LEADERSHIP STRATEGY: WHAT MAKES COSTCO GREAT?
A great article “Five Companies That Know Why They’re Great,” offers several examples of how high-performing companies like Costco have honed in on what makes them great. Costco’s main competitor is Sam’s Club, owned by Walmart. Even though Walmart is retail’s 800-pound gorill, Costco has a higher sales volume and greater profits than Sam’s Club.
Post by LSI contributor Jaynie L. Smith
How do they do it?
Costco beats Walmart, not by competing on price. Instead, they offer a highly targeted and subsequently refined shopping experience. Costco is structured around its key strengths:
1) Know your customer:
Costco goes after a certain type of customer: small business owners who are status conscious and who have money to spend on bargain-priced premium items like Dom Perignon champagne, luxury watches and tech gadgets. The reason why Costco decided to focus on small business owners is that they realized that these people are often some of the wealthiest people in their communities: they have successful businesses, they want to buy good stuff, but they don’t want to spend a lot of money. Of course, not every Costco shopper is an entrepreneur, but this customer base has remained the focus of the Costco marketing effort. Even the Costco members’ magazine includes many articles offering small business advice.
2) Deliver bigger value, not just lower prices:
Costco doesn’t just offer low prices, it offers exceptional bargains on elegant, sophisticated products that people really want to buy. Costco is not just a mass market retailer; instead they’re a curator of high-value offerings, priced at a discount. Most of the Costco members who I know don’t shop there for cheap prices, they shop there for the awesome merchandise and the limited-time-only “treasure hunts.” Whether it’s imported Italian leather sofas or designer clothing or high-end kitchen equipment or killer deals on flat screen TVs, people are often pleasantly surprised by what they find on sale at Costco.
3) Treat customer service as an investment, not a cost to be shed:
Costco has been criticized by some Wall Street analysts for their high labor costs – and Costco does pay their employees quite well. But this is not a blind spot on the part of Costco’s executives, it’s a strategy. Costco delivers excellent service. Everyone in the checkout lines at Costco tends to be smart, personable and “on the ball.” Costco employees go out of their way to hustle, to find items that customers couldn’t locate, or point people in the direction of the latest deal. It’s hard to find good customer service these days, but Costco delivers it.
Even in a price-cutting business like retail, there are ways to compete and win, without focusing solely on price. Costco offers a different model for success in retail. What could your business learn from Costco? Do you know your customers well enough, and are you focusing on the right kind of customer? Are you giving your customers a dreary warehouse experience or offering them a dazzling treasure hunt?