Costco is a retail firm that operates within the US retail industry and operates as a warehouse club. As a result, the firm has become very prominent within the US retail industry. However, the firm faces intense competition from other large firms such as Sam’s Club and BJ club. In addition, the firm also competes with other traditional wholesalers. In addition, other firms which pose a threat to the firms’ operation include supercenters, specialty stores, and general merchandise firms which are established within the retail industry. As a result, the market has become saturated making it challenging for the firm in conducting its implementation.
As the retail industry becomes more competitive, firms in this industry need to be effective in their operation. This can be attained through effective marketing. The marketing process should consider elements such as target market and marketing strategies. Upon implementation of these strategies, there is a high probability of the firm attaining a highly competitive advantage.
Areas of strengths
The incorporation of no-frill and self-service has played a significant role in the process of the firm attaining a high market position amongst upscale shoppers. This is because individual and institutional customers wishing to purchase in large quantities find it convenient to purchase at the store. The firm has also managed to create a type of treasure hunt atmosphere within the firm for the shoppers. This is attained by the incorporation of cut-rate deals for upscale products for a given time. In addition, the success of the firm amongst these customers results from the fact that the firm ensures that all the products are of high quality and are sold at a low price. The effect is that customers attain cost savings by purchasing from the firm (‘What is ahead of Costco’ 591).
What other retailers can learn
From Costco’s success, there are a number of lessons that other firms operating within the upscale market can learn. One of the lessons entails conducting expansion effectively. This can be attained by analyzing the local market so as to supply products and services that suit the particular local market. Upon successful penetration into a particular market, firms should evaluate the product trend. This will enable the firm to identify possible ways through which it can adjust its strategies to meet the market demand sufficiently. Firms should also form an association with various business partners such as vendors. In addition, firms should be innovative by developing their own products. This will contribute towards the firms attaining a certain degree of independence.
The firm deals with the provision of a wide range of consumer products and services. In its operation, the firm targets affluent small businesses and individuals as its key customer.
In incorporating product diversity in its operation, the firm has narrowed its products to 4,000 sku’s which are well-edited (What is ahead of Costco 591).
The firms’ brands entail both private and national brands which are sold in various quantities. The firm has developed a comprehensive product mix that includes food products, sundries, hard and soft goods. In addition, the firm also deals with products related to pharmacy, gas stations, photo centres, auto health and optical products, financial services such as loans and insurance products. These products are sold to its executive members. By supplying limited time and unique products through its narrow sku strategy, the firm’s inventory turnover is very high. As a result, the firm’s merchandise is sold even before the firm has paid for it. As a result, its inventory is purchased on payment terms rather than on working capital.
In its merchandising strategy, Costco is innovative in selling luxury products in an effort to reduce inventory levels. The strategy entails the establishment of a close relationship with its key upscale vendors who would not merchandise the luxury products in their stores. By emphasizing high-ticket products, the firm is generating a sufficient amount of sales annually. In addition, Costco creates an element of scarcity by limiting the time with which it places its products on offer. As a result, consumers are motivated to purchase the product due to fear of lacking an opportunity to purchase the product in the future (What is ahead of Costco 592).
In marketing its food products, the firm emphasizes quality. This is attained by creating an association with major firms within the food industry to co-brand its products. One of the firms with which the firm has formed an association in branding its Kirkland Signature is Stoneyfield Farm. This enables the firm to sell its products to a more discerning customer category compared to its competitors. In addition, the firm’s private brands and exclusive products are merchandised at a value price. The result is that the firm is able to undertake differentiation more effectively.
Creating market awareness is a key component in ensuring that a firm succeeds in the long run as a going concern entity. As a result, promotion takes a significant proportion of the firm’s budget. In its promotion process, Costco incurs a minimum cost. This is due to the fact that the firm conducts minimal advertising. The firm depends on creating a buzz or through recommendations through word of mouth in creating market awareness. Extensive advertising is only conducted in the process of establishing a new outlet.
The firm mainly relies on in-store promotions which are created through sampling and product demonstrations. This is attained through issuing of finances to respective stores for canvassing purposes. In addition, product awareness is also created internally through its monthly Costco Connection magazine. The magazine is distributed in all the stores and is also sold via the cooperative dollar thus generating revenue. The magazine details products which appeal to both individual and small enterprises. This enables the firm to showcase its products to its business partners for its co-branding purposes. In promoting new products in its monthly magazine, the firm includes legendaries who endorse the product (What is ahead of Costco 593).
Ideal location for Costco stores
Costco has been flexible in ensuring that its products are easily accessed in the market. This is attained through the opening of new stores in different locations. The effect is that the firm has become an international firm. In implementing its expansion strategy, the firm is cautious to ensure that new clubs are established successfully. In addition, a study is conducted to identify ideal locations. The establishment of a new store is conducted by learning the local environment and adapting its retail strategy to the particular local market. This enables the firm to meet the demand of a given locality more effectively. For instance, in venturing into the Japanese market, the firm was forced to reduce its bulk package sizes. This enabled the firm to accommodate Japanese individual demands which are relatively small compared to that of the US (What is ahead of Costco 594).
Both Costco and Sam’s Club have managed to develop sufficient strength in their operation. Costco has become a channel leader in distributing products to affluent core customers. In addition, both firms are easily accessible by a wide range of customers through a large number of stores established. Both firms have integrated the concept of product innovation which enables them to develop new products. Due to changes in customer demand, these firms should consider developing strategies aimed at satisfying the customers.
Both firms have not been effective in marketing their products. This arises from the fact that the firms have not integrated the low households in their operation. This reduces the firms’ profit margin.
There is a high probability of these firms succeeding in the future through the incorporation of new operational strategies and concepts. The firm can also increase the scale of its operation by establishing new stores. The future of these firms is also bright considering the rate of technological innovation. For example, through electronic commerce, these firms will be able to increase their sales through online selling.
Considering the intensity of competition within the retail industry, the two firms are faced with increased cannibalization. As a result, it is paramount that they develop strategies to formulate effective competitive strategies.
Costco has been successful in its operation. This has been attained through effective formulation and implementation of operational strategies. Some of the key strategies that have been considered are related to the marketing mix. As a result, the firm has been able to attain a highly competitive advantage.
The firm should conduct continuous market research. The research should consider the consumers and competitors.
- Consumer market research should be aimed at determining changes in consumers’ tastes and preferences. This will enable the firm to conduct effective product innovation.
- In conducting competitor market research, the firm should evaluate the strategies they have implemented. This will enable Costco to counter these strategies.
Costco Profile. “Comprehensive case: what is ahead for Costco.” Columbus. TNS Retail Forward. 2008.