Cost Benefit Chart
Table of Contents
Table of Contents 2
COMPANY SUMMARY 3
MARKETING ANALYSIS 4
E-COMMERCE E-VALUATION 10
E-COMMERCE PROGRAM 15
BUDGET AND FINANCIALS 19
Break even 21
Cost Benefit Chart 21
CONCLUSION 22
References 24
Garcia, D.F. ; Dept. of Comput. Sci. & Eng., Oviedo Univ., Spain ; Garcia, J. (2013). TPC-W e-commerce benchmark evaluation. Retrieved from http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=1178045&url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp%3Farnumber%3D1178045 24
Hayes, M. (October 27, 2011). 5 Reasons Loyalty Programs Will Increase Your Ecommerce Sales. Retrieved from 24 http://www.shopify.com/blog/4408602-5-reasons-loyalty-programs-will-increase-your-ecommerce-sales#ixzz2mXPpoX8p 24
Petre, …show more content…
M. (March 4, 2011). Usability beyond the website: An empirically-grounded e-commerce evaluation instrument for the total customer experience. Retrieved from 25 http://www.tandfonline.com/doi/abs/10.1080/01449290500331198#.Up-IbSdi1GM 25
COMPANY SUMMARY
Sol and Robert Price had raised $2.5 million and opened the first Costco warehouse (Originally named, Price Club) on July 12, 1976. The warehouse was intended for business purchasing products only. Costco currently has over 600 stores worldwide (126,929 U.S. employees and 185,207 employees internationally) and roughly has around 10,000 vendors that they do business with. Costco is one of the leading wholesale stores in today’s market. They have been able to survive the recent recession by providing superior inventory management by matching the costs of holding inventory with the costs of stocking out. One of the main reasons for this is because of the large variety of products that are sold in Costco stores. To be able to shop at Costco, customers must pay an annual membership fee but in return they can find the products that they are looking for, at unbeatable prices. Along with great prices, most customers are satisfied shopping at Costco because of the many vendors that Costco does business with. It is relatively easy for the consumer to find what they are looking for. Additional success is brought by providing their vendors with detailed inventory and sales data. In return, it is the vendor’s responsibility to stock the shelves at Costco. By providing accurate data to the vendor, vendors can accurately replenish the stores stock. With this type of inventory management, everyone is satisfied (Customers, Costco, and Vendors).
MARKETING ANALYSIS
SWOT ANALYSIS
STRENGTHS | Costco is the wholesale leader with about 67 million cardholders to date.
Their focus to stick to their no frills approach and offer values and necessities with low overhead and great value is working well for the company. In a head to head battle with one of their top competitors, Sam’s Club, Costco won with the lowest cost per unit. Members recognize and appreciate these efforts, which are apparent through Costco’s 90% US and Canada customer retention stat (86% worldwide). Their business customers, who account for two-thirds of Costco’s overall sales, hold a 93.7% retention rate (Heller, 2012). The staff and management of Costco are also known to stick around for a long time, with tenured terms and low staff turnover …show more content…
rates. Costco makes sure they are keeping their customers happy by keeping their employees happy. Employees who are able to appreciate their job are much more likely to provide great customer service than those who do not. Costco also keeps customers happy by offering free samples while you shop, a hassle-free returns policy on products and memberships, low annual fees, terrific membership benefits, and a quality private label you cannot get anywhere else.
WEAKNESSES | There lack of advertising saves them money, but it means that outsiders “don’t get it”. They do not understand what is so great about Costco, and word-of-mouth is not 100% effective. Costco’s locations are also a bit scarce. Costco is very selective when deciding where to put a new warehouse, and they often choose a location that will benefit several communities, not just one. This means there might be a longer commute involved when trying to locate a warehouse. OPPORTUNITIES | Costco has a lot of untapped demand and a lot of room to grow. There are over 600 locations worldwide (three-quarters of them in the United States), meaning there is a lot of worldwide growth opportunity. There is a lot of potential to gain a tremendous amount of new customers. There is also a lot of potential for their private label, Kirkland Signature. As the brand becomes more known and more appreciated, they will be able to grow and compete with more big brands. There is also a lot of room to grow within their e-commerce. Costco could provide a dot.com only membership, which would allow them to reach incredible market potential.
THREATS | Costco’s threats are their competition. Among that list are Sam’s Club, Amazon.com, and BJs. BJs is not as big of a company as the other two, but still poses a threat because they have been growing and offering their customers things like acceptance of outsiders coupons and all major credit cards. Costco only accepts American Express.
DEVELOPED MARKETING ENVIRONMENTAL ANALYSIS
In order for a company to survive the many changes that they face throughout the years they must be proactive and prepared to adjust with the changes. Costco’s most significant challenges in this regard are socially and technologically related. Socially, their customer base’s taste will change over time. As the population changes demographically for whatever reason, Costco must adjust and change with their customers. It is important to understand their community and what they need at all times.
Technologically, Costco has their work cut out for them. As retail preferences shift to the internet, Costco must keep up and even be ahead of the game. Technologically speaking, it is often difficult for a company to predict what technological advances will catch on and which ones will not. Costco needs to be careful not to invest too much money into a technological path that goes nowhere. At the same time though, they need to keep up with these changes and somehow figure out how to do it better than their competitors.
Costco has done astonishingly well though, so far. While their competitors are battling their loss of customers due to the internet and investor pessimism, Costco has managed to increase their sales by 39% and double its stock price since 2009 (Stone, 2013). They are handling the swift shift to E-commerce very capably.
MARKETING MIX
PRODUCT | Costco offers its customers a large variety of different products, including but not limited to apparel, appliances, books, computers, DVDs, electronics, food, furniture, hardware, health and wellness, jewelry, music, outdoor living, and wine. They also offer several services that benefit their customers, such as auto and home insurance, auto financing and refinancing, health insurance, life insurance, mortgage services, real estate agent service, small business loans and credit lines, and travel.
Costco keeps their prices low while offering select private and nationally branded products. On average they stock 4,000 different products, whereas the typical retailers carry 40,000-60,000 different products (Amritsar, 2010). These products rotate frequently, bringing customers in more often to see what is new.
Of the 4,000 products offered about 330 of them are of the brand Kirkland Signature, Costco’s private label. Kirkland Signature is known for its quality and value. This private label accounts for 15% of Costco’s sales, and we will likely see growth from them as they compete with more and more nationally branded products (Amritsar, 2010).
PLACE | Costco’s corporate office is based out of Issaquah, Washington. Of their 600+ stores, about 450 are located in the United States. The remaining stores are spread out through Australia, Canada, Japan, Mexico, Puerto Rico, South Korea, Taiwan, and the United Kingdom (Hoovers, 2013).
Costco’s stores maintain a warehouse feel with their “no frills” approach to business. The layout is open, the floor is concrete, and the tables often consist of the pallets that the products are shipped on. The products are moved around frequently, making each experience like a scavenger hunt for the customers.
PROMOTION | Costco is known for their lack of advertising; they primarily rely on word-of-mouth to get their name out. They have methods of promoting products by mailing coupons to current members and offering samples throughout the store. They also promote new warehouses with direct marketing via mailings to their target market. An indirect way that Costco promotes theirs stores is by treating their employees well. Happy employees are willing to promote the products and also do what is necessary to keep the customers happy.
PRICE | Costco’s strategy is to charge their members an annual fee, and in return offer prices that are unbeatable. They guarantee that their product mark-up never exceeds 15%, whereas typical supermarkets have a 25% mark-up and the average department stores have a 50% mark-up. This strategy is made possible by aggressively buying from a handful of vendors, and then selling in volume and driving the cost down (Amritsar, 2010).
Costco is also able to maintain low prices “by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing and accounts receivable. We run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members”, according to Jim Sinegal, the Company’s Co-Founder and Director (Company profile).
COMPETITORS
* Chart information retrieved from http://www.moneytalksnews.com/2013/01/03/bjs-vs-costco-vs-sams-club/
As the chart illustrates, warehouse retailers tend to be pretty comparable. What sets Costco apart from their competitors is how well they treat their employees, and in return how well their employees treat their company. In an one of the stingiest industries, Costco makes it a priority to pay their employees well and ensure they have good health benefits available to them. The average starting pay at Costco is $11.50 per hour. Within five years the average pay per employee is $19.50 per hour, with semi-annual bonuses (Logan & Beyman, 2012). Walmart’s (Sam’s Club) average full-time employee makes $12.50. Healthcare benefits are also no contest. Costco’s average employee cost for benefits is 12%, whereas Walmart’s employees is 40% (Lutz, 2013).
E-COMMERCE E-VALUATION
ADVERTISING:
Promotion seems to be the one main area where Costco needs improving. Cost.com already sells over $2 billion worth of goods and merchandise but falls far behind from Amazon.com and Walmart online stores. Costco in 2012, planned to finally introduce new mobile apps to significantly expand its online business. In a time now where consumers are shopping on internet searches for big flat screen TVs, Costco doesn’t appear on the searches. One reason for this according to, Ginnie Roeglin, senior vice president of Costco’s e-commerce and publishing operations, is because Costco does not advertise and they do not pay for searches. They are moving to a new platform that will be set up in a way so consumers will begin to see them in search engines. Mobile apps are an important tool, for making it easier for consumers to shop online because they are constantly connected to the internet; this is one area Costco plans to improve. The reason they haven’t yet explored advertising through social media and other means of the internet is because it is one way they have able to keep costs down.
Due to the lack of promoting Costco.com, many members of Costco do not realize that there are many items being sold on the online stores that cannot be found in their warehouses. They have more work to do making customers aware of the additional selection through its online store. By boosting advertisements and paying for advertising through search engines, customers will begin to realize this if Costco is being found through search engines like Google.
E-COMMERCE IN FOREIGN COUNTRIES:
Unlike other major retailers who are very well off in e-commerce in foreign countries, it may be difficult for Costco to operate e-commerce in these foreign countries. It was just recently in the last couple of years that Costco, with the help of Cisco Internet Business Solutions Group (IBSG), to start operating online in the UK. It is because Costco warehouses in the UK has high sales and memberships, the UK has the second largest e-commerce market in the world and still growing at a very fast rate, the English language in the UK would allow for easier website transition, and finally because Cisco IBSG’s research showed that many UK merchants are seeing online growth from European orders. This would allow also for Costco to enter into non-warehouse countries like France and Spain.
Entering into e-commerce on a global scale will help to protect Costco’s market share against local competitors already online, attract new members who are unable to visit Costco warehouses due to distance and other legal restrictions, and generate new member.
FORMS OF PAYMENT:
Another weakness at Costco is that if you were to purchase anything in the store at Costco, you would only be able to purchase using American Express credit cards or cash, as they do not accept debit cards or any other major credit cards. However, if you were to purchase something through a Costco website, they accept all major credit cards. They do have a highly recommended credit of their own, called the “Costco True Earnings Card” which acts as a Costco Membership and gives the consumer 3% cash back at U.S. Gas Stations and on gasoline at Costco, 2% cash back at U.S. Restaurants, and 1% cash back on other purchases, including at Costco. The card has a no annual fee with your paid Costco Membership and 0% APR on purchases for 12 months.
CURRENT PROGRAM:
Internet use reduces communication costs, reduce the time required to market products and services, enables delivery of information in digital format, reducing transmission and distribution costs, and enables broader business alliances and integrated.
Costco now integrates online technology to their former systems of electronic data interchange, and are build new Internet based manage their supply chain and other means of inventory control systems. Besides selling their products and services, Costco is also using the Internet to make consumer surveys, provide information and pictures to the media business and mass communication, and submit documents to comply with regulations, and manage and transfer funds.
Internet has affected the way of doing business at Costco, trade patterns, learning and social and political interactions. Costco is growing with their Internet applications, as well as people who use this medium to communicate and to make
purchases.
KEYS TO SUCCESS:
The first key of Costco is related to the ability of the company to satisfy a need / desire is valued by certain target market. This, through a suitable medium, that is efficient and effective for that particular market.
The second important key is building successful in relationships with customers, establishing in the minds of these, the idea that everyone can meet their needs. In addition to creating long-term value a relationship to generate loyalty and identification in time to meet the needs of these loyal customers.
Proper management of technology is the third key to success of Costco, due to which the company must be constantly updated. Access to new technologies is widening, with important good use of it towards the overall development of the company.
Finally, Costco logistics becomes the fourth key variable, either input or output, one joined the marketing and sales of the value chain, is one of the main variables. The idea of satisfaction must be real, not virtual; therefore, logistics plays a key role in the implementation of the exchange between Costco and the client. Satisfaction should be delivered in a short period of time so that the customer is satisfied.
Electronic Commerce Strategies are not detached from the overall strategy of the company and vice versa. Like all companies that market participants have access to the different technologies available, the acquisition thereof by itself does not generate competitive advantages. Is what every company is able to do and you can get maximum return on these investments, what makes the difference, so in practice, these two strategies are merged so that it is difficult to clearly differentiate which corresponds to the Costco E-Commerce strategy and overall business strategy.
The development of e-commerce strategy of Costco requires careful planning and total commitment. It should be viewed as a long-term operation, and not as a chance to get a short-term gain. Costco should understand the characteristics of the online market, such as the global nature of competition, technical and regulatory requirements that apply to online sales, and the role of information in electronic commerce.
When talking about e -business, Costco should see a window of opportunity in terms of how to provide the service, the geographical location of the consumer, payment etc. In other words, based on a clear and deep understanding of the situation of Costco, they should use the information collected to generate new ideas by restructuring existing concepts.
They need a program in which will be a list of ideas to organize their priority, which is not sufficient to continue the implementation of the actual strategy. It is necessary to analyze and structure them in such a manner that constitutes continuity in the long term. In practice it is to identify commonalities between all ideas that create a basis on which, in due course will support other initiatives.
To define the baseline, it is appropriate to compare the situation of the environment and the current state of Costco, evaluating the current business strategy against the changes identified to define courses of action or alternative routes. The effort should conclude by identifying which aspects represent opportunities to develop with the use of electronic channels and detailing those which will initially focus the organization.
Since the expansion of channels in a first instance, followed by the integration of the value chain of the company, continuing the integration of companies in the same sector and where each focuses on the skills that form the core of Costco, up initiatives to offer services suppliers from different industries.
E-COMMERCE PROGRAM
Costco needs activities to ensure ownership by the organization. Involves monitoring and actively participate in making the results of the strategy. They should suggest monitoring the implementation of improvements and ongoing measurement of positive and negative impact of the new services.
Change in Mental Dynamics of People: When it has completed construction of systems and processes have been reorganized, it is considered that most of the work is already completed. This is not true. The biggest challenge is to get quarterback organization appropriates the new way of working. In other words, it includes the means provided by the strategy as part of their habits of action.
Achieving habits that characterize organizational behavior, which involves a process that goes from experimentation with new paradigms, processes and technology, followed by a constant repetition of such behavior, reaching the habit and finally convert deepening principles that determine the habits to act. This is no easy task change processes.
This goes beyond ensuring that people appropriating a change in a process, or be trained to query an order through an Internet system. Costco must be able to transform the thinking of the company around the possibilities offered by electronic channels. It involves teaching their team to constantly rethink the paradigms of work, and to achieve a dynamic change in the minds of people.
Control, Monitoring and Permanent Fit: It is necessary to implement changes in the process, together with the technology to ensure that the implemented tools are internalized by the organization and will be used to improve performance. Control, monitoring, persistence and stamina it takes to get results.
Give Support Activities Introduction: In the beginning there will be many doubts about the new operation, until the learning curve of new tools and processes is reached. Therefore it is desirable to maintain continuous support team to address any questions or requests for information to ensure the flow of new services.
Record information to regularly assess the benefits and communicate the results to all involved, are among the factors that complement the accompaniment. This requires defining a scheme of service levels, allowing you to measure the performance of deployed services, channel energies and perception about the benefits of the improvements or problems encountered, it is essential to avoid affecting expectations whole team.
Apart from this, build a solid base while advancing, constantly changing, the ability to reduce uncertainty and the ability to minimize the complexity gradually become determining factors for profitable strategy.
Part of the formulation of the strategy is to design a form that allows incorporating variations depending on unexpected aspects. Costco must meet the necessary processes that allow incremental improvement strategy. Increasingly, the strategy is strengthened and incorporating new aspects not covered in the past.
Finally, it is important to emphasize that electronic commerce is a reality and is closely related to the overall company strategy. Therefore Costco needs to engage your strategy the benefits of new ways of doing business, supported by technology. The formulation of a strategy for electronic commerce requires an organized and continued to seize the opportunities of the new economy process. Just take it, involves understanding the changing environment, assess the capacity of the organization and develop how to respond to these changes through creativity and dedication.
Contrary to what is seen in practice, strategize Electronic Commerce involves thinking beyond technology. More than installing and configuring a website or install a mail server or enable a Call Center. It has an integrated view of the business and a coordinated way to make changes in processes and the required human capital.
Strategies for success in their Web-Site:
Dynamic Product Catalog: Provides Costco visitors to have organized information about Costco products, and search tools for different criteria (price, name, category and other characteristics). The catalog upgrade is done simply through a management pack.
Cart: Allows the customer to have control over the items the client has selected for purchase. Such articles may be removed or added to the cart at any time.
Electronic Payment Systems: Through this module, enables the Web site to receive electronic payments by credit card, or bank deposit safely.
Command Control System| This module allows an efficient control over orders received on the website, providing important information such as the status of the order, when it was paid, given, etc. Also, allows records of transactions per customer, so that at Costco they will know more about the consistency and taste of the buyers.
Advanced technologies, have surpassed trade barriers and now "anyone" can have access to a good or service no matter where they are e-commerce has brought everyone, slowing distances and reducing costs considerably, and so collaborating in the development of countries and their companies.
Throughout this research, we observed the importance of electronic commerce, the impact it has generated worldwide for both businesses and the general group and the importance of this medium for the development of Costco. Furthermore we define strategies which can enforce Costco to grow in it.
An ecommerce website is an extension of a constantly evolving business; websites have been created to leverage existing investments in companies in order to use them with the technology and plan ahead, as we face a world electronic means. The first step to becoming a company of e-commerce is to discover how the competition works; one must understand the company, the industry, options and future prospects. An effective e-commerce strategy must cover all phases of the sales process: from creating awareness, an interest and a desire, to sell, to service and support.
BUDGET AND FINANCIALS
Online Revenue $ 2,104,000,000.00 *Within the evaluation of the budget– the following has been evaluated from different research and information provided. *
Costco 2013 revenue was calculated to be approximately 2 billion dollars and the online retailing became a profit of 2% from this. Within the E- Commerce structure we need to allocate at the minimum of 4% of the annual revenue to determine the cost of the process at hand. The 4% necessary includes all of the processes within developing a proper E Commerce program/plan. Thirty Five Percent of the developmental costs is towards maintaining the plan as an entirety. The developmental aspect will allocate approximately 22% of the revenue which will include the startup fees associated. Content design and developments will contribute 15% from the revenue which makes the E Commerce program eye catching to the consumers. Within the hardware, software and admin are all used in combination to get the E Commerce program up and running, so these are of high importance.
Break even
Total Gross Margin 24%
Break Even Point 175333333.3
The total gross margin is calculated by subtracting capital needed and Costco’s revenue. Thus the answer is then again divided by the capital needed.
In the process of the break even analysis we take the capital needed and divide this by the total gross margin.
Cost Benefit Chart
Within the Positive effects we see increasing of the online sales will allocate the aspects of the revenue. Also we provide positive marketing structures within the plan. Negative result can occur within any E Commerce plan determine factors are the actual consumers. Many people are dishonest and can cause hiccups within E commerce programs especially when fraud becomes a factor.
CONCLUSION
Within Costco as a growing retailer, the E Commerce structure is a great importance for success due to the world being such technologically inclined. The further into the future we go the more technology will drive how consumers do their majority of shopping. Within the budget provided Costco will prove great revenue and profits. Costco can only increase sales online if the internet is used to its full advantage, otherwise opportunities could be missed. Within the competitors of Costco we must remember to bring the ease of use to the site as well as great designs. This way all ends of our ever changing markets are covered. Competition will always be a factor of the market at hand. The main focus is to stay in the game and continue to strive. Market research is a priority within the E commerce program since we need to analyze outside data as well as the consumers wants as an entirety. As technology moves forward Costco will have an E Commerce program that will excel.
References
Allison, M. (2012, May 5). Costco makes plans for boosting its online sales. Retrieved from http://seattletimes.com/html/businesstechnology/2018150010_costco06.html
Amritsar, P. (2010, December 07). Marketing strategy of Costco. Retrieved from http://www.managementparadise.com/forums/marketing-management/209222-marketing-strategy-costco.html
Company profile. (2013). Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-homeprofile
Costco.com successfully expands into united kingdom in record time. (2013). Retrieved from http://www.cisco.com/web/about/ac79/docs/retail/Costco-com_UK.pdf
Costco Wholesale Corporation— an international chain of membership warehouses. (n.d.). Retrieved from http://www.spscommerce-asia.com/assets/pdf/casestudy_CostcoFinal.pdf
Financial results, expansions, new offering, appointments, and quarterly earnings schedule - research report on costco, dollar general, safeway, vipshop, and sprouts farmers market. (2013, October 14). Retrieved from http://www.reuters.com/article/2013/10/14/bc-analysts-corner-idUSnPN0117264 180 PRN20131014
Garcia, D.F. ; Dept. of Comput. Sci. & Eng., Oviedo Univ., Spain ; Garcia, J. (2013). TPC-W e-commerce benchmark evaluation. Retrieved from http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=1178045&url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp%3Farnumber%3D1178045
Hayes, M. (October 27, 2011). 5 Reasons Loyalty Programs Will Increase Your Ecommerce Sales. Retrieved from http://www.shopify.com/blog/4408602-5-reasons-loyalty-programs-will-increase-your-ecommerce-sales#ixzz2mXPpoX8p Heller, S. (2012, November 12). Why the club king won 't be dethroned. Retrieved from http://beta.fool.com/topdowntrends/2012/11/12/heres-what-costcos-swot-analysis-revealed/16183/
Hoover. (2013, August 10). Costco wholesale corporation company information. Retrieved from http://www.hoovers.com/company-information/cs/company-profile.Costco_Wholesale_Corporation.9acf2327527015f2.html
Jeremy & Connie (November 8, 2013). Bogcommerce related. Retrieved from http://www.websitebuilderexpert.com/best-ecommerce-software/ Little, M. (2013, September 10). Costco 's strategy for avoiding the bullwhip. Retrieved from http://cmuscm.blogspot.com/2013/09/costcos-strategy-for-avoiding-bullwhip.html
Logan, L., & Beyman, M. (2012, April 25). Costco: breaking all retail rules. Retrieved from http://www.cnbc.com/id/47175492
Lutz, A. (2013, March 07). Costco 's unorthodox strategy to survive the big box apocalypse read more: http://www.businessinsider.com/costcos-unorthodox-business-strategy-2013-3?op=1
Petre, M. (March 4, 2011). Usability beyond the website: An empirically-grounded e-commerce evaluation instrument for the total customer experience. Retrieved from http://www.tandfonline.com/doi/abs/10.1080/01449290500331198#.Up-IbSdi1GM Stone, B. (2013, June 06). Costco CEO Craig Jelinek leads the cheapest, happiest company in the world. Retrieved from http://www.businessweek.com/articles/2013-06-06/costco-ceo-craig-jelinek-leads-the-cheapest-happiest-company-in-the-world
Web e-commerce budgeting. (2013). Retrieved from http://www.emfluence.com/web/ecommerce/budgeting
Winter, R. (2003) Managing e-commerce and mobile computing technologies. Pages 1-18. IGI Publishing Hershey, PA, USA ©2003. ISBN:1-931777-46-2 http://dl.acm.org/citation.cfm?id=962160
Table of Contents 2
COMPANY SUMMARY 3
MARKETING ANALYSIS 4
E-COMMERCE E-VALUATION 10
E-COMMERCE PROGRAM 15
BUDGET AND FINANCIALS 19
Break even 21
Cost Benefit Chart 21
CONCLUSION 22
References 24
Garcia, D.F. ; Dept. of Comput. Sci. & Eng., Oviedo Univ., Spain ; Garcia, J. (2013). TPC-W e-commerce benchmark evaluation. Retrieved from http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=1178045&url=http%3A%2F%2Fieeexplore.ieee.org%2Fxpls%2Fabs_all.jsp%3Farnumber%3D1178045 24
Hayes, M. (October 27, 2011). 5 Reasons Loyalty Programs Will Increase Your Ecommerce Sales. Retrieved from 24 http://www.shopify.com/blog/4408602-5-reasons-loyalty-programs-will-increase-your-ecommerce-sales#ixzz2mXPpoX8p 24
Petre, …show more content…
M. (March 4, 2011). Usability beyond the website: An empirically-grounded e-commerce evaluation instrument for the total customer experience. Retrieved from 25 http://www.tandfonline.com/doi/abs/10.1080/01449290500331198#.Up-IbSdi1GM 25
COMPANY SUMMARY
Sol and Robert Price had raised $2.5 million and opened the first Costco warehouse (Originally named, Price Club) on July 12, 1976. The warehouse was intended for business purchasing products only. Costco currently has over 600 stores worldwide (126,929 U.S. employees and 185,207 employees internationally) and roughly has around 10,000 vendors that they do business with. Costco is one of the leading wholesale stores in today’s market. They have been able to survive the recent recession by providing superior inventory management by matching the costs of holding inventory with the costs of stocking out. One of the main reasons for this is because of the large variety of products that are sold in Costco stores. To be able to shop at Costco, customers must pay an annual membership fee but in return they can find the products that they are looking for, at unbeatable prices. Along with great prices, most customers are satisfied shopping at Costco because of the many vendors that Costco does business with. It is relatively easy for the consumer to find what they are looking for. Additional success is brought by providing their vendors with detailed inventory and sales data. In return, it is the vendor’s responsibility to stock the shelves at Costco. By providing accurate data to the vendor, vendors can accurately replenish the stores stock. With this type of inventory management, everyone is satisfied (Customers, Costco, and Vendors).
MARKETING ANALYSIS
SWOT ANALYSIS
STRENGTHS | Costco is the wholesale leader with about 67 million cardholders to date.
Their focus to stick to their no frills approach and offer values and necessities with low overhead and great value is working well for the company. In a head to head battle with one of their top competitors, Sam’s Club, Costco won with the lowest cost per unit. Members recognize and appreciate these efforts, which are apparent through Costco’s 90% US and Canada customer retention stat (86% worldwide). Their business customers, who account for two-thirds of Costco’s overall sales, hold a 93.7% retention rate (Heller, 2012). The staff and management of Costco are also known to stick around for a long time, with tenured terms and low staff turnover …show more content…
rates. Costco makes sure they are keeping their customers happy by keeping their employees happy. Employees who are able to appreciate their job are much more likely to provide great customer service than those who do not. Costco also keeps customers happy by offering free samples while you shop, a hassle-free returns policy on products and memberships, low annual fees, terrific membership benefits, and a quality private label you cannot get anywhere else.
WEAKNESSES | There lack of advertising saves them money, but it means that outsiders “don’t get it”. They do not understand what is so great about Costco, and word-of-mouth is not 100% effective. Costco’s locations are also a bit scarce. Costco is very selective when deciding where to put a new warehouse, and they often choose a location that will benefit several communities, not just one. This means there might be a longer commute involved when trying to locate a warehouse. OPPORTUNITIES | Costco has a lot of untapped demand and a lot of room to grow. There are over 600 locations worldwide (three-quarters of them in the United States), meaning there is a lot of worldwide growth opportunity. There is a lot of potential to gain a tremendous amount of new customers. There is also a lot of potential for their private label, Kirkland Signature. As the brand becomes more known and more appreciated, they will be able to grow and compete with more big brands. There is also a lot of room to grow within their e-commerce. Costco could provide a dot.com only membership, which would allow them to reach incredible market potential.
THREATS | Costco’s threats are their competition. Among that list are Sam’s Club, Amazon.com, and BJs. BJs is not as big of a company as the other two, but still poses a threat because they have been growing and offering their customers things like acceptance of outsiders coupons and all major credit cards. Costco only accepts American Express.
DEVELOPED MARKETING ENVIRONMENTAL ANALYSIS
In order for a company to survive the many changes that they face throughout the years they must be proactive and prepared to adjust with the changes. Costco’s most significant challenges in this regard are socially and technologically related. Socially, their customer base’s taste will change over time. As the population changes demographically for whatever reason, Costco must adjust and change with their customers. It is important to understand their community and what they need at all times.
Technologically, Costco has their work cut out for them. As retail preferences shift to the internet, Costco must keep up and even be ahead of the game. Technologically speaking, it is often difficult for a company to predict what technological advances will catch on and which ones will not. Costco needs to be careful not to invest too much money into a technological path that goes nowhere. At the same time though, they need to keep up with these changes and somehow figure out how to do it better than their competitors.
Costco has done astonishingly well though, so far. While their competitors are battling their loss of customers due to the internet and investor pessimism, Costco has managed to increase their sales by 39% and double its stock price since 2009 (Stone, 2013). They are handling the swift shift to E-commerce very capably.
MARKETING MIX
PRODUCT | Costco offers its customers a large variety of different products, including but not limited to apparel, appliances, books, computers, DVDs, electronics, food, furniture, hardware, health and wellness, jewelry, music, outdoor living, and wine. They also offer several services that benefit their customers, such as auto and home insurance, auto financing and refinancing, health insurance, life insurance, mortgage services, real estate agent service, small business loans and credit lines, and travel.
Costco keeps their prices low while offering select private and nationally branded products. On average they stock 4,000 different products, whereas the typical retailers carry 40,000-60,000 different products (Amritsar, 2010). These products rotate frequently, bringing customers in more often to see what is new.
Of the 4,000 products offered about 330 of them are of the brand Kirkland Signature, Costco’s private label. Kirkland Signature is known for its quality and value. This private label accounts for 15% of Costco’s sales, and we will likely see growth from them as they compete with more and more nationally branded products (Amritsar, 2010).
PLACE | Costco’s corporate office is based out of Issaquah, Washington. Of their 600+ stores, about 450 are located in the United States. The remaining stores are spread out through Australia, Canada, Japan, Mexico, Puerto Rico, South Korea, Taiwan, and the United Kingdom (Hoovers, 2013).
Costco’s stores maintain a warehouse feel with their “no frills” approach to business. The layout is open, the floor is concrete, and the tables often consist of the pallets that the products are shipped on. The products are moved around frequently, making each experience like a scavenger hunt for the customers.
PROMOTION | Costco is known for their lack of advertising; they primarily rely on word-of-mouth to get their name out. They have methods of promoting products by mailing coupons to current members and offering samples throughout the store. They also promote new warehouses with direct marketing via mailings to their target market. An indirect way that Costco promotes theirs stores is by treating their employees well. Happy employees are willing to promote the products and also do what is necessary to keep the customers happy.
PRICE | Costco’s strategy is to charge their members an annual fee, and in return offer prices that are unbeatable. They guarantee that their product mark-up never exceeds 15%, whereas typical supermarkets have a 25% mark-up and the average department stores have a 50% mark-up. This strategy is made possible by aggressively buying from a handful of vendors, and then selling in volume and driving the cost down (Amritsar, 2010).
Costco is also able to maintain low prices “by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing and accounts receivable. We run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members”, according to Jim Sinegal, the Company’s Co-Founder and Director (Company profile).
COMPETITORS
* Chart information retrieved from http://www.moneytalksnews.com/2013/01/03/bjs-vs-costco-vs-sams-club/
As the chart illustrates, warehouse retailers tend to be pretty comparable. What sets Costco apart from their competitors is how well they treat their employees, and in return how well their employees treat their company. In an one of the stingiest industries, Costco makes it a priority to pay their employees well and ensure they have good health benefits available to them. The average starting pay at Costco is $11.50 per hour. Within five years the average pay per employee is $19.50 per hour, with semi-annual bonuses (Logan & Beyman, 2012). Walmart’s (Sam’s Club) average full-time employee makes $12.50. Healthcare benefits are also no contest. Costco’s average employee cost for benefits is 12%, whereas Walmart’s employees is 40% (Lutz, 2013).
E-COMMERCE E-VALUATION
ADVERTISING:
Promotion seems to be the one main area where Costco needs improving. Cost.com already sells over $2 billion worth of goods and merchandise but falls far behind from Amazon.com and Walmart online stores. Costco in 2012, planned to finally introduce new mobile apps to significantly expand its online business. In a time now where consumers are shopping on internet searches for big flat screen TVs, Costco doesn’t appear on the searches. One reason for this according to, Ginnie Roeglin, senior vice president of Costco’s e-commerce and publishing operations, is because Costco does not advertise and they do not pay for searches. They are moving to a new platform that will be set up in a way so consumers will begin to see them in search engines. Mobile apps are an important tool, for making it easier for consumers to shop online because they are constantly connected to the internet; this is one area Costco plans to improve. The reason they haven’t yet explored advertising through social media and other means of the internet is because it is one way they have able to keep costs down.
Due to the lack of promoting Costco.com, many members of Costco do not realize that there are many items being sold on the online stores that cannot be found in their warehouses. They have more work to do making customers aware of the additional selection through its online store. By boosting advertisements and paying for advertising through search engines, customers will begin to realize this if Costco is being found through search engines like Google.
E-COMMERCE IN FOREIGN COUNTRIES:
Unlike other major retailers who are very well off in e-commerce in foreign countries, it may be difficult for Costco to operate e-commerce in these foreign countries. It was just recently in the last couple of years that Costco, with the help of Cisco Internet Business Solutions Group (IBSG), to start operating online in the UK. It is because Costco warehouses in the UK has high sales and memberships, the UK has the second largest e-commerce market in the world and still growing at a very fast rate, the English language in the UK would allow for easier website transition, and finally because Cisco IBSG’s research showed that many UK merchants are seeing online growth from European orders. This would allow also for Costco to enter into non-warehouse countries like France and Spain.
Entering into e-commerce on a global scale will help to protect Costco’s market share against local competitors already online, attract new members who are unable to visit Costco warehouses due to distance and other legal restrictions, and generate new member.
FORMS OF PAYMENT:
Another weakness at Costco is that if you were to purchase anything in the store at Costco, you would only be able to purchase using American Express credit cards or cash, as they do not accept debit cards or any other major credit cards. However, if you were to purchase something through a Costco website, they accept all major credit cards. They do have a highly recommended credit of their own, called the “Costco True Earnings Card” which acts as a Costco Membership and gives the consumer 3% cash back at U.S. Gas Stations and on gasoline at Costco, 2% cash back at U.S. Restaurants, and 1% cash back on other purchases, including at Costco. The card has a no annual fee with your paid Costco Membership and 0% APR on purchases for 12 months.
CURRENT PROGRAM:
Internet use reduces communication costs, reduce the time required to market products and services, enables delivery of information in digital format, reducing transmission and distribution costs, and enables broader business alliances and integrated.
Costco now integrates online technology to their former systems of electronic data interchange, and are build new Internet based manage their supply chain and other means of inventory control systems. Besides selling their products and services, Costco is also using the Internet to make consumer surveys, provide information and pictures to the media business and mass communication, and submit documents to comply with regulations, and manage and transfer funds.
Internet has affected the way of doing business at Costco, trade patterns, learning and social and political interactions. Costco is growing with their Internet applications, as well as people who use this medium to communicate and to make
purchases.
KEYS TO SUCCESS:
The first key of Costco is related to the ability of the company to satisfy a need / desire is valued by certain target market. This, through a suitable medium, that is efficient and effective for that particular market.
The second important key is building successful in relationships with customers, establishing in the minds of these, the idea that everyone can meet their needs. In addition to creating long-term value a relationship to generate loyalty and identification in time to meet the needs of these loyal customers.
Proper management of technology is the third key to success of Costco, due to which the company must be constantly updated. Access to new technologies is widening, with important good use of it towards the overall development of the company.
Finally, Costco logistics becomes the fourth key variable, either input or output, one joined the marketing and sales of the value chain, is one of the main variables. The idea of satisfaction must be real, not virtual; therefore, logistics plays a key role in the implementation of the exchange between Costco and the client. Satisfaction should be delivered in a short period of time so that the customer is satisfied.
Electronic Commerce Strategies are not detached from the overall strategy of the company and vice versa. Like all companies that market participants have access to the different technologies available, the acquisition thereof by itself does not generate competitive advantages. Is what every company is able to do and you can get maximum return on these investments, what makes the difference, so in practice, these two strategies are merged so that it is difficult to clearly differentiate which corresponds to the Costco E-Commerce strategy and overall business strategy.
The development of e-commerce strategy of Costco requires careful planning and total commitment. It should be viewed as a long-term operation, and not as a chance to get a short-term gain. Costco should understand the characteristics of the online market, such as the global nature of competition, technical and regulatory requirements that apply to online sales, and the role of information in electronic commerce.
When talking about e -business, Costco should see a window of opportunity in terms of how to provide the service, the geographical location of the consumer, payment etc. In other words, based on a clear and deep understanding of the situation of Costco, they should use the information collected to generate new ideas by restructuring existing concepts.
They need a program in which will be a list of ideas to organize their priority, which is not sufficient to continue the implementation of the actual strategy. It is necessary to analyze and structure them in such a manner that constitutes continuity in the long term. In practice it is to identify commonalities between all ideas that create a basis on which, in due course will support other initiatives.
To define the baseline, it is appropriate to compare the situation of the environment and the current state of Costco, evaluating the current business strategy against the changes identified to define courses of action or alternative routes. The effort should conclude by identifying which aspects represent opportunities to develop with the use of electronic channels and detailing those which will initially focus the organization.
Since the expansion of channels in a first instance, followed by the integration of the value chain of the company, continuing the integration of companies in the same sector and where each focuses on the skills that form the core of Costco, up initiatives to offer services suppliers from different industries.
E-COMMERCE PROGRAM
Costco needs activities to ensure ownership by the organization. Involves monitoring and actively participate in making the results of the strategy. They should suggest monitoring the implementation of improvements and ongoing measurement of positive and negative impact of the new services.
Change in Mental Dynamics of People: When it has completed construction of systems and processes have been reorganized, it is considered that most of the work is already completed. This is not true. The biggest challenge is to get quarterback organization appropriates the new way of working. In other words, it includes the means provided by the strategy as part of their habits of action.
Achieving habits that characterize organizational behavior, which involves a process that goes from experimentation with new paradigms, processes and technology, followed by a constant repetition of such behavior, reaching the habit and finally convert deepening principles that determine the habits to act. This is no easy task change processes.
This goes beyond ensuring that people appropriating a change in a process, or be trained to query an order through an Internet system. Costco must be able to transform the thinking of the company around the possibilities offered by electronic channels. It involves teaching their team to constantly rethink the paradigms of work, and to achieve a dynamic change in the minds of people.
Control, Monitoring and Permanent Fit: It is necessary to implement changes in the process, together with the technology to ensure that the implemented tools are internalized by the organization and will be used to improve performance. Control, monitoring, persistence and stamina it takes to get results.
Give Support Activities Introduction: In the beginning there will be many doubts about the new operation, until the learning curve of new tools and processes is reached. Therefore it is desirable to maintain continuous support team to address any questions or requests for information to ensure the flow of new services.
Record information to regularly assess the benefits and communicate the results to all involved, are among the factors that complement the accompaniment. This requires defining a scheme of service levels, allowing you to measure the performance of deployed services, channel energies and perception about the benefits of the improvements or problems encountered, it is essential to avoid affecting expectations whole team.
Apart from this, build a solid base while advancing, constantly changing, the ability to reduce uncertainty and the ability to minimize the complexity gradually become determining factors for profitable strategy.
Part of the formulation of the strategy is to design a form that allows incorporating variations depending on unexpected aspects. Costco must meet the necessary processes that allow incremental improvement strategy. Increasingly, the strategy is strengthened and incorporating new aspects not covered in the past.
Finally, it is important to emphasize that electronic commerce is a reality and is closely related to the overall company strategy. Therefore Costco needs to engage your strategy the benefits of new ways of doing business, supported by technology. The formulation of a strategy for electronic commerce requires an organized and continued to seize the opportunities of the new economy process. Just take it, involves understanding the changing environment, assess the capacity of the organization and develop how to respond to these changes through creativity and dedication.
Contrary to what is seen in practice, strategize Electronic Commerce involves thinking beyond technology. More than installing and configuring a website or install a mail server or enable a Call Center. It has an integrated view of the business and a coordinated way to make changes in processes and the required human capital.
Strategies for success in their Web-Site:
Dynamic Product Catalog: Provides Costco visitors to have organized information about Costco products, and search tools for different criteria (price, name, category and other characteristics). The catalog upgrade is done simply through a management pack.
Cart: Allows the customer to have control over the items the client has selected for purchase. Such articles may be removed or added to the cart at any time.
Electronic Payment Systems: Through this module, enables the Web site to receive electronic payments by credit card, or bank deposit safely.
Command Control System| This module allows an efficient control over orders received on the website, providing important information such as the status of the order, when it was paid, given, etc. Also, allows records of transactions per customer, so that at Costco they will know more about the consistency and taste of the buyers.
Advanced technologies, have surpassed trade barriers and now "anyone" can have access to a good or service no matter where they are e-commerce has brought everyone, slowing distances and reducing costs considerably, and so collaborating in the development of countries and their companies.
Throughout this research, we observed the importance of electronic commerce, the impact it has generated worldwide for both businesses and the general group and the importance of this medium for the development of Costco. Furthermore we define strategies which can enforce Costco to grow in it.
An ecommerce website is an extension of a constantly evolving business; websites have been created to leverage existing investments in companies in order to use them with the technology and plan ahead, as we face a world electronic means. The first step to becoming a company of e-commerce is to discover how the competition works; one must understand the company, the industry, options and future prospects. An effective e-commerce strategy must cover all phases of the sales process: from creating awareness, an interest and a desire, to sell, to service and support.
BUDGET AND FINANCIALS
Online Revenue $ 2,104,000,000.00 *Within the evaluation of the budget– the following has been evaluated from different research and information provided. *
Costco 2013 revenue was calculated to be approximately 2 billion dollars and the online retailing became a profit of 2% from this. Within the E- Commerce structure we need to allocate at the minimum of 4% of the annual revenue to determine the cost of the process at hand. The 4% necessary includes all of the processes within developing a proper E Commerce program/plan. Thirty Five Percent of the developmental costs is towards maintaining the plan as an entirety. The developmental aspect will allocate approximately 22% of the revenue which will include the startup fees associated. Content design and developments will contribute 15% from the revenue which makes the E Commerce program eye catching to the consumers. Within the hardware, software and admin are all used in combination to get the E Commerce program up and running, so these are of high importance.
Break even
Total Gross Margin 24%
Break Even Point 175333333.3
The total gross margin is calculated by subtracting capital needed and Costco’s revenue. Thus the answer is then again divided by the capital needed.
In the process of the break even analysis we take the capital needed and divide this by the total gross margin.
Cost Benefit Chart
Within the Positive effects we see increasing of the online sales will allocate the aspects of the revenue. Also we provide positive marketing structures within the plan. Negative result can occur within any E Commerce plan determine factors are the actual consumers. Many people are dishonest and can cause hiccups within E commerce programs especially when fraud becomes a factor.
CONCLUSION
Within Costco as a growing retailer, the E Commerce structure is a great importance for success due to the world being such technologically inclined. The further into the future we go the more technology will drive how consumers do their majority of shopping. Within the budget provided Costco will prove great revenue and profits. Costco can only increase sales online if the internet is used to its full advantage, otherwise opportunities could be missed. Within the competitors of Costco we must remember to bring the ease of use to the site as well as great designs. This way all ends of our ever changing markets are covered. Competition will always be a factor of the market at hand. The main focus is to stay in the game and continue to strive. Market research is a priority within the E commerce program since we need to analyze outside data as well as the consumers wants as an entirety. As technology moves forward Costco will have an E Commerce program that will excel.
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