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The wholesale clubs can make a nice profit by keeping prices low and keeping the barriers for new entrants low. 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! Boxed's average shopper age ranges from 25 to 44 and does not have to rely strongly on a physical location to reach customers like Costco. The company’s culture exists at the core of its competitive advantage. Business Growth strategy of Nike: A case study, Ways To Build a Stronger Business In 2021. Disclaimer: This report was written by a student and is not an example of our proffesional work. Costco marketing strategy – offer less choices. There is no recommendation for this competitive force. The final element is Costco’s growth strategy. 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. Compared to Costco, Walmart spends billions on advertising and promotions. Costco's operation activities and costs include the management of the Costco stores and online sales, both nationally and internationally. The average club customer is older (e.g., baby boomer). Thompson, A. This high ratio indicates that Costco has been able to meet their payments and has good credit. The customers now do not just think of good quality products and prices when they think of shopping. Product Strategy of CostCo Wholesale. Costco can expand and grow its online sales. 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. To grow its popularity among millennial consumers, the company has grown its focus on technology. Registered office: Venture House, Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ. Costco wholesale corporation. This encourages the bargain-hunters to spend more on the unique and enticing deals more frequently. Official website for Costsco Wholesale. 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 second element is Costco's limited product selection. Costco should have advertised the rings as a Tiffany setting, which would not have been as misleading the customers. Costco uses a single-step distribution strategy to sell its inventory. The incumbents have cost advantages against new entries as well (e.g., exclusive suppliers and fixed costs). For a retailer, its supply chain and logistics are like the backbone of its business. 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. It stocks a limited number of units per warehouse; an average of 3700. Bhattarai, A. The Japanese found shopping at Costco a family event where they spend a long time in the store shopping and enjoying their leisure time. There are several warehouse operators across the United States and Canada that offer similar merchandise quality, selection, and price. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J. III. Its approach to marketing is a lot like Starbucks. Did you know that Costco doesn’t have a large marketing and advertising budget? This was different from the norm as most Japanese go to the local grocery store a few times a week and spend a short amount of time there. However, the product quality is outstanding. A representative five-forces diagram for Costco (see Figure 1) is followed by an assessment of each force’s strength or weakness. Always looking for ways to sell and merchandise products more effectively. Another way would be for Costco to limit its store openings and make a push for more online sales. 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. View all our costco vacancies now with new jobs added daily! Given that statement, the shareholders are not losing money; they could just be making more. These limited items are all high quality, with 85 percent being name-brands and 15 percent being their private-label (Kirkland Signature). 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 eliminates the luxuries (e.g., bags, expensive marketing materials, etc.) Costco Wholesale Corporation is the second biggest retailer in the world, behind Walmart. In the first few days months of operation, Costco had claimed 32 percent of the gasoline market share, which was higher than the country’s Bonus that had 28 percent of the market share. Overall, Costco’s strategy is working as it has been ranked as one of America’s largest retailers (Thompson, C-26). IMP. Shop by departments, or search for specific item(s). It is not a financially sound decision to limit the shareholders their money. Could millennials kill Costco, Sam's Club? As learned in Business Law and Ethics, a generic term is a commonly used name (e.g., Aspirin). Millennials are now the largest segment of the US population and therefore the most important customer segment for US-based retail brands. & Wang, S. (2018). It is a critical source of efficiency. Let’s zoom in: This is the toothpaste selection at Costco… The purpose of this paper was to find out if Costco’s “treasure hunt” strategy was effectively attracting customers and increasing spending per visit. 2. Costco’s value chain begins with the supply chain that includes the activities and costs of purchasing goods from various manufacturers/vendors. Figure 1. The high sales volume contributes to high operating efficiency. Costco has rapid inventory turnover combined with high sales volume, contributing to higher revenues. Several factors intensify the rivalry among wholesale competitors. In 2016, membership fees grossed over $2.5 billion. The Japanese have a high priority towards freshness, and foreign retailers have not met the Japanese standard, till Costco. Costco’s growth strategy also depends on product quality. So, against all of Costco's efforts to make a case against Tiffany & Co, the judge finally made a verdict. There are also many more benefits apart from shopping for quality products at wholesale prices which attract affluent customers. Even when the United States was in the recession (2008-2011), Costco reported positively stable numbers and quickly progressed after the recession ended. Its international footprint is limited to only a few major markets. No retailer can make growth possible without having an efficient and agile supply chain. Costco argued that Tiffany was a generic term in describing a ring setting and that the rings they were selling were not sold in the distinct blue Tiffany boxes or labeled as a Tiffany & Co ring. 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. Moreover, the staff are also a critical source of advantage and help it maintain its edge in the industry through improved performance. Registered Data Controller No: Z1821391. While Walmart follows an open for all approach to retail, Costco is a chain of membership warehouses. All three are similar as they have low prices, have multi-level memberships for both individuals and businesses, limited but high-quality brand products (e.g., appliances, electronics, clothing, jewelry). *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. As learned from Managerial Economics, monopolies have almost or total control over a sector or industry. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. To weaken these competitive forces, Costco should monitor its competitors and explore different market opportunities to expand and better differentiate itself from competitors to gain a higher competitive advantage. A considerably lower number of Stock Keeping Units (SKUs) allows Costco to achieve higher sales volume. The working capital had a favorable increase from $66 million in 2000 to $759 million in 2015. As mentioned earlier, Costco's inventory management is the best in the wholesale industry with its use of retail space, store, and distribution warehouse locations. 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. Abhijeet has been blogging on educational topics and business research since 2016. Costco has a simple strategy for winning — concentrating on driving sales. Costco’s net sales, total revenue, and total income have all steadily increased. Managing operational efficiency in its supply chain allows the company to reduce operating expenses and pass on the benefits earned to its customers. All work is written to order. The products sold at the wholesale clubs are comparable and readily available among each other and at other stores and with a large selection of products to choose from (e.g., supermarkets and convenience stores). This article examined how Costco became the first major foreign company to enter successfully into Japan. Costco Wholesale uses the membership strategy on its business strategy. Working their supply chains to find better and lower products from suppliers. It would be recommended for Costco to monitor its main competitors to ensure that the company has better deals and promotions. However, since the company offers a large range of products at discounted prices, it also attracts consumers from the middle class. 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. Since its foundation, the company has strived to create a culture that cares for the happiness of both the customers and the staff. Costco has conquered the wholesaler industry as it held 59 percent of the industry’s sales in 2016. The long-term debt-to-equity ratio increased significantly from 19% in 2000 to 45% in 2015, as shown in Table 1. On opening day, there was a smaller crowd than Costco's management anticipated. In fact, on average, Iceland's food prices were 50% higher than in other countries within the European Union. 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. Hence pricing is a strategy in its marketing mix which is critically dependent upon the competition, amount of goods sold etc. Digital Transformation at Walmart: A case study. There are monthly coupon mailers and weekly emails to members, and for special occasions, there are direct mailings to campaign for new members. The supplier switching costs are low for this wholesale industry. Costco had successfully opened 26 stores across Japan as of November 2017. View all our costco vacancies now with new jobs added daily! (2018). But that’s not to say that Costco isn’t savvy when it comes to self-promotion. It can be done by quantitatively and qualitatively assessing the customer market. With the pandemic, the retail brands have moved even aggressively towards digitalization and digital commerce in the United States. Boxed found a niche market with the younger generations. (January 19, 2018). The company saves on its operating expenses by not investing in marketing. Wait… what? 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). Costco should not have advertised the ring as "Tiffany" as it led to customer confusion. To accommodate this, Costco changed some of its packaging types to allow better their members to share among themselves. The high sales volume ensures high revenues in spite of low selling prices. 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. Price leadership is achieved by implementing a successful strategy using continual exceptional efforts to reduce costs, without excluding services or … It is Costco's philosophy to keep prices low to generate large sales volumes (Thompson, C-30). Before Costco even opened its doors in Reykjavik, Iceland, there was much excitement in the community and country. Costco is known for having specially low prices for bulk purchases, and also special prices on limited edition goods. The answer is simple — In an ingenious marketing masterplan, Costco purposely sells a few items at a loss to drive customers into their stores. Costco pays its employees well with wages above minimum wage and benefits. Information in this report should not be used to form the basis for any kind of financial or investment advice, as the content may contain inaccuracies or be out of date.. These trends will continue and most likely last longer than the pandemic. Baek, J. Y. However, the company has been investing in digitalization strategically over the past few years to grow its e-commerce capabilities stronger. Mexico, UK, and Japan are among the other significant markets of Costco. The popularity of the brand has been driven by its focus on quality, lower prices and excellent customer service. We've received widespread press coverage since 2003, Your BusinessTeacher.org purchase is secure and we're rated 4.4/5 on reviews.co.uk. To achieve higher sales volumes, the company needs to maintain higher membership retention rates. Second, Costco generates a high sales volume and rapid inventory turnover that generally allows it to take advantage of selling and receiving cash for inventory and getting payment discounts (Thompson, Peteraf, Gamble, & Strickland, C-30). A business enters into a market with its products that are valued in the market. It would be recommended for Costco to officially create a vision statement and share it with employees, members, and shareholders as it provides direction. Costco’s sales and marketing strategy include in-store advertisements (e.g., sampling and signs). 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. You need to be a member to shop at Costco. Costco is a membership based warehouse chain. It is believed important to mention that Costco has made efforts to reach and market to the younger generations by offering online ordering and grocery delivery services. You can view professional samples here. In fact, they’ve had a handle on data-driven retail for a while now, largely thanks to their membership model which has allowed the brand t… Costco, while making advancements to target the younger generations (e.g., Generation X, Generation Y, and Generation Z) are losing to new wholesale companies taking advantage of their slow progress. The implied vision also ties in elements of Costco's strategy by mentioning efficiency and savings that allude to low prices and great deals. 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, Costco could improve in some areas, as mentioned earlier, with Costco's high long-term debt-to-equity ratio. 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. It has been aggressively infiltrating global markets with retail innovation practices that have created a cult-like consumer following characterized as \"The Costco Craze.\" Costco's global expansion frenzy began in 2013 and includes more than 200 international Costco Warehouse locations operating in ten countries outside th… As mentioned in the case, a critique of Costco’s pricing strategy was that the margins are so small that it deprives shareholders. One of the differentiating factors that has helped the company build an outstanding and unique identity is its customer service. VAT Registration No: 842417633. The company buys from the manufacturers directly and has successfully eliminated the middlemen just like Walmart did. However, prior to that, we will take a look at the customer segments the company is targeting. Costco does not depend on a specific supplier. The information obtained from the market surveys will help Costco management in identifying the emerging opportunities, exposing the potential threats and understanding how they relate to the company’s major strengths and weaknesses. Costco falls into the Overall Price Leadership category one of Porters four generic competitive strategies (Mitchell, 2001). The most prominent critique of Costco’s business model centers on Costco’s first element. These competitive forces indicate that the industry is average. In this post, we will analyse the main pillars of Costco’s growth strategy. Costco’s inventory turnover has remained the same from 11.37 in 2000 to 11.35 in 2015, as shown in Table 1. It was an exploratory research to provide insights in the perceptions of Costco customers in reference to new, seasonal, and premium products (“treasure hunt”) in their shopping habits, in comparison with purchasing regular items. Vault. Apart from the lower prices, convenience is also an important factor that affects the millennial consumers’ choice of retail brands. 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. 3. 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 owes Tiffany more than $19 million for selling counterfeit rings. For example, Net sales increased from $31.6 billion in 2000 to $87,048 in 2011 and proceeded to grow to $113.6 billion in 2015. However, Costco’s approach to retail is very different from that of Walmart. Costco has established a customer centric culture that focuses heavily on customer satisfaction. Icelanders were so impressed with Costco's low prices that there was a personal rebellion occurring within Iceland. 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 was also reported that Costco was adaptive and listened to its members' suggestions. Lastly, Costco’s support activities include the activities and costs associated with human resources, such as hiring and training. Gross profit margin had a favorable increase from 11.95% in 2000 to 13.02% in 2015. Given this analysis, it is easy to state that Costco's strategic choices are aligned with its mission and vision. Costco Wholesale Corporation (trading as Costco) is the largest American membership-only warehouse club. The private label brand of Costco Kirkland signature is also known for its range of great quality products. The threat of new entry, supplier bargaining power, and wholesale club member bargaining power are all weak competitive forces. The company’s success capitalizes on the main strengths of the business, as follows: 1. These are the main factors that the company has been enjoying higher membership retention rates. The Icelandic food retailer, Bonus, dominated all over Iceland due to the abolishment of currency restrictions and the diminishment of wholesaler monopolies. Costcos marketing mix (4Ps) is one of the factors behind its success. These competitors can either individually or collectively offer Costco members better prices, selections, convenience, or amenities. Below is the pricing strategy in Costco marketing strategy: Costco offers products which are widely available. 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. Costco’s mission statement is “to continually provide our members with quality goods and services at the lowest possible prices.” This mission indicates Costco's purpose and ties in elements of Costco's strategy by emphasizing low prices for quality products and supports their vision. Costco’s sales and marketing strategy include in-store advertisements (e.g., sampling and signs). However, Costco decided to take a different route right from its beginning. The shorter inventory turnover highlights the success of Costco’s business model and strategy. that would raise their prices like their competitors. Costco employs a low-cost leader strategy that includes five essential elements. The marketing mix is the set of strategies and tactics that a firm uses to implement its marketing plan. Costco marketing strategy involves 4ps marketing mix which involves product, place, promotion and price. 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. To keep this growth, it is recommended that Costco should keep their operations and management as they are. To combat the odds of members leaving Costco for its competitors, Costco should differentiate itself by possibly offering a better selection and lowering prices of individual items and more in-store promotions. 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. First, Costco's main competitors, Sam's Club and BJ's Wholesale, are similar in their capabilities. All of Costco’s merchandising categories also experienced growth. That is more than 260,000 memberships. Representative five-forces diagram for Costco. 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. Costco has a simple strategy for winning — concentrating on driving sales. First, Costco uses a subscription business model where customers become members or subscribers of the wholesaler club by purchasing a membership. Its Kirkland Signature brand offers high-quality products that earn higher margins than the other products sold by the company. Once goods arrive at the warehouse, they are put on the sales food for members to buy from. Iceland experienced the 2008 economic crash, and it along with the Panama files revelation, it changed the Icelander’s view towards foreign businesses. 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. Costco's low rate of days of inventory has also steadily remained the same from 32.09 in 2000 to 32.17 in 2015. The result is that its membership retention rates are very high. It has been difficult for foreign businesses to establish themselves in Japan. Retrieved from. Costco was ruled guilty of infringing on Tiffany & Co’s trademarked name. Overall, Costco has had steady financial growth from 2000 to 2015. This has enabled the company to create higher customer satisfaction and gain higher loyalty from both customers and staff. It is recommended for Costco to research other foreign markets to put stores in (e.g., South America, Asia, Africa). Free resources to assist you with your business studies! 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). However, this advantage is limited only to the Costco members. 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. (21st ed). Costco has also made several arrangements to attract affluent consumers. It has not pursued an aggressive international expansion strategy which might bring the company extra revenue and help it find faster growth. It is because the pandemic has brought some lasting changes to consumer behavior worldwide. The entry barriers into the wholesale industry are relatively high. Costco has gained fast in the area of e-commerce. And marketing ensures that the products can have an excellent reach to the target market. It seems that Costco changed many of Icelander's views of foreign businesses for the better with their low-cost leader strategy, as discussed in the book's case study. This supply differs from the traditional supply chain as the goods are not transported from the manufacturer, distributor, warehouse, and retailer. 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. Strategy Costco has had steady financial growth from 2000 to 13.02 % in 2015 ( 1.05 ) was personal... High sales volume results using an efficient supply chain and logistics are like the level of convenience they. Needs to maintain its popularity among its members pillars of Costco other foreign markets to put stores (! Baby boomer ) membership strategy on its website consumers include millennials and boomers. Since the company buys from the Asia-Pacific Institute of management, marketing, Costco ’ s business and! 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