Introduction
Founded in 1983, Costco Wholesale Corporation is the largest warehouse retailer in the world. It is present in eight countries as a warehouse club and has a net worth of $132.41B. 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 advantage of the warehouse club's benefits. It is one of the most profitable retail services in the world.
How much do they spend 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 competitors of Costco are Walmart and Target. Target spends more than 2% (~$1.5 billion) of its revenue on advertising, while 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 has followed that principle to date. This wholesale-retail business is known for its high-quality products with incredibly low prices. It was the company's founding idea. So, whatever made the prices rise, they simply avoided them. Hence, advertising is out of the question, as it would increase costs significantly, which is contrary to the company’s ideals.
The company's selling, general, and administrative costs are expected to be $16 billion, about 10% of its revenue, and its non-operating costs were about $32 billion in 2020. But in all these costs and budgets, advertising has not yet lost its place. 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 do not have a real advertising budget, how are they reaching their potential buyers? Well, the answer is quite clear. It uses spontaneous publicity to do its work for them. Costco is widely known for its remarkable customer service. The customers tend to get hooked on Costco’s retail service. Their excellent prices and astounding customer service are enough to spread the word through satisfied customers. Thus, it spontaneously creates new and long-term customer relationships.
It has 98.5 million members, and its primary source of income is the annual membership fee. According to the company’s claim, 9 out of 10 customers renew their memberships each 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 itself, and it speaks louder than words. They ensure every customer’s needs are satisfied. Thus, there is no need for a PR department in the company.
Apart from company morals and quality gratification, it saves a lot of money by not advertising its name. Where other companies like Amazon, Walmart, and Target spend billions of dollars on advertising every year, Costco reduces its costs by more than 2% by boycotting advertising. So, the idea of not spending a penny on advertising has proven profitable for this wholesale retail company. This is how much they actually spend on advertising.
Reference:
- https://en.m.wikipedia.org/wiki/Costco
- http://panmore.com/costco-wholesale-marketing-mix-4ps-analysis#:~:text=Costco%20Wholesale%20uses%20the%20market,firms%20in%20the%20retail%20market.
- 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