Introduction
Costco is a membership warehouse club in the United States. Out of the total warehouse sales in the United States, half of it comes from Costco. The company owns business centres that stock products purchased by small businesses, Costco homes which offer different varieties of furniture and warehouse clubs. Through its treasure-hunt strategy, the company has been very attractive to upscale shoppers. As the company offers quality products at lower prices, it attracts the most upscale shoppers. The company is convenient with respect to product stocking. It is a one-stop-shop. This saves customers a lot of time as they are able to get all their products from one place without having to move from one shop to another (TNS Retail Forward 591). The company also offers high-end products to upscale shoppers. Availability of in-store kiosks within the company ensures that the company offers a variety of products. This is difficult to get in other clubs thus making Costco attractive to upscale shoppers.
Lessons that retailers can learn from Costco
There are numerous lessons that retailers can learn from Costco. The success of the company lies behind its marketing and promotional strategies. One of the lessons that retailers can learn is the importance of having an effective pricing strategy. The retailers learn the imperativeness of making a bulk purchase to help them set their prices at a competitive level. Most of the retailers suffer a huge expense when promoting their products. Despite the cost, some make limited improvement in their sales volume. Through Costco, retailers can learn other promotional mechanisms that are relatively cheap and productive. These include verbal recommendations (TNS Retail Forward 593).
Assessment of Costco strategy
Costco’s product mix is characterised by a carefully selected 4,000 sku’s. This approach helps the company ensure that it offers fast-moving merchandise. Unlike other competitors who offer a wide range of sku’s, Costco is guaranteed of selling its products at a high rate. Packaging its merchandise in different sizes helps the company cater to different categories of customers. This adds to its high inventory turnover rate. The capability of the company to offer its quality merchandise at lower prices helps it increase its sales. This is because most consumers are able to get value on their money after purchasing the product. It is one of the factors that have made the company gain consumer loyalty. The provision of a treasure-hunt experience in the company makes numerous customers enjoy shopping (TNS Retail Forward 592). The company is able to attract even those customers who have no intention of making purchases once they visit its stores. By the company stocking different varieties of products under one roof, customers are capable of making all their purchases in one stop. The fact that they are safe from having to move from one store to another looking for various products makes them more willing to purchase from Costco stores.
Basic principles underlying Costco merchandising strategy
Some of the principles behind Costco’s merchandising strategy include an emphasis on high-ticket items, offering products for a limited time, emphasis on food quality as well as sales of exclusive and private brands. Emphasize high-ticket items by the company helps it make high sales yearly. Costco is able to make approximately $127 million from each of its clubs. This earns it about 10.5 gross profit. By the company offering its products for a short period, it stirs a sense of product scarcity among the consumers. As a result, more consumers take the initiative of buying the product the moment they find it in fear that it may go out of stock soon. This is one of the principles that help the company increase its sales volume. The company stresses the need for offering quality foods. This makes it capable of catering to sensitive consumers that other competitors are not capable of addressing. The company has availed on-site staff who educate customers on how to prepare some of the foods it offers such as butchers to educate customers on how to prepare an Australian stand of white meat. The company focuses on offering organic products (TNS Retail Forward 592).
Focusing on private brands has made the company more attractive to customers. Costco offers different varieties of private brands. This makes it stand out from its competitors. The company requires all manufactures that deal with it to offer their products at lower prices to help it also offer them cheaply to its customers. For those that do not comply, the company replaces their brands with its private brand making it increase its sales.
How Costco attracts customers
Despite Costco spending little on product promotion and advertisement, it is able to attract a wide range of consumers. The company uses promotions and advertisements only when entering new markets. The company depends on a verbal proposal to attract and retain its customers. The company also offers in-store product promotion in form of demonstrations and product sampling. Costco publishes a magazine dubbed Costco Connection which is distributed to customers through all its branch stores. The magazine contains all information with respect to products offered by the company including those that target small businesses (TNS Retail Forward 593). Through the magazine, the company is able to inform consumers about its new products and brand partners.
Costco’s ideal location and store format for its new stores
Due to the nature of its products coupled with its ability to break down its products to cater to different types of customers, some of the ideal locations for the company’s new stores are towns. This is because here the company is guaranteed of getting different types of customers such as that buying in bulk as well as that buying in small quantities. This will guarantee continuous sales. The company ought to target locations with big homes. This will help it sell most of its products in bulk. Demand for food across the world has never gone down. This is because it is one of the basic human needs. To effectively attract customers to its new stores Costco ought to structure them in a way that it provides enough space for fresh food. Ensuring that there are numerous business centres within its individual stores would help the company stock variety of assortments thus catering to different consumer needs. The company can also provide space for furniture and other home equipment.
Future of the company
The future of the company is promising. Costco has won goodwill from the public. This guarantees it that competitor such as Sam’s clubs can not overthrow it in the market. Unlike Sam’s club which does not provide treasure-hunt atmospheres in its stores, Costco stores will continuously experience a hire influx of customers since they enjoy shopping in these stores. Costco has multichannel distributions. This will help it gain geographical coverage to surpass that of Sam’s clubs. The strong corporate culture within the company will facilitate in ensuring that it offers quality products and services to its customers thus retaining its market share and also establishing new ones. Costco has come up with a website where it is capable of reaching its potential and current customers. This will help in strengthening its relationship with consumers.
On the other hand, the company has experienced weaknesses in its older locations making it relocate its stores. This may hamper its future growth compared to Sam’s clubs which have wide geographical coverage. To ensure that it reaches a wide market, the company ought to look for measures to ensure that it has supported stores in its old locations. Relocating these stores may allow Sam’s club to exploit these markets. Its limited profit may hamper its expansion objectives in the future. To open and manage these stores requires a lot of money (TNS Retail Forward 595). This may be difficult for Costco due to limited profit. With the company having comparatively low household penetration it may not be able to attain wide geographical coverage in the future.
Unlike Sam’s club which has no expansion strategies, Costco has embarked on opening new stores in North America and other parts of the world. With some of these stores performing well, there are opportunities for the company to dominate the global market in the future. This is because the company caters to all types of consumers, unlike Sam’s club which caters to small business owners only. The establishment of auxiliary services and new concepts in the company will help it gain a new group of consumers in the market.
The introduction of competing products by Costco threatens the sale volume of some products. Cannibalizations will lead to the company experiencing reduced sales of some of its products in the future. This will allow Sam’s club to focus on selling this product making Costco experience limited returns from its sales. The emergence of single-category killers in the market threatens the company’s market share. Costco will not be able to effectively expand its market share in the future bearing in mind that it has limited geographical coverage. For Sam’s club, its wide geographical coverage will help it increase its sales hence waging competition against Costco.
Works Cited
TNS Retail Forward. “Costco profile.” 2008. Web.