Costco Wholesale Corporation Marketing Mix: 7P’s
|Costco Wholesale Corporation.
|Retail (Physical & E-commerce)
|Issaquah, Washington, United States.
|James D Sinegal and Jeffrey Hart Brotman
|President & CEO
|Walter Craig Jelinek
|Net Revenue (2019)
|Net Income Attr to Costco (2019)
|No. of Stores. (2019)
|Walmart, Best Buy, Target, Amazon, Lowe’s, Kroger, Walgreen’s Boots Alliance, Home Depot.
Costco wholesale and subsidiaries started operations in 1983 and since then the company has grown into one of the leading players in the physical retail industry of the United States. Apart from the US and Canada, Costco also operates membership-based warehouses in ten more countries. As of December 2019, Costco had 785 warehouses operational overall. Costco wholesale corporation operates only membership-based warehouses through which it offers its customers low prices on a limited selection of nationally branded and private label products in a wide range of categories. Apart from rapid turnover, this has also helped the company achieve large sales volumes. Costco’s strategy is to offer its members a wide assortment of high-quality merchandise at lower prices than the competitors.
There are three basic things that underlie the Costco experience and differentiate it from others and include quality, lower prices, and distinct in-store shopping experience. Among the other things, Costco is also known for having established an excellent organizational culture and for offering the best in class customer service to its members. However, Costco’s success can also be attributed to its efficient and effective supply chain management and distribution network. By achieving operational efficiency and eliminating layers of the distribution chain, the company has been able to achieve competitive advantage and maintain a profitable business model which despite lower gross margins, generates impressive revenue and net income. The retail industry in the US has grown highly competitive and apart from e-commerce, retailers are also investing in technology in other aspects of the business including supply chain, marketing, distribution and sales, and delivery to maintain their competitive position. Costco also operates e-commerce sites in several of its markets including the US, UK, and Canada.
Read more about Costco and its business in this marketing mix including the seven Ps.
Costco is a membership-based retail warehouse chain. While its range of products may be limited compared to Walmart, its leading rival, the company still offers a wide range of products for its members. The company offers merchandise in the following five categories mainly.
Food and sundries: This category includes dry foods, packaged foods, groceries, snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies.
Hardlines: includes major appliances, electronics, health and beauty aids, hardware, and garden and patio.
Fresh foods: includes meat, produce, deli, and bakery.
Softlines: includes apparel and small appliances.
Ancillary: includes gasoline and pharmacy businesses.
Apart from these, Costco also offers products for its members under the Kirkland Signature brand which is Costco’s private label brand. Costco began its private label brand Kirkland Signature after feeling the need for a brand that offered premium quality products at lower prices. The company offers a large assortment of products under its Kirkland Signature brand. Some of the leading categories of products sold under the Kirkland Signature brand include clothing & luggage, grocery, home & kitchen, health & beauty, hardware, office products, and gasoline. Kirkland brand sells several high-quality products and the key to maintaining customer loyalty for Costco is to maintain the quality of products sold under this brand.
Costco has its head office in Issaquah, Washington, United States. Apart from it, the other countries where the company has its warehouses operational include the United Kingdom, Canada, Japan, Mexico, France, Iceland, Spain, China, Korea, Taiwan, and Australia. As of December 31, 2019, there were 546 Costco warehouses operational in the US and Puerto Rico. Apart from that Canada had 100 and Mexico 39, whereas Japan 26 and the United Kingdom 29 warehouses. These are the leading markets of Costco. The US is the leading market of Costco Wholesale accounting for more than 70% of its revenue in 2019. During fiscal 2019, the total net revenue of Costco from the US was $111.8 billion followed by Canada where Costco generated $21.4 billion in annual net revenue. The company buys from the manufacturers directly and routes the merchandise either to the warehouses directly or to the depots (cross-docking consolidation points). At the end of 2019, the company operated 24 depots as well as 19 regional offices in the US, Canada, and other international locations.
Costco has adopted a competitive pricing strategy. It is also an important source of competitive advantage for the brand since lower prices drive higher sales and customer loyalty. The US retail industry has grown highly competitive and lower prices are the primary driver of sales apart from quality. However, Costco has focused on both and it offers a large range of good quality products at low prices. Its differentiated operating model is the main factor that has enabled Costco to operate profitably. Volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, have enabled Costco Wholesale Corporation to operate profitably even at lower gross margins. By selling high-quality products at lower prices, the company is able to achieve higher sales. It has also optimized its value chain to enable rapid inventory turnover. Optimizing the supply chain and distribution network has helped Costco achieve cost efficiency and the company is able to pass this advantage on to its customers in various countries.
Unlike what most other retail brands do, Costco does not spend much on marketing and neither does it invest much time running campaigns. However, despite its low focus on marketing, the company has been able to achieve high popularity and sales. The retail brand has focused on building customer loyalty through competitive pricing and by focusing on customer service.
Instead of running promotional campaigns, Costco’s focus was on establishing a customer and employee-friendly brand. The company has also maintained a strong image of a brand driven by customer focus. It has built an organizational culture that has helped it win acclaim widely. On the one hand, while the brand has earned strong recognition as a leading retail employer which focuses on maximizing employee satisfaction, another driver of popularity for the brand is its focus on member satisfaction. At the end of fiscal 2019, the company had around 99 million Costco cardholder members. It has differentiated its business model from the other leading retailers like Walmart or Target and this has worked to generate strong and favorable publicity and word of mouth. Moreover, by focusing on employee satisfaction, it has been able to turn them into brand advocates which most other retail brands in the US have failed to achieve as satisfactorily.
Costco does not have a large advertising budget like Walmart. Walmart’s advertising budget looks a lot like Coca Cola, running in billions. Instead, the company runs select data-driven promotions created to help the customers make informed choices. It also invests in CSR and Sustainability to maintain a strong social image. The unique in-store experience offered by Costco has also helped it differentiate itself from others and project a distinct and superior brand image.
Founded by James D Sinegal and Jeffrey H Brotman, Costco has always been a people’s brand and focused on maximizing satisfaction for all the stakeholders including customers, employees and the community. Its employees have always been an important focus for the brand and apart from competitive salaries and other perks, the company has strived to provide them a safe workplace and a happy work environment where they can find opportunities for faster growth. In 2019, Costco Wholesale Club employed around 254,000 people.
Compared to the other retailers where the pressure related to performance can be higher for employees, Costco has created a culture that focuses more on employee satisfaction and offers them extra space to be creative and employ their own decision making. In the longer run, the company is reaping the benefits of investing in employees. Apart from achieving a lower attrition rate, the company has also earned recognition as one of the best employers in America. Forbes ranked Costco among the top ten World’s Best Employers in 2019 and number four among Canada’s Best Employers in 2020. Costco also made it to Comparably’s list of companies with the happiest employees in 2019.
Higher customer satisfaction comes from a higher focus on continuous improvement. Costco has continued to improve its work processes and operations as well as the in-store shopping experience for its customers. Apart from investing in technology to manage sales and customer service, it has also focused on optimizing its supply chain and inventory management system. Optimizing its business operations has led to higher efficiency and profitability. In 2019, the company expanded its depot operations and also opened the first of its several planned e-commerce fulfillment automation operations. The company is investing in digital technology and e-commerce to provide a more convenient omnichannel shopping experience to its customers.
In the retail industry, things that qualify as physical evidence include the physical infrastructure, packaging and any other type of material used for branding. Costco has 546 warehouses in the US. The growth of digital payments has nearly eliminated the need for paper bills. Moreover, the items sold by the Kirkland Signature brand include the brand name on their packages. The Costco label in red is also unmissable on the cardboard packets.
Other Sources: Costco Annual report 2019.
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|Pratap, A. (2020, February 8). Marketing Mix of Costco Wholesale. Retrieved February 8, 2020, from https://notesmatic.com/marketing-mix-of-costco-wholesale/
|Pratap, Abhijeet. “Marketing Mix of Costco Wholesale.” Cheshnotes, 8 Feb. 2020, notesmatic.com/marketing-mix-of-costco-wholesale/.