What is Costco's successful strategy to sell products of other brands as 'own brand'?
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Costco has a private brand called 'Kirkland', but Kirkland's products are actually manufactured by major brands. Brands know that they can get cheaper prices than their own products, and why strategic distribution consultant Adam Sleeking explains why they distribute their products to Costco.
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Costco, a membership-based warehouse-type store, mainly sells low-priced products, but the key to its popularity is that 'good quality even at low prices'. Private brands of other companies are also cheap, but there is a difference in 'Kirkland' that 'I have a passionate fan to design tattoos'.
Costco and Kirkland have broken the established concept of 'quality is cheap if cheap', but the reason why this can be realized is that Kirkland's products are made by leading manufacturers.
The manufacturer of Kirkland products has not been disclosed, but Costco urges brands to say 'Kirkland-labeled products are 1% better in quality than branded products,' according to a Reddit user in a marketing position. That. This theory has not been tested, but strategic financial consultant Three King believes it is convincing.
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For example, if a brand sells one item to Costco for 95 yen, Costco will sell to the general consumer for 100 yen. At this time, the costco margin is 5%.
95 yen is the income that goes into the brand side, but generally, the consumer goods (CPG) brand has an average of 24% of the product price as a marketing budget and a gross profit of 40 to 50%. On the other hand, when selling as a Kirkland product, Costco has already established a sales channel, so brands can reduce marketing costs to around 5%. Therefore, even if the brand sells a product that should have been originally sold at Costco for 95 yen, it will still be profitable. Costco can sell it as a 'Kirkland' product at a price lower than the original price of the brand.
It seems that if the same product is sold under different brands, they will have a conflict with each other. However, since both parties are doing different branding and marketing research, it is said that such a sales method is established. From the brand side, there is a big merit that we can sell products through Costco, which is one of the largest sales channels in the world, with revenue of more than $149 billion (about 15 trillion yen) in 2019.
Kirkland's 'absolutely low price' is one of the reasons why Costco has succeeded with its private brand. And in addition to that, Costco started the “Kirkland” brand in 1992 when there was almost no private brand, which is another reason for its success. Because private brands are not sold outside the store, there is no way for the customer to buy, like, and repeat the product to build the brand. Kirkland has been building a brand for 28 years.
There are three things that can be learned from Kirkland's success: “use distribution,” “provide incentives for suppliers,” and “establish a brand over time,” he said.
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