Marketing Plan for Costco in China

Marketing Plan for Costco in China

Submitted to:

Prof.Joan Crooker

Instructor: Marketing Fundamentals, Summer 2018

By

Qianhui Ma and Shiyi Zheng

Executive Summary

Costco is a member warehouse club and a multi-billion dollar global retailer with warehouse clubs in eight countries. Costco is a recognized leader in the field. In 1983, the first Costco opened in Seattle, USA, and then expanded rapidly around the world. As the world's second largest retail brand, Costco is the world's largest chain membership store, with more than 92 million members worldwide and a membership renewal rate of 92% in the US and Canada. Ranked 13th in Fortune's "2018 Global Most Acclaimed" list. It is regarded by Wal-Mart as the “only” competitor with its unique model of “selection + parity + membership”.

Costco's business philosophy is simple. Reduce costs and pass on the savings to their members. The huge membership base and huge purchasing power, coupled with the never-ending pursuit of efficiency, bring the best price to members. Costco is different from the traditional supermarket "selling things, making a difference" profit model, and does not rely on selling things to make money to actively reduce the net profit to almost zero. So how does it get the benefits? In fact, Costco charges rigid membership fees to customers every year. A large number of members and high renewal rates have become the key points for its profitability. Low prices, cost-effective goods, this has deepened the customer's stickiness and loyalty. This advanced operating model makes Costco a myth in the industry.

Along with the continuous leap-forward development of the domestic economy, the national income level has been continuously improved, and the retail industry has become an important driving force for the tertiary industry. The market scale has been continuously expanded and market rules have been continuously improved. In recent years, with the development of China's e-commerce, Internet economy and mobile payment, the online retail business has gradually become popular, and the online and offline are simultaneously driven to promote the development of the retail industry. For the Chinese retail market, the new alliance on the Internet is already very strong. Under the pressure of explosive growth in online shopping and convenience stores, the way in which the retail industry has expanded extensively in the past has come to an end. The closure of stores and the adjustment of many acquirers, especially international retail giants, have been greatly challenged in China. RT-Mart was acquired by Ali, Tesco was acquired by China Resources, and the number of Wal-Mart stores was gradually reduced. The traditional retail methods of these large supermarket chains have been gradually phased out, and new retail sales have emerged.

In fact, Costco has been eyeing the Chinese market as early as 1999, but has been in a cautious wait-and-see phase and has not taken any practical action. Because considering whether Chinese consumption habits are suitable for its development, Costco is a mass-marketing, and costco only accepts members. The annual membership fee is about 45 to 50 US dollars, and China has a huge retail market, focusing on China. With the retail market and nearly 20 years of operational experience in the Asian market, we have chosen to enter Tmall International and start testing the Chinese market. Costco's “Incoming China Route” follows the Tmall International(US warehouse delivery) – Tmall(China domestic warehouse delivery)- physical Store three-part trilogy, which analyzes the Chinese retail market through early big data to reduce costs and risks, and lays a solid foundation for further follow-up.

Table of Contents

Situation Analysis………………………………………………………………………………..5

    Strengths………………………………………………………………………….…………….5

    Weaknesses…………………………………………………………………….…………….…5

Industry Overview……………………………………………………………………….…..…..6

Marketing Objectives…………………………………………………………….…….………..5

Target Markets………………………………………………………………………….….……5

Product, Price and Place Strategies………………………………………….………....………6

Promotional Strategies…………………………………………………………………………..7

Online Advertising……………………………………………………………………….……..7

    Events Advertising on Social Media……………………………………………………...…….7

    New Improved Website………………………………………………………………..……….8

    Communications………………………………………………………………………..………8

    Event Postings on Public Places………………………………………………………………..8

Implementation Plan ………………………………………………………..………………..…8

Measurement Plan ………………………………………………………..……………………10

Exhibits………………………………………………………………………………………….11

References……………………………………………………………………………………….17

Situation Analysis

Strengths:

    Pricing Authority: Costco's philosophy is to provide quality products to its members at the most competitive prices. It does not focus on maximizing prices in the short term, but instead focuses on maintaining the perception between its “pricing power” members or consistently offering the most competitive prices. These customers bring customers back to the warehouse because they believe they actually get the best price on a variety of products. The company also uses its gasoline business to attract members to the warehouse. Although the profit margin of this business is relatively lower than other businesses, it once again promotes other high-margin products with higher production.

    Brand loyalty: Costco's relentless pursuit of providing high quality products and delivering high value makes it possible to attract a very loyal customer base. This has allowed the company to increase its market share and increase its customer base over the years.

Weaknesses: 

     Because of the lack of domestic supervision, disputes about membership have come one after another. Chinese consumers have generated a lot of distrust and doubt about the membership system. Costco is deeply dependent on the membership system and is profitable. Whether it can allow Chinese consumers to pay and then buy goods is a problem that needs to be solved urgently. However, once this barrier is broken, consumers will have a huge stickiness, and there is a feeling that they will suffer if they don’t buy. This kind of psychology will continue to drive consumers to shop, and through word of mouth can not attract more consumers through any advertising costs, so that the market is gradually expanding.

      Costco is mainly positioned in the middle class in other countries, and the positioning of people in China is also a top priority. China's rapid economic development is huge, and the level of consumers is uneven. Therefore, the positioning of the population is extremely important. Costco is often known for its "low price and high quality". It is always on the side of the customer and has excellent service. Therefore, the things that are bought at Costco can be returned without any reason, and they will continue this service after entering China. However, in China, the quality of consumers who go to the supermarket is high, and they tend to pursue small profits and often return goods. This will lead to a lot of losses, which is an important issue that cannot be ignored.

     The take-away logistics industry in China is developing rapidly, and the surrounding supermarkets are extremely extensive. The explosion of e-commerce has caused consumption diversion, and traditional retail passenger flow and profit declined. For example, the daily fresh and fresh half an hour, Tmall supermarket 1 hour, every other day has been deeply rooted in the hearts of the people. Consumers are accustomed to buying on demand, and Costco's model is generated in a country where people are sparsely populated, and people tend to hoard large quantities of products at once. Although Costco chose to access the Tmall line in China, it has been focusing on offline retailing. It has not done any practical work on online retail in China, and has no exclusive channels. If you avoid online retailing and only do offline retail, Costco will be in jeopardy in the future. For the strong differentiation of this region and habits and the rapid development of online retail in China, we need to find a solution.