Co-Branding Of Retailer Store Brand With National Brands: A Case Study Of Costco Essay.

Discounters like Costco, Target, and Sam’s Club have become very trendy places for the middle and upper income demographic to shop. 4. Frugality has become an acceptable social norm.
Many of us are frugal with our own discretionary income. We often spend money less cautiously when it falls into the category of 5. Rituals (gifts, visiting friends, holidays, events etc.) Michigan is an extremely diverse state!  6. Segmenting the market by Ethnicity/Religion/Race/Sexual Orientation are all marketing strategies. America has always been a land of immigrants and we are seeing the growth of the Hispanic market (more specifically Mexican immigrants). Most research I have read on the topic
of purchasing power shows females control/influence approximately 90% of the U.S. businessto consumer dollar. The topic of 7. Female Purchasing Power is very relevant to the U.S. retailers.
Purchasing items for 8. Babies, Children, and Pets are very lucrative markets for companies to sell products and services.

In an aging nation, America is dominated economically by the Baby Boomer population. This leads to huge 9. Nostalgia Consumption (Walt Disney, reunion concert tours, retro/throwback food, beverage, cars, hairstyles, movies, senior sports celebrities, clothing and toy items etc.)There is an interesting book titled “The Experience Economy” (Pine II, B. Joseph, and Gilmore, James H. 1999. Harvard Business School Press). I will share the basic premise of this book with you so you can think about how some businesses can sell the same commodity for a premium and develop brand loyalty. 10. Experiential Marketing is a very valuable tool to differentiate your product or service from the business down the street. Using a similar concept, 11. Branding is a powerful sales tool. 

Costco Co-branding with National Brand

The report here discusses about Co-branding of retailer store brand with national brands. Therefore, there is discussion about how Costco, the world third largest retailer brand is presently co-branding with various national brands on their packaging. The report mentions a case study about Costco and discusses the reason for it to take such step. There is also discussion about whether the step is permanent or it is a step to save the brands image only after recession hit in 2009. Further, there is a discussion on the quality of store brand vs. quality brand. The report also gives a qualitative data and statistics about the target market and demographics of Costco. Marketing Mix or four Ps that Costco undertakes as promotional activity discussed here. Therefore, while discussing the four P s detailed discussion on all the four components like advertising, PR, personal selling and various promotions done here. The PESTEL analysis performed on Costco mentioned here. The report also gives a way to the two creative recommendations and justifies it with data and examples.

Costco is the world’s third largest warehouse retailer focusing towards offering deeper discounted prices for their products. Costco focuses on a mission statement to bring quality goods and services at the lowest possible price to the market on a day-to-day basis. However, the company believes in doing it with integrity and without hampering stakeholder interest. Therefore, family and business alike can depend on the products offered by Costco everyday for their good quality and low prices. The company focuses on maintaining a unique operating structure, reduces their handling of merchandise, ensures rapid turnover in inventory, ensuring high sales volume and is a low cost operator that is responsible for its great heights

In recent years, Costco has co-branded with Kirkland and General Electric (GE) Lights. Therefore, one can notice the black rectangular Kirkland signature logo that made its way on number of Costco packages for product categories like scotch, vodka and a large number of French wines. Thus for Costco loyalist seeing the Kirkland logo on their products will not only encourage the sale but also rule out any worries regarding the  quality to the store brand. In addition to this, Costco has also cobranded with General electronics (GE) lights where they can sell their kitchen and laundry products under the same packaging with an additional warranty of two years.

The idea behind a store to co-brand with national brands is to not only generate reputation but also gain consumer trust (Na & Seung Hwan, 2014). One must also not forget the profitability gained through co-branding. Building customer trust is important because through this only a store brand can improve margins by cutting down any intermediary. Thus, for instance if one takes the case of Costco then it also targets to increase its profitability through co-branding with Kirkland and General Electric (GE) lights. Shoppers have a belief that product of Kirkland brand are better quality wise and therefore when they see Kirkland logo or GE logo in Costco packaging they hardly doubt the quality and believe they are getting it cost effective deals at reasonable prices. Therefore, the trend is also responsible for driving traffic and enhancing the reputation of Costco.

Quality of Store Brand vs. National Brands

The quality of any store brand compared to national brands lower as they operate under a low cost structure. These store brands however yields greater profit during tough economic situations as customers then prefer to buy cost effective products. Store brands products sold through online sites unlike national brands. In contrast to this, national brands posses a greater recognition level as their distribution occurs nationwide through various retail outlets. Through their popularity, they can even have a customer drive. Since national brands operate on a high cost structure so the quality of their products is also superior (Fabio, Francesca & Marta, 2015).

Costco is the third largest warehouse retailer in US with 400 stores. This warehouse retailer opens its door to only paying members. Therefore, for privilege shopping the loyal customers pay $55 every year. The brand gains more commitment by allowing only paid members. The membership fee ensures that the target customers are comparatively wealthy with an average household income of $100,000. Moreover, they are also in the higher age group. The Costco customers are mostly from suburbs and they prefer to buy stuffs in bulk from the store. Personal car availability is also an advantage for Costco customers.

Figure: Costco Demographics

Source: (Na & Seung Hwan, 2014)

The four marketing Ps refers to place, price, products, promotion and place (Lin, 2017). Costco is the third largest warehouse retailer that first started its operation from Seattle, Washington. Presently, the retailer brand has a 729 warehouse worldwide. There are 508 warehouses in 44 states of Puerto Rico and United States. Similarly, 9 provinces in Canada accounts for 94 warehouses with a total revenue collection of $17 billion till 2014. Then 18 states of Mexico have 37-warehouse store chain. United Kingdom has 28 in 3 of its nation. In this context, Japan accounts for 25-warehouse store chain and 13 in Korea and Taiwan. However, Costco warehouse chain accounts for 8 in Australia, 2 in Spain, and 1 in France and Iceland.  

Then, as far as price concerned, Costco believes in the strategy of maintaining low prices for its products compared to traditional grocery store. Moreover, this warehouse retailer brand has ensured permanent capping of its margins so that members are able to justify prices while applying for membership. However, in terms of products, the retailer warehouse brand deals with a varied range. The range includes frozen and fresh food, meat, deli, seafood, coffee, water, beverages and drinks, tea, bakery, desserts, snacks and candy to other necessity items like furniture, lights and many other things that are required on a day to day basis.

Target Market and its Demographics of Costco

The promotional activity undertaken by Costco is justified with its reputation. The warehouse retailer brand believes in an operation that is no-frill. Costco is not much active in social media for its brand promotion. The brand has only a single face book page that represents its roots in the northwest. The page however, has links posted by various customers to attract others to grab any ongoing deals at the retailer store. Costco, the third largest retail chain has an official twitter page too but its activity or promotional activities through it are redundant. Further, Costco never undertakes promotional activities through television or any other media. The retailer brand however believes in promotion through word of mouth and customer-to-customer relations.

Various external factors challenge the operation of Costco. The warehouse retailer brand must consider these threats and opportunities to maintain its position in the market. The PESTEL analysis gives an overview of opportunities and threats in the business ambience that can act as guiding factor in further growth and development (Ali & Ryan, 2014).

Political factors influence the performance of the third largest warehouse store. Therefore, with minimal disturbance politically Costco can have a rapid growth. In addition to this, cases where environmental and animal policies are stringent opportunity for the company for improving its strategies and policies also increase.

The operation of Costco aligned with the present economic scenario. When there are increased trade agreements internationally then Costco have a greater chance of supply chain expansion. Then, again, when markets are booming then the brand has an opportunity to choose new location for its operation and thereby enhance its performance financially. The matter of fact is that even if the economic growth is slow the retailer chain can make a good amount of business in the United States.

The increased demand for the social responsibility of business has forced the retailer chain to enhance its brand image and perception amongst consumers by increasing its responsibility socially and in corporate terms. The retailer can even improve satisfaction of customers through the implementation of strategies that led to environmental performance.

Any change in technology has an impact on Costco macro and remote environment. The implementation of e-commerce has a direct impact on the wholesaler business as they can enhance their customer base through the facility. Other technological innovations have affected Costco and thereby have enabled it in knowledge management, processing information and providing HR training. Thus, innovations in technology lead to business development.

Four Marketing Ps of Costco

Various environmental factors like the change in climate that is a threat to Costco as part of the produce is dependent on optimal weather conditions. Moreover, the changing lifestyle of people must be and product mix must be adapted accordingly. Further, the collapse of the colonies of the bees also creates a deficiency in the food products of Costco thereby reducing supply (Cassia et al., 2012).

The warehouse retailer chain is highly influenced by the change in legal norms. The changing employment laws can improve the opportunities of employment in Costco. Moreover, Costco is flexible enough to change its strategies and policies so that it can easily align with any kind of tax reforms. The GMO regulations also enable the company to opt for a more accurate product labeling.  

There are two recommendations made. They are as follows:

Co branding helps a business to enhance its prominence and credibility. Unison of two brands establishes visibility of both the products and strengthens their position in the market.

Through co-branding, one can extend one’s reach in the market and to the areas that were inaccessible. Thus, this in turn can generate more sales for each brand and thereby each gets a better market share.  

Thus Figure 2 and Figure 3 below shows how Co-branding has increased visibility and thus the frequency of the consumers

Conclusion: 

The report concludes by throwing a light on the positive aspects of co-branding.  There is discussion on how co-branding with signature brands are helping Costco in business development. The report also speaks the reasons behind the trend followed. There is discussion about the quality of store brand and national brands. Then there is brief description of the marketing strategies undertaken by Costco. The report also speaks about the target market of Costco and the demographics. PESTEL analysis is also done and recommendations mentioning the about the positivity of Co-branding is discussed. Therefore, Co-branding can not only enhance profitability of both brands but also provide scopes for business development.

References:

Ali, B., & Ryan, L. (2014). towards the formation of consensus in the domain of co-branding. Journal Of Brand Management, Vol.21(2), p.112(21.

Fabio, C., Francesca, M., & Marta, U. (2015). Mutual value creation in component co-branding relationship. Management Decision, Vol.53(8), 1883-1898.

Lin, C. (2017). Is co-branding a double-edged sword for brand partners. European Research Studies, Vol.17(4), p.19(16.

Na, X., & Seung Hwan, L. (2014). Brand identity fit in co-branding: the moderating role of C-B identification and consumer coping. European Journal Of Marketing, Vol.48(7-8), 1239-1254.