Group- 5Mastahat Ahmed 11164011Arif Md. Salehin 11164012Md. Nur Rahman Abdullah 11164020Md. Salim Sarker 11164021Md. Jahidur Rahim 11164035Tabrez Nazir 11164022

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Case Analysis on Costco Companies Inc.

Case Introduction• 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 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•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 from selling products

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Background of the company

• Costco Companies Inc.-founded in the north west of United

States in 1983

• Costco followed the business format of price club

• Costco also expanded internationally and in other parts of US

• In July 1998, Costco operated in 24 states – UK, Canada,

Mexico and Asia with 278 outlets

• Warehouses- designed to operate efficiently

• Costco had two types of members

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Background of the company

• They had 25 million card holders

• In 1997 through membership fees they earned $400

million

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

• Costco provides- good brands, large size at good value

• Through high volume purchase and close relationship –

low price advantage

• Family like working environment- low turnover

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Identification of issues

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

question”

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Identification of issues (Contd.)

Other related issues• Not trying to improve/stopping tendency• Limited SKU• Iron clad rule and price lowering trend• Focused on large purchaser• Management capability• Brand image• Traditional marketing approach

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Analysis of issues

• Costco is new in service offerings• Selecting target customer is a BIG challenge• Product offerings vs. Service offerings• Previous record of stopping many offerings like- paper

towel, orange juice• Less variety in offerings may create an impression

among the consumers that “This service is not for me”• Price lowering trend may create suspect in consumer

mind

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Analysis of issues (Contd.)

• Focusing only on the Large purchaser may not be a wise decision in service offerings

• 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.)

• 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

• 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

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

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

• Generic mail to all the members• Members were not aware about the program• Difficulty in comparing prices• Difficulty in switching services• Negative perception of consumers

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Recommendations

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

• They should increase variety in their offerings• Iron clad rule for making profit should be relaxed• They should be consistent in bringing change or quality

improvement• They should offer the service of established brands• Employee capabilities should also be increased• They can also offer services in international market• More human touch should be there in service offerings

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Thinking out of the BOX

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Changing the Old School Ideas• Teaser mails: doing it in 1998• Unusual Shaped Leaflets and Flyers• Printed Materials- used in daily life• Lots of BTL can be done

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 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 in the warehouse

“Playing with price can not be effective always”

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