The Costco Wholesale Corporation Marketing Essay

The Costco Wholesale Corporation Marketing EssayCostco Wholesale Corporation is the largest membership warehouse club chain in the United States with an aim to offer low prices on the selective and specialty brands in the wide go astray of products. Costco opened its first warehouse in 1983 and since has freehanded to become the fifth-largest retailer in the United States and seventh-largest retailer in the world. Currently headquartered in Issaquah, Washington, Costco has 614 warehouses with 67.4 million members and 160, 292 employees worldwide. Costco began its journey in Seattle, Washington with its business model kindred to that of Price Club. Price Club was founded in 1975 by Robert Price and has been considered the pi unmatchableer of the warehouse stores. Its membership was besides available to business customers and certain groups such as employees of local businesses, nonprofits, or g all overnment. Shoppers paid a membership fee to the company to buy bulk products at d iscounted prices in a no-frills warehouse setting. Costco was founded on the basis of the same concept however, it started to expand customers to non-business members as well to raise their profit. In less than six years, Costco became the first company ever to grow from zero in to $3 billion in sales. By the early 90s, it had outperformed its rival club, Price Club. However, Sams Club became successful in surpassing them both. Face with threats of a takeover by Sams Club, Costco and Price Club entered into a partial merger in 1993, creating the nations largest warehouse chain. The newly formed company, named PriceCostco, focused heavily on world-wide expansion. However, the company in short faced a breakup due to disagreements between the two leaders, Jim Sinegal and Robert Price, regarding company direction. Sinegal continued to manage PriceCostco slice Prices breakaway company was named as Price Enterprises. In 1997, the company changed its name to Costco Wholesale and all its Price Club locations were rebranded as Costco.SWOT AnalysisStrengthsWeaknessesNo-frills onslaughtLow product and services promote managementSatisfied employeesMembership LoyaltyHigh inventory turnover compared to its competitorsIncredible return policyGreat membership benefitsPrivate chasenot enough warehousesWeak advertisingNo self-checkoutStore hoursContributing to higher carbon footprint and pollution due to bulk-packaged productsOpportunitiesThreatsFuture expansionPrivate label growthCostco.comEconomic downturnStrong competitionDiversification in terms of geographyPolitical, cultural and ethical issues with international expansionStrengthsCostcos no-frills approach has helped the leader keep its overhead costs low and in turn offer great prices to its customers. Costco does not let fancy buildings, salespeople, and big advertising bud drags get in the way of providing great values. It has been successful at keeping overhead costs low by eliminating costs historically associat ed with wholesalers and retailers, such as delivery, billing, and accountancy receivable. Costco buys its merchandise directly from the manufacturers and route it either to a cross-docking consolidation point or directly to their individual warehouses. Their depots receive container-based shipments from manufacturers and reallocate these goods for shipment to their individual warehouses in less than twenty-four hours. This allows Costco to eliminate many of the costs associated with traditional multi-step distribution channels by maximizing freight volume and handling efficiencies. Traditional steps generally include purchasing from distributors as opposed to manufacturers, use of central receiving, storing, and distributing warehouses, and storage of goods off the sales floor. Costco passes the savings gene esteemd from elimination of these traditional costs to the consumers by not marking up its merchandise more than 15%. In comparison, a supermarket may mark up its merchandise by 25% while a markup by department store may be up to 50%.Costcos strategy to offer limited selection of nationally branded products in a wide range of merchandise categories has helped the business generate high sales volume and quick inventory turnover. It carries fewer than 4000 items as compared to 40,000 items at a supermarket and 100,000 items at Walmart. For example, Costco may only carry one size of Aspirin bottle containing 350 pills, whereas a Walmart may carry two or more diametric sizes of Aspirin bottle. Narrowing the number of options increases the sales volume of each, allowing Costco to squeeze deeper and deeper bulk discounts from suppliers. Because of high sales volume and quick inventory turnover, Costco sells it inventory before it is inevitable to pay many of its merchandise vendors. It can use cash received from selling its inventory to pay it vendors and thus avoiding financing and payment plans.Costcos additional efficiency lies in its strong managerial g round. Costco believes in a homegrown approach to management by promoting from within the company. The majority of its live home and regional affair team members are home grown, which means that they started in their warehouses, depots, and business centers, learned the business and moved up within the company. One great example is its current CEO, Craig Jelinek. He started his career with Costco almost 28 years ago by managing a single warehouse however, he is now responsible for managing almost over 600 warehouses. In addition, Costco ensures its employees satisfaction by providing them with generous wages and benefits. While this practise may be more expensive for Costco, they have an off-setting cost containment effect. Its turnover rate is unusually low at 17% overall and just 6% after one years employment. In contrast, Walmarts turnover rate is 44% per year, which is keep out to the industry average. Due to its low turnover rate Costco saves money spent on recruiting, hiri ng, and training. It takes cares of its employee, which in turn take care of its members. Smiling employees help secure Costco the best shopping experience.In addition to low prices and great service, Costco has a very generous and hassle-free return policy. It offers a 100% satisfaction guarantee on all of its products including food, furniture, jewelry, and electronics. If a member is not 100% satisfied with the purchase, they may return it at any time for a full refund at that place are no time limits with the exception of electronics. Electronics, such as televisions, projectors, camcorders, touchscreen tablets, MP3 players, and cell phones, must be returned within 90 days of purchase. However, Costco offers a two-year manufacturers guaranty on its electronics free of charge. Perhaps, its the low prices and great shopping experience that Costco has been able to retain its members successfully. In the United States and Canada, it has been able to keep 90% of members, while it retains 86% of members worldwide. This number is even higher for business members at 93.7%. In addition, other great membership benefits offered by Costco contribute to its success in retaining members. It has formed strategic relationships with outside parties to ensure that its members can be provided great warehouse prices for additional products and services that range from health and auto insurance to five star vacations.Costco has alike been very successful with its hush-hush label offering, Kirkland Signature. It is now considered a strong private label offering as it competes with many national brands in an ever-expanding range of categories. After 19 years since its launch, the private label products now represent only 15% of the items carried by Costco but generate 20% of its sales dollars. The terminus of the company with Kirkland Signature products is to provide equal or better quality at discounted products. It believes that it has the capacity to increase the sales penetration of its Kirkland Signature products to 30% over the next several years, while continuing to provide its members with quality brand name products that will always be part of its product selection.WeaknessesAlthough strengths exceed Costcos weaknesses, it until now needs to address them for the betterment of the companys future. Its warehouse locations are mainly concentrated in urban areas with higher population densities versus their competition Sams club who contracts to place their clubs in the suburbs. It may be very time consuming for someone to shop at Costco who does not live nearby its coverage areas. In addition, long lines at the checkout are the subject of many complaints made by Costco customers. In comparison with BJs, Costco does not have self-checkout lanes while BJs has well managed self-checkout lanes. Their store hours are excessively a big setback for busy members. Many of the other membership clubs open early for the convenience of business members a nd stay open late to adjust busy families.Another weakness of Costcos strategy is that they spend very less on advertising. They generally rely on reputation and word of mouth advertising. However, one of Costcos biggest competitor, Sams Club, spends about 50 million dollars on advertising and direct mail promotions. If Costcos competitors are able to take away its market share due to inadequacy of promotional activities, it may adversely affect Costcos future performance.Since many of Costcos members may purchase too much stuff unnecessarily due to its bulk packaging, the practice may lead to higher carbon footprint and pollution. Costco offers bulk-packaged products to target large families and business owners. However, many of its members are not large families or business owners they choose to stop at Costco because they like the products and prices. As a result, they end up purchasing more than their needs and create unnecessary waste. It may be seen as a negative because it is against current mainstream green marketing.OpportunitiesOf the 614 Costco warehouses worldwide, nearly three quarters are located in the United States. Costco can come upon opportunities to increase international expansion that will help fuel decades of future growth. Recently, India and China have become the choice of retail expansion for big businesses like Walmart. Similarly, Costco can find ways to increase its presence in these markets as well. As more stores open, more opportunities will be created for Costcos private label, Kirkland Signature, products to compete against big brands. Growth of its private label can likewise be fueled by looking into introducing more margin enhancing products.Growing trend of internet shopping can as well open up many opportunities for Costco. Costcos current website, Costco.com, is currently members only. To target members that may not have the privilege to shop at Costco warehouses, it can offer online only membership. This approach can help Costco rapidly expand its market saturation. Additionally, it can lead to improved margins while simultaneously improving revenue growth. Costco can also take advantage of the current economic downturn by finding more high quality products at affordable prices from various vendors that may not have been available before.