Costco Wholesale Corporation began operations in Seattle, Washington in September of 1983. The firm operates an international chain of membership warehouse that carry quality, brand name merchandise at considerably lower prices compared to conventional wholesale or retail stores (Costco Wholesale 2013). The company was founded by James Sinegal, current CEO and President of the firm, and Jeffrey Brotman, Chairman of the Board of Directors. The company merged with a Delaware company called The Price Company in 1993 to form Price/Costco, Inc. The Price Company established the first concept of a membership warehouse. The firm changed its name in 1999 to Costco Wholesale Corporation and moved its headquarters to Washington. Costco is currently the largest retail store in the industry.
The external environment of marketing (Trends)
There has been increase in popularity of warehouse clubs and supercenters over the last few decades. A key trend in the industry is selling products over the internet as many people continue to make most of their purchases through the web. Costco managed to increase their sales by 59% over the internet after realizing most customers bought products over the internet. In addition, many retailers are competing to find more efficient ways of lowering operating costs. Costco continues to devise ways that can help it reduce its operation cost. To that end, Costco can easily sell its goods and services to customers and lower prices and provide and high value by building stores with little frills compared to conventional wholesalers and retailers (Costco Wholesale 2013).
- Ch4: Social factors that affect marketing Customer profiling
Costco segment its customers into different groups. Costco derives majority of its customers from business owners. Start up businesses come to Costco to purchase supplies, office furniture, and other products that will help in running a business. Additionally, the firm stocks a variety of goods and services that appeal to established business that need to maintain their operations and replenish. Costco also sells to individual customers seeking quality products at affordable prices. The firm attracts a large number of middle class families and households with an average income of more than $75,000 and visit the store on an average of 22 times a year (Costco Wholesale 2013).
- Ch. 5, Product and product promotion: Product mix
The firm sells a relatively wide selection of goods and services at relatively lower prices. The company sells limited selection of private and nationally branded goods and services to its customers. However, the firm has limited choice for customers as compared to other retailers like Wal-Mart that stock about 100,000 types of household items compared to 4000 types of household items. This reduces the competitive advantage of Costco because if customers feel dissatisfied by a product that Costco offers and lacks an alternative to choose from, they will then move to another store like Wal-Mart.
- Ch 5 5ps of retailing: Pricing
Costco has high bargaining power by aggressively acquiring supplies from few vendors, then drive costs down for its members and sell in large volume. The firm achieves low price by refusing to mark up prices for any good more than 14% compared to other stores which usually carry a markup of 25% to 5o%. In addition, the firm has different prices for each membership. Charging lower prices and offering high quality goods and services has enabled the firm to remain competitive in the wholesale and retail industry.
- Ch 5 5ps of retailing: Presentation
The firm operates in a warehouse type of setting with the average size of their warehouses around 140,000 square feet. Costco stores its merchandize on racks above the sales floor, which are displayed on pallets containing large quantities of each item. Costco displays the most expensive merchandize in front to enable customers notice them easily. These include flashy toys such as flat screen TVs and iPods, and bargain diamonds. The firm does this with the intention of attracting impulse shoppers to make large purchases. The firm’s marketing manager understands that customers can feel weighed down when entering a warehouse because of the large size. It is the responsibility of the store manager to understand their customers in any particular location, and then present products in a way that entice these customers to increase sales.
- Ch.5 Consumer decision making
Costco limits the number of employees they have on the sales floor. This is done with the intention of reducing the number of allowing customers to make their own purchase decision-making process before making the actual purchase. This works for the firm as customers do their homework before making the actual purchase. Costco does not employ commissioned sales people. In general, customers feel satisfied with the benefits they receive from being a Costco member, which is illustrated by a strong renewal rate 88% (Costco Wholesale 2013). Allowing customers to do their homework before making a purchase enhances customer satisfaction and consequently increases profitability of the firm.
- Ch 4, Research: Market research
The firm continues to engage in applied research in an attempt to develop new and improved products that will create value for their membership (Lamb, Hair, McDaniel 372). Costco focus their research on their consumer behavior, customers’ wants and the latest trends in the marketplace. After conducting research, they then provide goods and services at discounted prices to meet the results of their research. Additionally, Costco conducts research on prime real estate for location of new stores. They search and compete for locations that will generate considerable amount of sales.
- Ch. 5 Use of internet in global marketing
Costco uses the internet to sell its products and services. This has enabled the firm to increase its customer base and profitability. Internet selling allows the firm to reach the global market and ensures that customers receive their goods and services through delivery services by partnering with parcel delivery service firms such as FedEx. The store has been able to increase its sales by more than 59% after starting to use internet to sell its goods and services (Costco Wholesale 2013).
- Ch. 5 Entering global market place
Costco has entered the global marketplace through alliances and partnerships. The firm entered the Mexico market through a 50%-owned joint venture of 31 warehouses with a local warehouse. The firm also entered Taiwan by opening five warehouses through 55%-owned subsidiary with a local firm (Costco Wholesale 2013). In addition, Kirkland Signature is a strategic alliance with manufacturers and suppliers, which include Bumble Bee and Martha Stewart. The company also engages in strategic alliances with Web Sites, Payroll Services, and Prepaid Express Shipping. These business agreements allow the firm to venture into foreign markets without undergoing long legal processes.
Despite being a relatively young company, it is leading warehouse retail. Generally, the plan of Costco has been very effective and should remain so for many years. The main reason for the company’s success is its positive attitude towards its employees, which in turn produces a positive impact on customers. This makes customers remain glued to the firm and enables them to market the firm through word of mouth. In conclusion, Costco will continue to grow provided they keep following their well-crafted ideas and clear concepts.
"Flexible Spending Account." Welcome to Costco Wholesale. N.p., n.d. Web. 29 Mar. 2013.
Costco Wholesale. Annual Report 2012, Web 29 March 2013.
Lamb, Charles W., Hair Joseph F. Jr., and McDaniel Carl D. Essentials of Marketing. 7th ed. Stamford, Connecticut: Cengage Learning, 2011. Print.