Do you want your customers to walk into your store and feel like they hit the jackpot? That’s the magic of Costco, a retail powerhouse whose strategy is to be the cheapest and the simplest store you can find.
I’m usually not a huge advocate for having the lowest prices on the market, but there’s a time and place for that too.
If you’re in a niche where you need to be the cheapest and most convenient in order to win, you’ll find gold in this Costco case study.
Understanding Costco’s Competitive Advantage
Competitive advantage is simply the edge a company has over its rivals. It’s what gets you more sales and more customers.
Having a competitive advantage is like having the best seat at a concert—everyone wants it, but only one can have it. Here’s how Costco books the VIP section at Rihanna’s concert every time (metaphorically, yes):
- Low prices: Keeping prices so low you’ll think you’re back in the ‘90s. They buy in bulk, negotiate directly with manufacturers, and maintain really thin profit margins. It’s like buying cereal by the truckload to get a better deal (it would be a bit weird if a truckload of cereal drove up to your house every week though. You do you I guess…)
- Membership model: If you want to join an exclusive club, but without scary rituals and secret handshakes – Costco is the place to be. Customers pay an annual fee for the privilege of entering their hallowed halls. There’s more to the membership fee than just getting good deals though. It makes people feel part of a community, it makes them feel fancy. If you pay for something, you better keep using it if you want to sleep well at night. What can you offer to make people feel fancy and give them good deals at the same time?
- Kirkland Signature: Who doesn’t love a good deal on high-quality items? These products are high quality and 20% cheaper than national brands, making them irresistible. It’s like discovering your favorite designer shoes on sale—every time. In 2023, Costco announced its plans to include more sustainable and eco-friendly products, so they can appeal to environmentally-conscious people. Quality products + Cheap prices + Good environment = Competitive advantage.
Costco’s Positioning Strategies: Simple-Cheap-Convenient
Market positioning is the “position” that your brand occupies in your customers’ minds. How are you going to do it for your business?
Costco’s positioning? Getting luxury at a bargain. It’s kind of like finding gourmet meals at McDonalds. It sounds really impossible. but it seems that these guys from Costco really made it!
The store layout also adds to the positioning. When you walk into Costco, you walk into an industrial-sized treasure chest. The warehouse-style stores scream efficiency. Wide aisles, high ceilings, and minimalistic designs keep costs down and the shopping experience straightforward. It’s like shopping in a giant, organized garage sale.
Another pro tip to position as simple-cheap-convenient: Keep the selection limited. Costco only has around 3,800 items, which helps them negotiate lower prices. Plus, it reduces decision fatigue. Who needs 47 types of mustard anyway?
All this positioning seems genius, right? Well, I cannot in good conscience recommend it without also telling you about the dangers of being the cheapest option out there. While it’s working amazingly well for Costco, it might not for you, depending on your business.
I’m saying this because being really cheap makes you a commodity. If you’re confused about the term commodity – When you buy corn, you’re probably just looking for the cheapest corn. Corn is a commodity. You’re not. People don’t just look for the cheapest product (at least those who care about quality and results)
What about courses and services, for example? If you provide services, do you want to fight for the bottom of the barrel, or do you want to be seen as an expert? By having a high price, you’re working on better projects, with better clients, and you stand out.
Are you creating a course? The price reflects the value. If someone invests in your $1000 course, they are probably serious about it. They will probably put the work in and get results because of your help. It’s a whole different story if you sell a $50 course to a 13-year-old.
Get good at what you do and understand that you deserve to make money. Making money is not a scam or evil if you sell really nice products. Then, choose if it’s strategically good to sell with high prices or low. Both can be good, but make sure to choose from a position of power, instead of a position of limiting yourself.
But enough of my wisdom 🙂 let’s get back to Costco.
Costco’s Marketing Strategies: Whispering instead of shouting
You find a great deal and suddenly, you have this urge to tell everyone who’s unlucky enough to be around you at that moment: “I got these new shoes for $60! So cheap, right? Right???? Tell me it’s so cheap!!”
Costco wants to give you that urge. Actually, it’s what most of their marketing is.
Costco doesn’t need flashy ads or billboards. Their strategy relies on word-of-mouth and the in-store experience. Over 50% of new Costco members join because someone couldn’t stop blabbing about the deals. Imagine getting half of your customers without any marketing (read – imagine cutting your marketing costs by a lot)
Costco’s in-store experience is like a treasure hunt for grown-ups. Customers feel a sense of urgency and excitement about finding unique or limited-time items. If you want to go on a case study treasure hunt, there’s a lot to learn from Target too.
This whole treasure hunt vibe is really important for Costco. Need proof? A recent survey revealed that 70% of Costco members say that the “treasure hunt” is the key reason for their loyalty. Kids have treasure hunts to have fun. Adults have treasure hunts to find the cheapest toilet paper. Kind of depressing, I have to say. Whether you own an online or a physical store, how can you make your shopping experience depressing? Sorry, I meant fun. I swear.
Costco’s digital marketing fits right into the whole story. Their digital marketing is more about keeping you informed than shouting for attention. It’s like a friend reminding you of a sale rather than a pushy salesperson. Here’s what they do:
- Email Marketing: Every single email from Costco contains a promo or a sale. Of course, people who are all about saving will get excited seeing your name pop up in their inboxes. What are your customers craving to see in their inboxes multiple times a week? If you think people don’t want to be emailed with amazing stories, tips, and promos every week, think again.
- Facebook: Unlike many brands (Target and Subway for example), Costco didn’t jump on the trend of being funny on social media. They’re still old-fashioned and simple. It’s because of a trick called “brand consistency”.
Source: https://www.facebook.com/Costco/
- Instagram: Same. Simple. Non Gen-Z. Your marketing has to be tailored to your target audience. You have to your people’s language if you want to sell them your products well.
In 2023, Costco started focusing on e-commerce much more and their net sales increased by 12%. Might seem like a small percentage, but 12% of an absurdly high amount of money is still an absurdly high amount of money. If you have a physical store, I urge you to consider selling online.
Synergy of Strategies: The Bigger Picture
Costco’s competitive advantage and positioning strategies work hand in hand. Their low prices and high quality attract customers, while the exclusive membership and limited selection keep them coming back. Again, if you invest in a membership, you’re very likely to use it.
It’s the same with the marketing strategy and the overall business model. Costco is a simple and convenient store, so the marketing is the same. No need for flashy ads and fancy copywriting… When the audience doesn’t require it!
Costco can afford to not invest a lot in its marketing because of its reputation. I’m pretty sure you’re not at that level yet, so I wouldn’t recommend this strategy. When you own a small-to-medium-sized business, word of mouth simply isn’t strong enough yet.
Still, Costco’s synergy can teach you an amazing lesson. Consistency is key. Costco knows who they’re selling to, and how they sell is the absolute same across all channels. Make sure your brand voice is always the same. Why? Find out by reading about an amazing example of brand voice, Nike (the secret to a 50-inch vertical jump also inside)
Takeaways: How to Become a No-Brainer Option in Your Market
Less really can be more. In a nutshell, Costco’s business strategy is offering high quality at the lowest possible price and having a really simple selection of products. This strategy might not suit everyone, but it might just suit you. Who am I to assume anything about your business? So think:
- How can you keep your prices as low as possible? (Buying in bulk, negotiating the prices directly with manufacturers, making people pay a membership)
- Can you find a way to be cheaper, better, and more efficient than anyone else? (Kirkland Signature)
- How will you position your business? (Luxury at a bargain, warehouse-style store, a limited selection of products. Keep in mind: If you decide to be cheap, decide it because it’s the best move on the chess board, not because you don’t believe that you deserve it)
- How can you save on marketing? (Word of mouth, having really simple and inexpensive marketing)
- Are you keeping your strategies consistent across all channels? (Low prices, simple selection, simple marketing, cheap positioning…)
So next time you’re navigating Costco’s huge aisles, remember: You’re part of a brilliant marketing plan. And you’re also saving a lot of money 🙂
