Group 1 Costco Seminar One Project

MKT 436 Group 1

Professor Aaron Nilsen

Karen Brooks, Victoria Brown, & Kristie Carino

Wednesday, April 8, 2015

Seminar One Integrated Strategic Marketing Plan

COSTCO

Who Did What

Karen

1. Product Overview – Discuss the following elements in detail 

a. Introduction

b. Problem Statement and Issues

c. Advertising/Marketing Objectives – Your recommendations

d. Aims of your campaign

Victoria

2. Product Profile

a. Product Name

b. Product Classification

c. Product Characteristic

Kristie

d. Distribution

e. Product Life Cycle

f. The Brand

Blog post week 1

 Introduction

            Our group chose to do the integrated strategic marketing plan for Costco. Costco is a chain of wholesale warehouse stores. In order to shop at Costco, customers must purchase a membership. This membership entitles customers to shop at Costco stores, which offers products at lower prices than most retail stores. In this paper, we will discuss Costco and plans to improve their marketing strategy.

Problem Statement and Issues

One issue that is concerning about Costco is the large percent of its revenue that is reliant on California. Approximately 70 percent of Costco’s overall sales come from the United States, and of that revenue, 32 percent comes out of the state of California alone (Kalogeropoulos, 2015). This is concerning because Costco’s success is too dependent on this one single market. While it is natural that a large portion of any retailer’s revenues would be generated in California since “California's GDP is over $2 trillion per year, which makes it easily the biggest market in the United States” (Kalogeropoulos, 2015, para 7), no other major competitor of Costco has a concentration that is similar. While California’s economy is currently thriving, it could falter at any time. If this were to happen, then Costco would suffer greatly. Therefore, Costco needs to diversify their revenue into other areas of distribution.

Advertising/Marketing Objectives – Your recommendations

In order to increase stability of Costco’s revenue, they need to increase their market share throughout the rest of the United States and in other countries, and increase their online sales. The first step to increasing market share in other states and countries is to open stores in other areas. When opening these new locations, Costco needs to have large “Grand Opening” celebrations offering local residents incentives to come check them out.

The second step in diversifying Costco’s revenue concentration is to increase their online presence. Costco needs to advertise on websites that their potential members are already on. They also must optimize their search engine placement, ensuring that they come up in the listing when customers are looking for any of the products that they are selling. 

Aims of your campaign. 

            Our campaign will be aimed at increasing Costco’s revenues that are generated in locations outside of California and increase online sales. We will encourage Costco to open locations in target areas which could support a warehouse. We will increase online presence to generate additional online sales.

 Product Profile

            Costco is a chain of warehouses that carry quality, brand name merchandise, at low prices, all over the world. Costco was designed to help smaller, and medium sized businesses, along with personal needed products to create a pricing strategy (Trewin, C.). Costco's pricing is low and marketed to businesses, and larger families. Costco is a public business, but one must buy a membership to shop at any location. At Costco members can buy in bulk. Costco buys their bulk products form single vendor, this is to ensure that they can offer lower prices on their products and reduce the marketing cost, along with pass on their savings to consumers (Vault. INC). Costco has its own signature house brand called "Kirkland".

Product Name:

             Costco doesn’t not carry many multiple brands, but has its signature, private brand Kirkland (Trewin, C.).  Kirkland is known for their quality brand that offers excellent value, with exclusive product catorgires such as; groceries, confectionary, TV media applications, automotive supplies, toys, hardware, sporting goods, watches, jewelry, health and beauty products, tobacco, furniture, and office supplies (Vault. INC). Costco offers 330 different private labels that make up more that 15 percent of their sales (Dye, C.). Costco services are always trying to create as much value as they can for their customers. Therefor if the customers is interested in a high-end products that are not available at stores, the product can be purchased online at Costco.com.

Product Classification

            Costco's product classification offers; convenient goods, shopping goods, specialty products, and unsought goods. Costco's signature private brand Kirkland, accounts for less than 20 percent of their stock keeping unit (Lemberfer, V.). A product classification is used to help markets focus their efforts using customer’s behaviors, to help clearly define a target market. Costco's target market is small and medium business, along with larger families (Trewin, C.). The philosophy that Costco has created to abide by is, aggressively buying bulk from a handful of vendors for members to buy and sell products in volume. This classification is designed for products to be purchased and resold by other businesses.

Product Characteristic

            Costco has many different characteristics as a business and is very often compared to Sam's Club, and Walmart. Since 2013 they have become the fifth largest retailer in the United States, and ninth in the world, offering 4000 high quality products, 330 private labels, and their own signature brand; Kirkland (Dye, C.). One major characteristic strength that Costco has is they are a public membership warehouse, offering high quality products and extremely low prices. Costco controls their prices while saving cost on overhead such as packaging, and merchandise bagging; all while still maintaining high-quality (Trewin, C.). Costco is able to keep their low prices because they aggressively buy from a handful of vendors.. Costco also has a great customer satisfaction loyalty program. Costco ensures this by offering refunds on all products to not only ensure the satisfaction of their customers, but to help their customer retention (Trewin, C.).

Distribution

Costco is a distribution center; a “facility that is usually smaller than a firm's main warehouse and is used for receipt, temporary storage, and redistribution of goods according to the customer orders as they are received. Also called branch warehouse or distribution warehouse” (Web Finance, Inc. , 2015).   Costco’s distribution centers are called depots.  “Costco has 17 Depots around the US” (CNBC, 2012).  The depots receive all the products that Costco carries from health and beauty items to grocery items daily.  The depots then distribute the merchandise to the local stores. 

https://www.youtube.com/watch?v=cZ5YrhvZ1sI (AirdrieEcDev, 2013).

Product Life Cycle

The Kirkland brand is Costco’s label.  Consumers love the Kirkland Brand.

https://www.youtube.com/watch?v=t21VtHhZHFI  (Buzz Feed, 2014).

Costco uses the product demand life cycle to its advantage.  Costco carries a limited amount of skews in their stores, these skew numbers include seasonal and “treasure” items.  For instance, Costco has a Vitamix road show twice annually. They sell the Vitamix at a discounted price to members which includes a hefty accessories package. But when the show leaves so do the blenders.  Consumers know when they see something they love to but it!  Because when it is gone; it may not return for a very long time. If it returns all. Costco customers are known for going into the store with a list but coming out with much needed merchandise that was not on their list. 

The Brand

The brand is what makes Costco so successful.  Customers trust the brand for quality.

Brian Woolf, a global leader in loyalty marketing published an article on Costco.  He did a retail marketing strategy on Costco and this is what he found about what makes Costco different:

“What Makes Costco Different?
The above results are impressive, a result of doing things differently from other retailers. Consider these statements of Jim Senegal last month:

• In the US, Costco’s average Warehouse has annual sales of $168m. In contrast, the average Sam’s is $91m. That’s $3.1m per week at Costco vs $1.8m per week at Sam’s.
• Costco has 3,700 active SKUs in their core WH business area. Compare that to a Walmart Supercenter with 140,000 SKUs.
• Costco’s high sales are achieved without any advertising (no newspapers, radio, TV or billboards), apart from targeting marketing when opening a new WH. New members are added due to positive word-of-mouth of existing members.
• 91% of all members currently renew their membership in US/Canada (i.e., the attrition rate is only 9%).
• Top management pays extremely close attention to daily sales, new member sign-ups, member renewals, average spend per visit and average number of member visits per month.
• Warehouse Mangers are the key to Costco’s success. Their job requirement is to develop people. The company can be judged on its WH managers, 76% of whom started as hourly employees, reflecting its promote-from-within corporate value.
• The employee turnover rate for all employees is 10%; it’s 6% for employees who have worked over one year.
• Costco constantly works at bringing items to market at the lowest cost. Rather than increasing profits by raising its margins, it chooses to increase profits by selling more volume at lower margins. If Costco cannot obtain an item at the lowest cost, it will not stock it.
• Culture is not the most important thing—it’s the only thing. The same attitude about price, margin and productivity, etc., is seen throughout the whole company.
• Costco wants to build an institution that will be here 50-60 years from now” (Woolf, 2014).

            The Costco house brand Kirkland Signature does not attempt to be as good as the top brand in that category, it demands to be better.  The price is not always lower than the national brand.  Consumers, however like the house brand and trust that it is going to taste and perform better than the leading brand. Costco breaks many rules of marketing but still is successful. 

References

AirdrieEcDev. (2013, November 15). Costco Western Canada Distribution Centre. Retrieved from www.youtube.com: https://www.youtube.com/watch?v=cZ5YrhvZ1sI

Buzz Feed. (2014, December 3). Costco Facts That Will Change Your Life. Retrieved from www.youtube.com: https://www.youtube.com/watch?v=t21VtHhZHFI

CNBC. (2012, April 26). Inside the Costco Depot. Retrieved from video.cnbc.com: http://video.cnbc.com/gallery/?video=3000086634

Kalogeropoulos, D. (2015, April 6). The Biggest Risk For Costco Wholesale Corporation. The Motley Fool. Retrieved from http://www.fool.com/investing/general/2015/04/06/the-biggest-risk-for-costco-wholesale-corporation.aspx.

Web Finance, Inc. . (2015, April 6). Distribution Center. Retrieved from Business Dictionary.com: http://www.businessdictionary.com/definition/distribution-center.html

Woolf, B. (2014, September 22). What Makes Costco so Successful. Retrieved from www.brianwoolf.com: http://www.brianwoolf.com/articles/read.asp?id=49