Consumer Behavior and Pricing Strategy of Costco - Essay Example

Introduction Costco Wholesale Corporation is the largest membership warehouse club in the United s. This firm enjoys the opportunity to generatehigher margins, lower marketing costs and low over-head of private-label products (Peter and Olson, 2007). In other words, it is clear that the success of this firm lies on its ability to achieve a large scale leading to its competitive advantage and a high value for customers. For this reason, Costco must eventually have substantial idea on consumer behaviour as integrated into its marketing strategy. This is the most crucial idea that the work at hand emphasises, but prior to seeing the big picture about it, it is also important to learn the other significant things about Costco. History Costco was originally operating under the name of Price Club in 1976. The firm is founded by James Sinegal and Jeffrey H. Brotman. In 1983, the first Costco warehouse was instituted in Seattle Washington. In 1993, Costco merged with Price Club, calling it PriceCostco, while dominantly employing the business model and size of Price Club, which generated billion dollar sales every year. However, Robert Price, the founder of Price club left PriceCostco and started Price Enterprises in 1994. This left Costco alone and led it to rebrand the firm as Costco Wholesale in 1997 including all those Price Club locations it had already established. Costco is the second largest retailer in the US and the fifth largest retailer in the world (Said, 2013). Today, Costco is known for its ability to provide high value for customers, especially when it comes to its highly affordable and varied product offerings. The company carries a “broad line of product categories including groceries, appliances, television and media, automotive supplies, toys, hardware, sporting goods, jewelry, cameras, books, housewares, apparel, health and beauty aids, tobacco, furniture, office supplies, and office equipment” (Sander & Bobo, 2011). Perhaps, one will call Costco a one-stop shop, with high affordability, enough to help the small to medium-sized businesses to save on their purchases for them to be able to resale. However, Costco’s leading sales came from individual consumer, the firm’s ultimate growth driver (Sander & Bobo, 2011). About the organisation There are many things to understand about Costco, which primarily include its values, mission, vision and objective. However, aside from this, ideas concerning its current related-marketing moves and stakeholders are also vital considerations in understanding this firm. Values, mission, vision and objective Costco’s ability to acquire profits and offer prices is in line with ethics, which can be depicted in the following mission statement. “Costco’s mission is to continually provide our members with quality goods and services at the lowest possible prices. In order to achieve our mission we will conduct our business with the following Code of Ethics in mind: obey the law, take care of our members, take care of our employees and respect our vendors. If we do these four things throughout our organization, then we will realize our ultimate goal, which is to reward our shareholders - Costco Mission and Code of Ethics” (Farfan, 2014). Costco saw the opportunity that when they keep cost down, they can pass the savings on to their members and when membership base is large enough leading to tremendous buying power, the result will be efficiency for the firm and the best possible prices for their customers (Costco Wholesale, 2014). It is clear in the mission statement of Costco that the firm values how the idea of becoming responsible in the society, primarily to their stakeholders and how it would conduct itself before them. Costco is after of implementing rules and obeying them, while continuing provision of the kind of respect that their stakeholders deserve. On the other hand, Costco’s mission elaborates how it is important for them to continuously provide high quality of goods and services even at a lower cost. Employing this leads Costco to obtain their goal of successfully rewarding their customers. In other words, Costco’s mission is integrated with its ultimate goal of enticing the actual need of their customers. Current marketing Price is assumed to be the most pivotal element in order for the exchange process to be initiated (Peter & Olson, 2007). Therefore, this leads to the idea that the actual pricing strategy is relevant to the link existing among price affect and cognition, price environment and price behaviour. The actual current marketing of Costco without question is linked to the importance of pricing strategy. Good quality merchandise at low prices is what Costco would want to offer to its customers in order to provide them the value and reward that they deserve. In order to make this happened, Costco ensures to acquire more members to widen its scale. When this scale is widened, as a wholesaler, Costco will also generate remarkable savings on costs from its prospective suppliers. This potential savings on costs, as stated in Costco’s vision and mission, will be rewarded to the members, allowing them to enjoy low prices on branded and high quality product offerings. The business model associated with Costco’s current marketing is simple, but since it is the first to initiate this in the industry, the firm remains to be the largest membership retailer in the US, which is due to its ability to acquire higher margins, lower marketing costs and low over-head of private-label products. Stakeholder analysis Originally, Costco was open for small to medium enterprises because of its wholesale. However, individual customer is later part of its stakeholders. For this reason it would be safer to include the members, vendors and employees as Costco’s ultimate stakeholders. Below are the general stakeholders of Costco and their individual impact on Costco’s business. It was found that each of these stakeholders has impact on Costco’s finance, organisation, legislation and business as usual.   Impact on Stakeholder group Finance (gain/loss) Organisation Legislation (planning) Business as usual Small to medium enterprises √ √ √ √ Individual/loyal customers/members √ √ √ √ Retailers √ √ √ √ Government √ √ √ Employees √ √ √ √ Marketing ideas The very basic ideas that are observed in Costco’s actual marketing activity are in line with the consideration of consumer costs and business costs. The actual marketing exchange is assumed to take its place when there is important consideration between the consumer costs and business costs (Peter & Olson, 2007). Peter and Olson argued that marketing exchange will usually be the product of the interaction between consumer costs and business costs. In the case of Costco, and particularly in its mission and ultimate goal and values for the customers, providing the lower price for quality and branded products seems to be a way of ensuring the high value satisfaction for the target market. This is a relevant competitive advantage of Costco. Costco is trying to ensure overall cost leadership in the process, allowing customers to be enticed by its product offerings. In theoretical consideration, overall cost leadership is a source of competitive advantage for an organisation (Porter, 1980). However, what is clear in the case of Costco with its low-price offerings is the consideration of value. A logical consumer based on the idea of Peter and Olson will find for a higher value, and a logical company will find for a higher profit. Costco, because of its scale will still ensure a higher profit margin, because of its ability to cut cost in its value chain. Conclusion The work at hand just presented the important details on how exactly the pricing strategy of Costco provides potential value on the customers and the significant value this has added to the target market. As found, customers are after of finding the right value for their money, which is a relevant factor that could ignite the actual exchange. On the other hand, an organisation providing product offerings is looking forward to realize profit, but in the case of Costco, providing low-cost offerings was made possible because of the firm’s large scale leading to its ability to generate higher margins, lower marketing costs and low over-head of private-label products. References Costco Wholesale (2014). Why Become a Member. Retrieved from http://www.costco.com/membership-information.html Farfan, B. (2014). Costco Wholesale Mission Statement – Profits and Prices Revolve Around Ethics. Retrieved from http://retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-Statements/Costco-Stores-Mission-Statement.htm Peter, J. P., and Olson, J. C. (2007). Consumer Behavior & Marketing Strategy (7th ed.). New York, NY: McGraw Hill. Porter, M. E. (1980). Competitive Strategy. New York, NY: Free Press. Said, S. (2013). The Top Ten Best Selling Magazines in the United States. Retrieved from http://www.therichest.com/business/the-top-ten-best-selling-magazines-in-the-united-states/ Sander, P., & Bobo, S. (2011). The 100 Best Aggressive Stocks You Can Buy 2012. Avon, MA: Adams Media. Read More