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Costco: A Case Analysis
Costco has long been a retailer of lower-priced goods. Now, the company is moving toward services like insurance, credit cards, phone plans, printing, and other options that could be accessed with a specific membership level. That level would cost users $100 per year, but testing of the options has been very positive in the majority of cases. Still, Costco has much to consider when it comes to whether they want to continue on the path of services and change what they normally offer that drastically. In order to determine whether they really want to move into more services, they will need to analyze both their situation and their market. Right now, they have good market share for what they offer, but they have no market share in the services market, since they are just considering moving into it. People are not familiar with the Costco brand where services are concerned, and Costco needs to consider that they have not had to market before. That will be something new to them, and they must study carefully so they can market correctly.
Additionally, Costco will be up against some stiff competition when it comes to insurance and other services, and that competition will come from well-established companies that have offered customers their services for years. Coming up with a good action plan that allows them to market effectively is crucial, as is the creating of contingency plans they can put into place if their original action plan does not perform well or if it has to be adjusted. Costco may find that their final plan becomes a mix of their action plan and bits and pieces of their contingency plans, so that they can use what works for them and what their customers want and need from them. Their action plan involves marketing their services moving forward, but they may have to adjust how they market to see success.
Right now, Costco is in a good situation as a retailer. It is a warehouse-style store that operates on the premise of providing a large number of goods and services at low prices. It is well-established and has been in the business for some time. Brand-name recognition is part of what makes it popular, and people shop at Costco because they know that they are going to get merchandise that has acceptable quality and a low price. Most people who shop at Costco do not think about getting anything else at the store other than the merchandise that they have come to expect. Because of that, Costco has been reluctant to move into other markets. Now, the company management feels that it is time to start doing something new, and that the Costco brand is well-enough established that it can handle providing customers with more choices and new, innovative options. That will help to make Costco a leader in more than one significant market.
Costco has cultivated its customer base over many years, since the company's early beginnings. Those who purchase items from Costco know that they will be offered low prices and that the quality will be good enough that they can use the item for a reasonable period of time. Costco has not positioned itself as a high-priced retailer, or a store where wealthy people would shop for high-end items. Instead, it has worked to market itself as a store where anyone can shop and get what they need for their home. When stores like Costco come from humble beginnings, they are often careful about the people to which they cater. That has been the case with Costco, and has helped to put the store into the strong situation in which it finds itself today. Of course, there is more to Costco's current situation than just staying humble. A great deal of hard work and company-building has been accomplished over the years, and that has made a significant difference in how Costco has been perceived.
Costco's market is large. They currently have stores throughout the United States, and their customers are generally very loyal to them. They also have some stories in foreign countries. Most of their customers are relatively affluent, more so than other stores with which Costco may compete. Because of what they can offer, they have a market size larger than would be expected. The market that they currently have can also be expanded, so that Costco can do more with what it has and can offer their services to people who would otherwise not know about them or be interested in them. Word of mouth has built most of Costco's current market size, but there is some concern that same approach will not work as well for the services that will be offered.
The growth of Costco's market is important. Naturally, all businesses want to grow and develop. That is how they acquire new customers, and how they move forward with their plans for expansion. Costco has grown its market mostly through people telling other people about their good experiences with the company. Originally, people were skeptical about the Costco model, because the prices seemed to be too good to be true. The concern was that if the prices were so low the quality must be low, too. Fortunately, enough people tried Costco and talked about it to others that people started to realize the quality remained. The market grew because Costco offered what it said it would offer - low prices, a membership that allowed shoppers to belong to an exclusive club, good quality, no frills, and a great shopping experience where people could buy in bulk and save a lot of money on the things that they wanted and needed for everyday life.
Market Potential and Forecast
Costco has great market potential, and the forecast for the company's future is bright. For example, Costco is currently in 24 states, leaving them 26 more to explore. They are also only in five foreign countries, which leaves them more than 100 into which they can expand. The market potential is important for any company that is thinking about expanding, because expansion costs money. Companies do not want to expand into a market where they will not be welcomed, and Costco is no exception to that. It is dedicated to expansion, but only when it sees that the expansion will be beneficial to the company and will offer it what it needs in order to continue to make a profit and please its customers. The forecast for Costco involves both expansion into new areas of the country and the world and expansion into new markets with the offering of services for customers.
The main market segment for Costco comes from affluent and upper-middle-class individuals. That is not to say that they are the only people who shop there, but they are more likely to shop at Costco than people who make less money. Costco is planning on expanding its market, though, and the company has to pay close attention to whether the market is one in which it can succeed or one in which the new endeavor may fail. Segmenting the market beyond the level of income is very important for Costco, because it is going to offer so many different kinds of services. Not all of these services will appeal to all of its current customers, of course, but Costco is aware of that fact and knows that it must consider each customer as a separate entity and then determine how the customers fit together in order to market to them in the correct way. By ensuring that they market to the customers who are interested in their services, they will sell more and get a better market share.
The customers that purchase from Costco are more affluent, but they are thrifty. Even though they have money, they are very interested in getting the best deal. They buy in bulk because it costs them less and is convenient, and they own large vehicles (like SUVs) to transport the items that they purchase. These customers also have large homes, because they need places where they can store the large numbers of items they buy in bulk. In addition to fitting certain financial demographics and projections about home size and type/style of vehicles, the customers of Costco are very likely to renew their memberships. On average, nearly 85% of the members renew each year, so that they can continue to get their savings and the items that they want and need for their homes.
Every consumer who comes to Costco is an individual, but yet they are all similar in many ways. It is important to understand the demographics of Costco's customer base, and also important to understand the way consumers buy things overall. Without a clear understanding of how consumer make their purchases, it can be very difficult to market to them correctly and to be sure that…[continue]
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