Free The Costco Craze Essay Sample

In the 2012 CBMC documentary “The Costco Craze: Inside The Warehouse Giant” journalist Carl Quintanilla discusses the unconventional business practices that distinguish Costco’s success, and makes Costco a leading retailer in not just sales, but also in their unique method of retailing and managing service. What I learned from watching this show was very intriguing, and surprising. Collectively Quintanilla calls these unconventional practices, and the success they have caused, “The Costco Effect.” I call it AMAZING. The impact of “The Costco Effect” is what makes Costco a leader in service; despite the strange path they take to get there.
Conventional retailing offers a free shopping experience driven by advertising, aesthetically pleasing stores with abundant signage, and a wide selection of products in smaller sizes. Costco achieves annual sales of nearly $100 Billion (USD) by allowing only paid members to shop in “stripped-down warehouses.” Costco not only has no public advertising, but they have a very limited product selection compared to a grocery store or the average Wal-Mart. Unlike other retailers, Costco’s products are usually only sold in bulk quantity-sizes, unless it is a higher-priced item. Conventional retailers use advertised low prices to drive traffic and sales. Costco generally has priced each product at the lowest possible price point. According to Quintanilla, Costco’s post-tax annual earnings are roughly equivalent to their total annual membership fees. Most retailers have abundant signage to help the shopper find what they need. Costco’s aisles aren’t marked, which forces the customer to search for what they want. On the surface it appears that shopping at Costco would be more of an inconvenience, yet worldwide they daily host over three million loyal shoppers happy to part with more money than they intended to spend. How can they achieve this level of success using such unconventional methods?
The key to Costco’s success has been to create and manage service. Traditional retailing usually limits service to the amenities provided, or dealing with customer complaints. In Costco’s hands managing service transforms into the total Costco customer experience. Costco has reimagined retail by bucking the norm and creating their own system for managing service and the total customer experience. This enables Costco to convince their shoppers they are saving money while they get them to spend much more money than they originally intended to spend. This is not just through pricing, which implies “cheapness.” Costco offers high-end products with very competitive pricing.
A key to how Costco manages service is they have made a science out of studying and predicting how their customers will shop and how much they buy, and at what optimal package quantity or size. They spend a great amount of time, talent, and treasure to determine what the proper product mix is, and in what quantity it should be offered in to best serve their 64 million members. For instance, traditionally retailing practices have retailers offering a large variety of products and sizes. According to Costco’s founder James Sinegal, too many choices actually hinder sales because a customer can’t decide what to buy. By studying what products will best sell, or be in the highest demand of the consumer, and by studying what the optimal size of the product is, Costco not only has optimized sales, but has created a method of customer service that is beyond the traditional amenities in a retail store, but for them, now includes pricing and product size as part of their customer service system. What they lack in “creature comforts” they more than make up for in the pricing and quality of their merchandise.