PriceCostco’s pricing strategy involves keeping caps on the amount that any particular product can be sold at. The company uses a pricing strategy that uses market conditions as the basis for how prices are initially set, and they are focused on providing the lowest possible cost for wholesale item purchases. Costco’s pricing can also be seen as a modiFcation of a high low pricing strategy, in that there are discounts for the consumers that are gained through bulk buying. PlaceCostco’s warehouse locations are the main places where the products and services are sold. Their warehouse locations are available globally in many countries such as the United States, Canada, Mexico, Taiwan, Japan, Australia, Spain, among others. Costco’s warehouse locations are mainly within cities, and due to this decision, the organization is able to continue gaining large amounts of revenue per facility, which in turn further prospers the company’s proFtability. Costco also performs their product distributions through their mobile application, through which, customers have access to retrieving information about products, as well as their online store, which is accompanied by delivery services. PromotionWithin Costco’s sale promotional strategies, the Frm uses bulk discounts in order to attract customers. The low pricing guarantee on Costco’s wholesale products is used to bring attention to their inventory, andincite purchases for better value. However, Costco is not a retail organizationthat spends much on advertising. Costco’s promotion is mostly composed of word of mouth, emailing their continued, former, and prospective members about their services and changing deals, as well as through their Costco Connection publication. Costco’s promotional activities are usually limited to 21
Costco Corporation is one of the largest warehouse club stores in the United States. It operates membership warehouses across the UK, the US, Canada, Taiwan, and South Korea, among other countries of the world. Costco offers a wide range of products and services, which include food products, apparel, beauty care products, home appliances, computer and computer peripherals, jewelry, toys, furniture, pharmaceutical services, insurance services, gas stations, photo centers, and automobile repair services among others (Costco Wholesale Corporation).
Costco’s market segment is divided into two: families and individuals, and corporate bodies. Products and services for the families and individuals market segment include, home appliances, apparel, toys, jewelry, food products, and home care products, among others, as well as services such home insurance. On the other hand, the corporate segment targets business organizations, whereby, it offers a market for products such as office furniture, computers, and computer peripherals, and services such as insurance and automobile repair. Costco sells its products and services to its market segments from its discount retail outlets and supermarkets, or directly from its warehouses on wholesale (Costco Wholesale Corporation).
Costco has its business operations divided into six segments. The sundries segment is made up of food products and it is the largest segments in terms of revenue. The second largest business segment is the food segment, which is made of dry food products and packaged foods. Hardlines segment (third largest) is made of home appliances, office supplies and furniture, sporting goods, automobile supplies, and electronics. Fresh food segment is the forth-largest segment, and it is composed of bakery goods and fresh meat. Other segments are softlines and ancillary segments. Ancillary segment is the fifth largest, while the softlines segment is the smallest (Costco Wholesale Corporation).
Currently, Costco is the second-largest general retailer in the United States, with the first position being occupied by Wal-Mart. Costco will need to protect its current market share, to avoid losing it to its major competitor, or even other competitors, which include Sam’s Club and BJ’s Wholesale Club. Costco can achieve this by developing strategies for retaining its current customers that may include, increasing purchase discounts to bulk buyers, intensifying its advertisement campaigns, and offering a wide range of products to online buyers. These strategies will increase the number of benefits that, Costco customers gain from the organization.
If Costco is able to implement these strategies, then it will be able to retain its current market share, while attracting new customers at the same time. New customers will mean that, Costco will be reducing the market share of one or more of its competitors. This will enable the corporation to lead in the US market in terms of market share and cost leadership, which forms its desired position. In order to attain this position, Costco will need to outgun its second and third largest competitors, who include Sam’s Club and BJ’s Wholesale Club.
One of Costco’s strengths is diversification of products and services, thus allowing it to diversify risks. Another of Costco’s strength is that, it has a strong market position, which has been gained through low cost promotion and marketing strategies. With the current advancement in technology and increased popularity of online shopping, Costco stands an opportunity to increase its online sales through offering wide range of products to its current and potential online customers. Moreover, Costco has an opportunity of expanding its market presence across the world, as many of the world’s economies continue to experience positive economic growth, accompanied with increased disposable incomes. This means that, consumer power in different parts of the world is increasing, hence creating marketing opportunities Costco’s wide range of goods and services. However, according to a 2008 report published by Datamonitor, Costco was reported to concentrate more in Californian market. This was cited as a weakness, since Costco has been unable to spread its operations in many parts of the world because most of its efforts are concentrated in Californian market (Costco Wholesale Corporation).
Nevertheless, Costco can minimize this weakness by utilizing the existing market opportunity. A very good strategic recommendation for Costco is to utilize the services of global investment banks to help it penetrate markets in other parts of the world. For instance, through M&A (merger and acquisition) services of global investment banks, Costco can either merge or acquire some of its competitors within the US, and other retail stores in places such as Australia, France, Germany, or Japan, where it has not yet established its operations. This way, Costco will reduce competition, increase its customer base, and diversify its commodity base.
To illustrate a scenario of a typical customer, we assume the product to be purchased is a laptop, and the person buying is a student. The student may recognize the need for a computer after realizing that, he needs a word-processing tool to help him prepare his assignments. As the student contemplated on the brand of a computer to buy and the place of purchase, he comes across an internet advert by Costco, offering a laptop with reasonable processing speed and memory space at a discount. The student compares the features of the laptop being offered by Costco with other offers from other retailers, and finds that Costco has the best offer. Eventually, the student purchases the laptop, and it turns out to be efficient just the way it was described in the advert (Senecal, Kalczynski and Nantel).
A close evaluation of Costco marketing strategies indicates that, the organization excels in offering its customers a wide range of products and services. However, Costco will need to increase its distribution channels, to strengthen the adoption process of its products and services. Currently, many of Costco wholesale points and retail stores are located outside the urban areas. Shoppers have to travel outside the cities in order to access many of the Costco sales point. Costco can open retail stores inside the urban areas, especially in malls where many people visit to do their shopping. This will increase distribution intensity, which is very effective in strengthening the adoption process (Armstrong, Harker and Kotler).
From evaluation of Costco, it is clear that, it gains the strength of its brand by offering large purchase discounts on both retail and wholesale purchases. However, Costco lacks well-diversified distribution channels to market its goods and services. As a recommendation, Costco should utilize the available spaces in urban areas to establish large retail stores, where customers can access its wide range of products and services in one place. For instance, one retail store can have a food joint, gas station, photo shop, pharmacy, car wash, and a place to get a haircut, among other ancillary services. Such a store would attract many customers since they will be able to satisfy their needs from a single outlet as opposed to moving from one store to another.
According to the 2008 Datamonitor report, Costco’s brand currently falls under growth stage (Costco Wholesale Corporation). This is because; Costco is still adding additional features to its brands, and more distribution channels continue to be added (product Diffusion Cycle). As a recommendation, Costco should maintain its pricing strategy; that is low pricing strategy, and large purchase discounts for both retail and wholesale purchases, to ensure that, customers remain eternally connected to its brand.
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