Costco's customer loyalty strategies and franchise distribution expansion

Marketing Strategies in Costco's Retail Stores

Retail Store Loyalty

Besides being one of the leading U.S. retail stores, Costco has won the hearts of many customers. As a customer, I have maintained my loyalty to this retailer, thanks to their small, surprise gifts that often remind me to visit the store in a delighted manner. Often, these unexpected gifts reflect the law of reciprocity, meaning the company responds to my positive actions with a positive action (Dahmen, 2004). The gifts range from simple things like a digital card. However, I feel that Costco could improve their customer experience by offering a personalized, compelling and seamless brand experience. While seeking to satisfy consumers' demands, the retailer must focus on the degree of involvement that consumers have with their brands across channels. Therefore, Costco must deliver value to me to continue earning my loyalty. In the wake of e-.commerce boom, Costco needs to think about how they can expand their loyalty strategies to the online environment. As one of their consumers, I have embraced social media and mobile devices; thus, Costco must understand that the loyalty mix has become significantly more complex.

Games are another approach that Costco uses to ensure that I remain loyal. This strategy has helped in solidifying their brand image. The company organizes frequent contests and sweepstakes whereby the winner gets rewards. Since 2011, I have been playing their games, and this proves my level of loyalty. For instance, once I place two unique orders, regardless of the price, I qualify to play a game for an opportunity to win free stuff.

2. Distribution Strategies (Starting a Franchise)

The current economic downturn is motivating me to enter into business. In fact, I am considering purchasing a franchise because of the associated benefits. One notable advantage of franchising is the ability of the franchisor to shift the responsibilities and costs of complying with payroll taxes, laws, permits, insurance and zoning compliance to the franchisee. The only thing I cannot shift to my franchisee is the burden of monitoring the franchise network. Therefore, I must have a supervisory workforce to offer visits to each unit, conduct test compliance, additional training and project problems within the franchise system (Lamb et al. 2009). Besides, franchising is the best approach to access the best talent. Through franchising, I will be able to find talented individuals to manage my business the hardest working, and most qualified people prefer to invest in operating a business for profits instead of taking a salary as a worker. So through franchising, I will get hardworking people to build my business.

This approach has drawbacks too. As a franchisee, I will not be completely independent. I will be expected to run my business according to the restrictions and procedures stipulated by the franchisor in the franchising contract. Usually, these restrictions include the services or products that may be offered via geographic territory and pricing. For me, this is the most serious drawback to purchasing a franchise. Moreover, besides the initial franchising fee, I will be required to pay ongoing advertising fees and royalties. I must carefully balance support and restrictions offered by the franchisor with my ability to manage the new business. This means a damaged, system-wide reputation could adversely affect my franchise.

4. Marketing Chapter 15

Costco's channel management process is unique in that it limits the number of different items on their shelves. They have a practice of evaluating stock keeping units (SKUs) separately and chooses both emerging brands and category leaders to sell (Dahmen, 2004). Their targeted SKU selection helps in reducing operational expenses by simplifying the in-store management and streamlining their supply chain. Moreover, their SKU constrained climate restricts the autonomy available Consumer Packaged Goods (CPG) companies. Most of these firms are accustomed to possessing reputable real estate in-store aisles.

Unlike rival retailers that earn income from merchandise markups, Costco sells merchandise at near break-even levels. Further, they generate most of their profits through membership fees. I would recommend other retailers to imitate such components of Costco's channel management because its model would enable the companies to put relentless price pressure on CPG suppliers while selling goods at low-profit margins (Gillespie & Hennessey, 2011).

However, I think Costco needs to make a few improvements. Of urgent concern is their heavy focus on margin percentage. It appears obscured when the company concentrates too much on margin percentage and inadequately evaluates their margin dollars when evaluating the value of channel management opportunities. It is recommended that Costco changes their mindset from a focus on percent margins to total dollars generated (Gillespie & Hennessey, 2011). Though the company would not deliver the same gross margin as a mass retailer, the firm will record large sales figures. It is advisable not to overlook Costco's scale and size as a national retailer because some of CPG customers tend to sell more at Costco than at Target or Wal-Mart.