The popularity of warehouse clubs
Over the past few years, entrepreneurs have greatly integrated the concept of warehouse clubs. An example of a firm that has integrated this concept is Costco Company. Through this strategy, the firm has strengthened its market position and also increased its profit levels. Warehouse clubs refer to stores that provide a wide range of merchandise to the consumers. The popularity of these stores is associated with a number of reasons. For instance, the stores have integrated the concept of low pricing strategy. To achieve this, the consumers are encouraged to purchase in large quantities to receive price and quantity discounts. This makes the clubs famous to both small and large business owners.
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Product diversity enables the consumers to attain a high level of efficiency in their purchasing patterns. In addition, the popularity of these clubs is associated with the fact that they have integrated the ‘no-frills concept. This means that the non-essential elements of a product are eliminated. This means that the firms are able to formulate a competitive pricing strategy. The ultimate result is that a large number of consumers are attracted to be members of these clubs because consumers are price sensitive.
Similarities and differences between corporate chain stores and franchise
Franchise organizations refer to business establishments (franchisees) that operate through rights granted by another firm (the franchisor). This means that the franchisee operates within the directions specified by the franchisor. The entire operations of the franchisee are subject to the franchisor. Franchises can be owned by individual investors. In addition, the franchisee is required to make monthly royalty payments to the franchisor. On the other hand, the chain stores are owned by a particular central corporation. All the employees with a chain store belong to the ‘big’ business. Chain stores are managed by store managers who are the firm’s employees. This means that the managers can make decisions on their own. On the other hand, the management of franchises is conducted by the self-employed business investors.
Costco’s Target market and positioning strategy
Market targeting is one of the key elements that management of firms should consider. Through market targeting, the firm’s management team is able to formulate strategies that are specific to the identified market. This meets that the firm can address the specific customer requirement.
According to Morton (para.1-4), market targeting refers to the process through which a firm intends to satisfy product requirements of a given group of consumers. The article “Power retailing at Costco Wholesale” illustrates that Costco has managed to position itself effectively in the warehouse club thus attaining a high customer loyalty. The companies has targeted both individual and institutional customers. In its pricing strategy, the firm targets individual customers with relatively high discretionary income (Ellen 2).
According to Kotler and Armstrong (397), a company’s marketing strategy plays a major role in the process of a firm competing with its rivals. The article gives an illustration of Costco’s positioning strategy. The firm has positioned itself through, integration of product diversity and quality concepts. Quality as a positioning strategy has resulted from realization of the fact that consumers intend to maximize their utility by consuming high-quality products (Ellen 4). The company offers a broad range of products and sells them in bulk meaning that the more customers buy, the bigger the bargain. Through product diversity, the firm has managed to integrate pricing into its positioning strategy. In addition, the effectiveness with which the firm supplies its products to the market improves its market position through the establishment and maintenance of a good relationship with the customers.
To remain competitive within the industry, firms such as Costco are faced with intense competition in its distribution channel from other warehouse clubs such as Sam’s and Wal-Mart. In order to develop a competitive advantage in its distribution channel, it is paramount for firms to consider formulating effective competitive strategies. One of the challenges that the firm faces are retaining its customers. For example, Sam’s Company which is the firm’s top competitor has taken to dealing with small businesses that make up the majority of Costco’s customer base (Ellen 1). In addition, increments in the number of consumer substitute products have made it difficult for firms to attain a competitive edge through product differentiation.
The article depicts the powerful position that Costco holds in the warehouse club industry. The article depicts the reasons behind increased popularity of warehouse clubs. In addition, Costco’s target and positioning strategy are illustrated. These relate to high quality, provision of a wide range of products and price. Differences between franchise and chain stores are also explained. The article also shows the challenge that the firm faces and how it can attain a competitive advantage.
Ellen, Kuhn. “Power retailing at Costco Wholesale: shoppers are flocking to warehouse club stores and on one does this unique brand of larger than life retailing better than Costco.” New York: Confectioner. 2004. Web.
Kotler, Phillip and Armstrong, Gray. Principles of Marketing. 10th Edition. New York: Pearson Education, Inc, 2005. Print.
Morton, Linda. “Criteria necessary for a market segment: market segmentation definition.” Strategicmarketsegmenation.com. 2008. Web.