The Company

Company Overview

Costco themselves answers the question “What is Costco?” with the answer “We are a membership warehouse club, dedicated to bringing our members the best possible prices on quality brand-name merchandise. With hundreds of locations worldwide, Costco provides a wide selection of merchandise, plus the convenience of specialty departments and exclusive member services, all designed to make your shopping experience a pleasurable one” (Costco, 2015). Costco offers three different membership options for customers to choose from. The basic option is the “Gold Star Membership” which cost $55 for an annual membership. This gives a customer the ability to shop in the store and is designed for personal use. The “Business Membership” is also $55 for one year, and is for business owners and managers, allowing them up to six additional card holders, giving them all the ability to make purchases for the business and for personal use. Executive membership is the highest option, costing $110 annually. This option gives members additional savings and a 2% reward on many purchases (Costco, 2015). Costco operates under the philosophy of “Keep costs down and pass the savings on to our members” (Costco, 2015). They are able to offer the best possible prices to members by combining a “never-ending quest for efficiency” (Costco, 2015), with their “large membership base and tremendous buying power” (Costco, 2015).

 Business Description

Costco’s business strategy is to concentrate on driving sales, and believes that “if sales are good, everything else will take care of itself” (Lutz, 2014). Costco has a “no-frills” (Lutz, 2014) approach to marketing and does not advertise. This is very much the opposite of their competitors such as Wal-Mart and Target. Costco also has a limited assortment of inventory. “Despite Costco's large store volume, it has been known to sell a fraction of the number of toothpaste brands as Wal-Mart, according to The New York Times” (Lutz, 2014). By limited the variety, they are able to increase the quantity of sales for the items they do carry, therefore driving down their purchase price on these select items (Lutz, 2014). One method of cost cutting that Costco chooses not to use is low employee wages. They feel that it is too important to customer satisfaction to be able to retain quality employees.

Company History

Costco opened its first location in 1976 “in a converted airplane hangar on Morena Boulevard in San Diego.” (Costco, 2015). Their name then was Price Club. They start out by only selling to small business, but eventually opened up to selling to a “selected audience of non-business members” (Costco, 2015). They found that do so increased their buying power with their suppliers, so it was a win-win.

The first “Costco Warehouse” location was opened in Seattle in 1983. “Costco became the first company ever to grow from zero to $3 billion in sales in less than six years” (Costco, 2015). In 1993, Price Club and Costco merged to form PriceCostco.  At this point, they were generating annual sales of $16 billion with their 206 locations. They went back to the Costco name in 1997 (Costco, 2015).

Key People

·       Founders - James D. Sinegal, Jeffrey H. Brotman

·       Chairman – Jeffrey H. Brotman

·       President, CEO, & Director – Walter Craig Jelinek

·       CFO, Director & Executive Vice President – Richard A. Galanti

·       Independent Directors – Jeffrey Scott Raikes, Susan Decker, Richard M. Libenson

·       (The Wall Street Journal, 2015).

Location and Subsidiaries

Currently, Costco has upwards of 71 million cardholders, which is not hard to believe when Costco is in 40 different countries, with 648 locations. Currently Costco has 461 locations in the United States.

Brands, Major Products and Services

Costco carries many different brands, but is known for their own signature brand, Kirkland.  Kirkland is known as a quality brand that offers excellent value, with exclusive product categories. Costco is known to offer many different products, in bulk packaging, at lower prices. 

Costco carries many different types of products such as:

• Sundries: including candy, snack foods, tobacco, alcoholic and nonalcoholic beverages and cleaning and institutional supplies.

• Hardlines: such as health and beauty, electronics, appliances, gardening and patio needs, and sporting goods.

• Softline: including apparel, domestics, jewelry, housewares, media, and home furnishings.

• Food: offering a variety of dry and packaged food, as well as fresh food including meat, bakery, deli and produce.

Costco also offers different kinds of services such as their gas station, pharmacy, food court, optical care, photo center, hearing aid care and services for travel needs. By Offering these products gives them an advantage over their competitors. If customers cannot find a product, they can always check online at Costco's website.

Corporate Vision

At Costco, their mission is to focus on bringing quality goods and services to the market at the lowest possible price every day, but to do it with integrity at every level of the company while valuing the interest of the stockholder.

Corporate Mission

At Costco their mission is to:

·       Continually provide our members with quality and services at the lowest possible prices.

·       In order to achieve their mission, they must conduct their business with the following code of their in mind:

Code of Ethics:

•                  Obey the law

•                  Take care of the members

•                  Take care of the employees

•                  Respect their suppliers

·       If these four things throughout the organization, the ultimate goal will be achieved this is….

·       Reward the shareholders

Company’s Current Promotional Strategy

Costco uses many different types of promotional strategies.  Costco pairs end cap marketing with samples. Costco is known for their awesome samples.  Costco advertises many of their items by having unlimited samples of items on special.  During the holidays they may have saplings of different desserts, meats like ham, pre made salads, different energy drinks and snacks.  The employees serving the snacks are well versed on cooking instructions, recipe ideas, cost and the quality of the product.  The samples are hard to resist.  The samples also allow consumers an opportunity to try something before they take a chance on an item they are buying in bulk.

Costco also has terrific online monthly specials on in store items and online only items, trips, and more.  Costco sends out a monthly mailer that highlights all items on special or available with in store instant rebate.  The advertisements are in full color and show a significant savings on top of the competitive club price.

Product Sales History

Costco has a no frills approach to marketing that yet is still out selling their competition.

http://www.businessinsider.com/costcos-simple-strategy-2014-9

Current Marketing Objective

“The intelligent Loss of Sales” - Jim Sinegal, Costco’s co-founder and recently retired CEO.  In this article Jim Sinegal explains the objectives & challenges Costco faces and why they market products the way they do. 

Costco: Breaking All the Retail Rules

Lori Gordon Logan and Michael Beyman|CNBC

Wednesday, 25 Apr 2012 | 4:42 PM ETCNBC.com

http://www.cnbc.com/id/47175492

Media Expenditure

Costco sends a monthly magazine to their members.  The Costco Connection.  This is available in print and online.  “The monthly Online Edition enhances the print version by adding video and audio content for a selection of articles and ads. This electronic version makes the magazine easy to find, print and share articles with family and friends”. The magazine is packed full of news worthy articles and information, recipes, and the household almanac.  The magazine is available in print, on line, as well as formatted for mobile devices.  

SWOT Analysis

Strengths

Costco strengths are what make them such a reputable brand. They have a great pricing strategy, and high buying authority. Costco has a strong brand loyalty and a strong brand in general, with their private signature brand “Kirkland”. Costco has a great strength in their extreme efficiency in their resource management.

Weaknesses

Every company has their weaknesses, but it is how the issue is overcome that matters. The weakness that Costco has is that they are too dependent on sales from one small geographical area, California. Another downfall is that Costco is mostly marketed to an older base of customers, and small businesses. Also, Costco’s private brand “Kirkland” has had slow growth over the past 20 years. Lastly, overall, the store offers many products, but it still limits customers’ choices.

Opportunities

As a business, Costco will always have many opportunities.  Costco limits the number of skus and products.  This allows them to constantly reinvent themselves.  They can bring in new products and offerings to their customers on a weekly basis.  The “Treasure Hunt” is an opportunity for Costco to meet their ever changing customer needs.

Costco also has an opportunity to increase their interaction with their customers with mobile marketing.  Costco has access to all of their customers through their memberships. Costco already advertises through monthly mailers and emails.  Now with mobile marketing Costco can bring deals and incentives, as well as recipes and the Costco Connection magazine into the palm of their customer’s hands.  Keeping them more connected with their customers.

Threats

One threat is online completion from Amazon & Pronto.com.  These businesses are competing for Costco customers.  They are making similar offerings to consumers, and shipping items in bulk directly to their door. Non-grocery merchandise and discounted items like stamps are being sold by online distribution centers.  This makes shopping even more convenient for busy shoppers.

References:

Costco. (n.d.). Costco Mission Statement. Retrieved April 15, 2015, from https://ems02071lb.egain.net/system/selfservice.controller?CONFIGURATION=1005&PARTITION_ID=1&secureFlag=false&TIMEZONE_OFFSET=&CMD=VIEW_ARTICLE&ARTICLE_ID=2877

Costco. Costco Wholesale Corporation. Retrieved from http://www.costco.com/membership-information.html.

Costco. (n.d.). Flexible Spending Account. Retrieved April 15, 2015, from http://www.costco.com/kirkland-signature.html

Lutz, A. (2014, September 30). Costco’s Simple Strategy For Outperforming Wal-Mart and Target. Business Insider. Retrieved from http://www.businessinsider.com/costcos-simple-strategy-2014-9

The Wall Street Journal. (2015). Company Info Costco Wholesale Corp. The Wall Street Journal. Retrieved from http://quotes.wsj.com/COST/company-people.