Costco Case Analysis

Costco Case Analysis

Costco is in an extremely competitive industry, they not only compete against other warehouse clubs but other types of discount retailers. In order to retain their 53% market share in the warehouse clubs they need to keep prices down as well as offer superior merchandise, prime warehouse locations and member service. Sam's Club's market share is getting fairly close to them at 37% and BJ's is only at 10%. Costco's members are both people in the business field as well as many others. They offer specialized membership plans for the different types of people that shop at Costco. I feel as though a major problem for Costco is the fact that Sam's Club is owned by Wal-Mart and often times their warehouses are located in a Wal-Mart plaza. Wal-Mart has an extremely loyal customer base and the association between them and Sam's Club will create a strong customer base for Sam's Club as well. They are quickly expanding and Costco will need to continue to offer different and more beneficial services for their members.

Costco's total revenue has steadily increased according to the financial statements from 2005-2008. Costco also continues to expand and open more warehouses which will continue to allow them to stay ahead of their competitors. Location is key to their business and the more warehouses that are available for customers the more revenue it can generate. Costco appears to be financially stable but there is still room for them to continue to grow and expand and keep their strong competitive position.

Costco does not do much advertising. They mainly focus on advertising for new warehouse openings, some mailings to new members, and mailings to let customers know of their new promotions. They have found that majority of their new members stem from word of mouth more than from their advertising. These mailings allow their marketing costs to stay extremely low compared to their competitors. I would recommend that Costco try to reach out to more individual customers as well as the business that they target. They should send out mailings to people in the warehouse's area to try and reach out to them to become a member. While word of mouth is extremely important customers will be even more apt to become a member if they have some information that they can look at such as what deals they are offering and what exactly the different types of members entail. They should also try to make customers more aware of their website and the different products offered online to create more revenue from their customers.

I feel as though Costco uses the correct set-up for their warehouses so that they are able to offer their low prices because of their extremely low overhead. People do not go to Costco because they are looking to shop somewhere visually appealing, they are looking for significant savings and the layout allows them to easily do so.