Costco Case Study Analysis (HBR)

Case Analysis on Costco Companies Inc.

Group- 5 Mastahat Mastahat Ahmed

11164011

Arif Md. Salehin

11164012

Md. Nur Rahman Abdullah

11164020

Md. Salim Sarker Sarker

11164021

Md. Jahidur Rahim

11164035

Tabrez Nazir

11164022 1116402 2 1

Case Introduction •

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On July 21, 1998, Pat Turpin, Vice president of  Executive member services for Costco Companies Inc had to recommend how to market a new service program Costco developed developed a portfolio of services Services would be available with a annual membership fee of $ 100 Testing was also conducted

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Case Introduction Introduction Never really had to market before Through services they wanted to offer good value to customers Turpin felt, marketing a new service related program is a big challenge Selling insurance is very different different from selling products • •

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Background of the company •

Costco Companies Inc.-founded Inc.-founded in the t he north west of United States in 1983

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Costco followed followed the business format of price club

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Costco also expanded internationally and in other parts of US

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In July 1998, Costco operated in 24 states – UK, Canada, Mexico and Asia with 278 outlets

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WarehousesWarehouses- designed to operate efficiently

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Costco had two types of members 4

Background of the company •

They had 25 million card holders

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In 1997 through membership fees they earned $400

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In FY 1997- earned $312 million on sales sale s of $21.5 billion

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Costco provides- good brands, large size at good value

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Through high volume purchase and close relationship –

low price advantage advantage •

Family like working environment- low turnover 5

Identification Identification of issues i ssues

Major Issue

“Marketing a new service program”

Significant Challenges • Method for marketing the service related program • Selecting the target customer • Pricing the service is difficult  “It is more than just a marketing marketing question”  6

Identification of issues (Contd.) (Contd.)  Other related issues •

Not trying to improve/stopping improve/stopping tendency

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Limited SKU

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Iron clad rule and price lowering trend

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Focused on large purchaser

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Management capability

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Brand image

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Traditional marketing approach

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Analysis of issues •

Costco is new in service off offerings erings

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Selecting target customer customer is a BIG challenge

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Product offerings offerings vs. Service off offerings erings

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Previous record of stopping many offerings like- paper towel, orange juice Less variety in off offerings erings may create an impression among the consumers that that “This “ This service is not for me”

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Price lowering trend may create suspect in consumer mind 8

Analysis of issues (Contd.) (Contd.) •

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Focusing only on the Large purchaser may not be a wise decision in service servi ce offerings offerings Percentage Percentage of members who might use the services varied - Long distance telephone service (All Members) - Credit card processing (20% of business members) - Home owners tended to refinance or move only once in seven years - Health insurance carries some restrictions - For auto insurance members had to pass credit screening

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Analysis of issues (Contd.) (Contd.) •

Employees-not much capable to deal with service offerings - New services require PERSONAL SELLING TOUCH - Employees encouraged the shoppers to sign up - Unable to explain the benefits

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Working as ADC may destroy the brand image of Costco - Memory of bad service stay longer than the memory of  good service in the consumer mind - To reduce cost Costco was trying to deal with newer organizations 10

Analysis of issues (Contd.) (Contd.)  Low response rate of direct mail

- Washington business members generated 1% response (for Health insurance) - Full package in four states generated 4% respons response e •

Generic mail to all the members

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Members were not aware about the program

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Difficulty in comparing prices

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Difficulty in switching services

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Negative Negative perception of consumers

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Recommendations •

They should not try to do a lot of things at the same time

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They should increase variety in their offerings

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Iron clad rule for making profit should be relaxed relaxed

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They should be consistent in bringing change or quality improvement

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They should offer the service of established brands brands

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Employee capabilities should also be increased

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They can also offer services in i n international market

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More human touch should be there in service off offerings erings 13

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Thinking out of the BOX Changing the Old School Ideas •

Teaser mails: doing it in 1998

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Unusual Shaped Leaflets and Flyers Flyers

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Printed Materials- used in daily life

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Lots of BTL can be done

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Thinking out of the BOX •

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They should not only consider the bulk purchaser of  services Considering only the price; focus more on customer customer service for offerings

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Conclusion •

Service offerings could be profitable for Costco because service has shorter payback period compared to building and stocking stocking in the warehouse

 “Playing with price can not be effective always” 

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