by heavy competition and it is why the retail brands invest heavily in marketing. Product Strategy of CostCo Wholesale. All work is written to order. The unpretentious setting and lack of formality underscore a message of simplicity Jelinek and Vachris describe as the foundation of Costco’s strategy during a conversation with Retail Leader in which the co-workers of more than 30 years occasionally finished each other’s sentences. This high ratio indicates that Costco has been able to meet their payments and has good credit. You need to be a member to shop at Costco. As members, customers receive low prices on limited high quality national and private branded products. Even when the United States was in the recession (2008-2011), Costco reported positively stable numbers and quickly progressed after the recession ended. This critique is a valid concern as shareholders provide the necessary funds to the company to grow and expand. Vision statement – your compass to future practice success. As will be discussed in more detail in question 5, Costco has been able to enter and sustain in markets successfully (e.g., Japan) that were thought to be impossible. The company has always strived to provide outstanding quality products and customer service to its customers. They heavily advertised a free two-bite service to members with a Korean grilled beef Costco was selling at the time. Word had gotten around the community by mouth and with the help of the media. The opening of Costco in Iceland: Unexpected meanings of globalized phenomenon. In fact, on average, Iceland's food prices were 50% higher than in other countries within the European Union. The popularity of the brand has been driven by its focus on quality, lower prices and excellent customer service. Hence pricing is a strategy in its marketing mix which is critically dependent upon the competition, amount of goods sold etc. Costco’s unique supply chain is what gives it a competitive advantage over competitors as it limits the possession of the goods. By targeting affluent customers, the company is able to generate strong revenue while dealing in a much-limited product range as compared to Walmart. It would have been vital for Costco to research Japan and diagnosis its environments before launching new stores. The final element is Costco’s growth strategy. The third topic was Costco's effect on the Icelandic market. Costco marketing strategy – offer less choices. Many individuals and media articles mentioned that Costco's low prices would force Icelandic retailers to stop their extreme markups and end the corruption in the market. Before Costco even opened its doors in Reykjavik, Iceland, there was much excitement in the community and country. Costco wholesale corporation. Ways to reduce long-term debt would include better inventory management, but Costco already had a remarkable handle on this area of operations, as will be discussed next. Costco reported positive numbers even in the recession. Costco Wholesale Corporation is the second biggest retailer in the world, behind Walmart. Costco positions itself as a higher-end shopping destination than Sam’s Club, and has built a reputation for quality fresh food. As mentioned in the case, if one item became unavailable from a supplier, Costco would have no problem switching to another supplier as it would not have a substantial effect on business (Thompson, C-35). Unfortunately, this has occurred. Unlike Walmart, which was known for paying its associates lower wages to save on operating expenses, the company pays its employees very well, which has helped it gain higher staff satisfaction and lower attrition rates. Costco has established a customer centric culture that focuses heavily on customer satisfaction. Given this analysis, it is easy to state that Costco's strategic choices are aligned with its mission and vision. (21st ed). The discount warehouse services industry is highly competitive. Costco Marketing Strategy development requires a comprehensive market analysis. 3. High complexity products affect the customers to spend more time to find their desired products, It is important to note that Costco offers a broad range of limited brands for each product category. Costco Corporation is a strong brand, characterized by low prices, efficient warehouse operations, and special approach to choose and handle excellent merchandise. With a substantial part of its business focused on selling merchandise at the low profit -margin, Costco also has about fifty million members that each year guarantee to the company over $2.8 billion in steady income at high- profit margins. Managing operational efficiency in its supply chain allows the company to reduce operating expenses and pass on the benefits earned to its customers. First, Costco uses a subscription business model where customers become members or subscribers of the wholesaler club by purchasing a membership. Costco uses a single-step distribution strategy to sell its inventory. It would be recommended for Costco to officially create a vision statement and share it with employees, members, and shareholders as it provides direction. It is Costco's philosophy to keep prices low to generate large sales volumes (Thompson, C-30). As a result of their ultra-low prices with small margins, Costco relies a lot on the revenue from their membership fees. Costco was ruled to be guilty of infringing on Tiffany & Co's trademark and ordered to pay Tiffany & Co a total of $19.3 million in punitive damages. Costco plans for stores to incur a five percent growth in sales and to grow and establish more stores both domestically (United States) and in foreign markets. While Costco does not have an official stated vision on its website, research shows its implied vision is to give its members "a place where efficient buying and operating practices give members access to unmatched savings” (IMP, 2018). As mentioned previously, with the membership fee critique in the business model, a solution would be to increase prices. Instead of investing heavily in marketing as the other retail companies do, Costco strives to maintain a strong reputation in the market, which it has made possible by establishing a culture of customer service, collaboration, and ethics. Costco's Chinese prices are 30 to 60% lower than market prices, and food is 10 to 20% cheaper. Affluent customers mostly like to shop in bulk and make larger purchases. It offers co-branded credit cards for its loyal customers. Several factors intensify the rivalry among wholesale competitors. Another way would be for Costco to limit its store openings and make a push for more online sales. It deals in a limited product range as compared to Walmart. Members may switch based on convenience and which wholesale club is offering the best deals. The third element of Costco’s pricing is treasure hunt merchandising, which is the short term stocking of unique goods when available. It is one of the leading competitors of Walmart. A possible solution would be to raise prices on some items to increase their net sales, which would be an adjustment to their strategy. The average club customer is older (e.g., baby boomer). The younger generations have started a strong push towards online shopping as they lack time to go into a Costco and spend a whole morning or afternoon getting lost in hunting for the treasured good low-price deals. With the pandemic, the retail brands have moved even aggressively towards digitalization and digital commerce in the United States. It was also reported that Costco was adaptive and listened to its members' suggestions. The company saves on its operating expenses by not investing in marketing. Costco's entry into Japan has amazed many as they have not changed their core business model or strategy like some of the other foreign retailers have (e.g., Dairy Farm, Walmart, and Carrefour). It invests in quality to maintain its popularity among its members. Keywords: Strategy Management, Retailer, Differentiation Strategy, Transnational, Marketing INTRODUCTION 5P Marketing Strategy of Costco Product costs could generally gain an additional revenue by reducing complexity not by cut costs only. In Costcos case, the business has a marketing mix that is relatively uncommon in the retail industry, especially in terms of the promotion element. Costco can expand and grow its online sales. 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). As a result, when the number of actual footfalls in the stores has continued to decline, retail businesses like Costco need to maintain an intense focus on technology to grow consumer convenience and attract consumers in larger numbers. Costco owes Tiffany more than $19 million for selling counterfeit rings. It has allowed the company to gain a price advantage that it can pass on to its customers. Costco’s strategy is to offer its members a wide assortment of high-quality merchandise at lower prices than the competitors. Costco has rapid inventory turnover combined with high sales volume, contributing to higher revenues. The entry barriers into the wholesale industry are relatively high. In recent years, the company has been investing in technology to grow e-commerce sales and strengthen its existing competitive advantage. By investing in technology over the previous several years, the company has been able to improve the level of customer convenience and customer satisfaction. Costco's long-term debt-to-equity ratio is high, but it is reasonable as the company's time-interest earned ratio is high. However, this advantage is limited only to the Costco members. Costco eliminates the luxuries (e.g., bags, expensive marketing materials, etc.) Costco keeps their markup low at 14 percent to provide members with low prices, compared to the 20 to 50 percent markup of competitors. Merchandising Costco is committed to providing our members with high-quality goods at the lowest possible price in a way that is respectful to the environment and to the people and animals that produce these goods. Costco Wholesale Corporation (trading as Costco) is the largest American membership-only warehouse club. The shorter inventory turnover highlights the success of Costco’s business model and strategy. Figure 1. This strategy has worked for Costco and its growth rate remains impressive. However, the company has been investing in digitalization strategically over the past few years to grow its e-commerce capabilities stronger. Members do not have the power to leverage better prices from the wholesale club industry as the buyer demand is strong. Also, what happens if members stop paying their fees? Costco tends to experience sales decrease of non-food items like sporting goods and electronics, which is the result of gas price deflatio… Costco runs on a "subscription business model," that is, customers who want to shop at the store must buy a membership in order to do so. In the context of Costco marketing strategy, Costco has a wide range of products to offer to its customers. Supply chain management, apart from being a critical source of competitive advantage for the brand, is also a core pillar of Costco’s business growth strategy. However, the current ratio in 2015 (1.05) was a sharp decrease from the year previous (1.22). The company received an overwhelming response in China when it opened its first store there despite investing nearly nothing in marketing and promotions. Both Costco’s business model and strategy align with the company’s mission and vision. Costco’s consumers include millennials and baby boomers. Its e-commerce sales were around 4% of its total sales in 2019. In this way, despite having a much lower gross margin as compared to the other retailers, the company is able to operate profitably by achieving higher sales volume and rapid inventory turnover. Job Summary: Cuts, fills and ices cakes. Costco's low rate of days of inventory has also steadily remained the same from 32.09 in 2000 to 32.17 in 2015. Location: Brisbane - West View: Select or view the Job Details now Bakery Assistant, Cake Decorator - Part-Time. Japan has the second-largest consumer market in the world, but it was also a relatively closed market.
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