Starting its journey from 1983, the Costco wholesale corporation is the largest warehouse retailer in the world now. It is present in eight countries as a warehouse club and has a net worth of $132.41 B. James Sinegal and Jeffrey H. Brotman co-founded Costco. The company provides bulk quantities of specific products at highly discounted rates. But its services are only available to club members. It has about 98.5 million members so far. You have to pay an annual membership fee to obtain membership and take the benefits of the warehouse club. It is one of the most earning retail services in the world. The following study will elaborate on the advertisement expense analysis of CostCo.
How Much CostCo Spends on Advertising?
Advertising is the most effective way to reach-out to the target market. You can draw attention and convince a massive number of customers to buy your product through it. The major competitions of Costco are Walmart and Target. Target spends more than 2% (~$1.5 billion) of its revenue on advertising and Walmart spends about 0.5%(~$3.1 Billion). So, the question is, how much does Costco spend on advertising? It may seem like they also spend a big chunk of their revenue on advertising but the truth is contradictory.
They spend CLOSE TO NOTHING on conventional advertising. That is correct. They do not spend anything on advertising that can be mentioned. In earlier times, around 2013, the co-founders stated, Advertising is Evil, and the company follows the very principle to date. This wholesale-retail business is known for its high-quality products with incredibly low prices. It was the founding idea of the company. So, whatever made the prices rise, they simply avoided them. Hence, advertising got out of the option as it increases costs immensely, which is against the company ideals.
Selling, general and administrative cost of the company stands to be $16 Billion, which is about 10% of its revenue and the non-operating cost is about $32 billion in 2020. But in all these costing and budgets, advertising has not ceased its place yet. And it is without a doubt that advertising will remain out of the equation for the time being.
So, if they are not spending any money and they do not have any real advertising budget, then how are they reaching out to their potential buyers? Well, the answer is quite clear. It uses spontaneous publicity to do its work for them. Costco is vastly known for its remarkable customer service. The customers tend to get hooked up on Costco retail service. Their excellent prices and astounding customer service are enough to spread the word out through satisfied customers. Thus, it creates new and long-term customer relationships spontaneously.
It has 98.5 million members and its key source of earning is the annual fee from the members. According to the company claim, 9/10 customers renew their membership every year. New member addition is a plus. So, their marketing-strategy is a bit different from usual because they do not pursue traditional marketing. They let their quality speak for themselves and it sure speaks louder. They make sure every customer’s need is satisfied. Thus, there is left zero need for a PR department in the company.
Apart from company morals and quality gratification, it saves a lot of money by not advertising their name. Where other companies like Amazon, Walmart, and Target are spending billions of dollars on advertising every year, Costco reduces its cost more than 2% for boycotting advertising. So, the idea of not spending a penny on advertising has come off as profitable for this wholesale retail company. This is how much they actually spend on advertising.
Related:
- Marketing Mix of Costco Wholesale
- McDonald’s Advertising Expense Analysis
- Leadership Qualities – Style, Traits, and Skills of James Sinegal
Reference:
- https://en.m.wikipedia.org/wiki/Costco
- http://panmore.com/costco-wholesale-marketing-mix-4ps-analysis
- https://www.cnbc.com/amp/2019/05/22/hooked-how-costco-turns-customers-into-fanatics.html
- https://www.britannica.com/topic/Costco
- https://www.mediapost.com/publications/article/302460/bing-google-facebook-spent-hundreds-of-millions.html
- https://www.forbes.com/sites/greatspeculations/2019/12/17/how-much-does-costco-spend-on-selling-general-and-administrative-expenses/amp/
- https://www.fool.com/amp/investing/general/2015/07/30/the-costco-effect-5-ways-it-stands-out-from-the-co.aspx
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