What is unique about Costco’s channel management process? What components can other retailers borrow or implement? Costco, the largest warehouse club retailers in the United States, was, first, a unique concept. The main purpose of shopping at establishments like Costco is to get low prices. Costco arrived in the market with a specific channel management that includes:
· Goals: offering a broad range of brand name and private label merchandise at extremely low prices.
· Policies. Costco does not sell anything in its warehouse stores with a margin that is higher than 14%, except for its private label pro ducts, Kirkland Signature. Kirkland Signature products may have margins that reach 15%.
Costco has maintained the same membership fees for most of its 600 locations for the past 5 years. With commodity prices rising, Costco could raise prices, but tries not to. When the cost of bananas increased in early 2011, Costco raised the per bunch price by 4 to 5 cents, but reduced the price once the cost of bananas fell. This frugality and cost saving mindset is engrained in the Costco culture. Most Costco executives answer their own phones.
· Products. Costco carries approximately 4,000 SKUs— only the fastest-selling flavors, sizes, models, and colors from a single vendor in each category. This efficient product sourcing results in several outcomes: high volume of sales, rapid inventory turnover, extremely low prices, and better product manageability.
· Sales/Marketing Programs. Costco spends little on marketing and promotions, except for the occasional direct mail to prospective new members and coupons to regular members. Costco is a one-level channel retailer; other retailers could save money buy implementing that. Retailers could also reduce the number of products that they
