Costco Wholesale Corporation sells its products and services to businesses and individuals. Since the company operates as a wholesaler, businesses are one of its target audiences, because businesses are those who frequently buy products in large volumes. However, a great part of the company’s sales comes from individual buyers. Usually they are rather wealthy people, with annual income of $75,000-$100,000. Since Costco’s warehouses are, in many cases, located near some luxurious neighborhoods, inhabitants of those areas become the clients of the company.
Pricing Strategy of Costco
As for pricing, the major strategy of Costco is that their prices should be lower than those of the competitors. The company sells its products at prices 15-20% lower than other retailers or department stores. The philosophy of the organization is that while other companies are trying to sell at higher prices, Costco should be finding ways to sell even cheaper.
The business believes the major advantage of this strategy is, first of all, offering value. Secondly, this allows them to make sure there will be no competitors in their niche – the company makes its prices so low that nobody else can enter their market. Thirdly, the goal of low prices is not only to sell today, but to be building a brand and a system that will be in the market for years. Though shareholders’ income might not be as high as that of the rivals, Costco is aiming at long-term income instead of short-term financial success.
Costco Distribution Channels
The major distribution channels of the company are its warehouses, to which people come and choose products to buy. Another source of sales is their web-site, which allows buying items that might not be available at the warehouse. Among the advantages of the web-site is speeding up the sales process. For example, a customer may upload photos into the online photo center and pick the pictures up at the local warehouse in about an hour.
Selling at warehouses allows the company to save on fancy retail stores, salespeople, space rent fees and other attributes of traditional distribution. In addition, the warehouses’ working hours are shorter that those of other retailers, thus allowing Costco to save on labor.
Risks
Though the company seems to be pretty successful, it is exposed to certain risks related to both the country’s economy and the company’s operations mode and strategy. According to Costco, among the greatest risks of the company is strong competition – Costco competes with a great number of retailers, department stores and other entities that sell similar products.
Another risk lays in economic factors, including foreign currency risk, since the company does operate internationally and has many warehouses abroad.
Thirdly, success of the company’s development is highly dependant on its ability to find good places for their new warehouses. In this aspect, the company is competing with a great number of other organizations. Furthermore, the nature of Costco’s business makes the company very dependant on its suppliers – so the supplier’s performance plays a great role in the success of Costco.
Source:
- Costco Wholesale Corporation. FORM 10-K. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended August 29, 2010.
Alla Kondrat - Alla Kondrat+ is a Feng Shui topic editor at Suite101.com, as well as a full time freelance writer and translator (Russian and Ukrainian). ...
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