Costco sticks to business basics

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Seemingly bold defiance and unwavering focus characterize the way Costco has chiseled its name into the American retail landscape.

A lot can be learned from Costco's stalwart ability to buck the system and its unorthodox approach to marketing, both in its stores and online. Costco isn't trying to be provocative, to build buzz. It's simply trying to boost sales.

It's clear that Costco's bare-bones business approach, like its store aisles, isn't about song-and-dance marketing ploys. Proof the strategy works? The chain racked up $52 billion in sales in 2005, led by its Kirkland Signature line. One of the most powerful retailers in the marketplace, Costco is stealing share from traditional grocery and department stores by serving an enviable demographic: 25% of its customers have a household income that exceeds $100,000, according to Columbus, Ohio-based Big Research.

Costco doesn't kowtow to suppliers, who will do anything, it seems, to reap the benefits of Costco's volume. And, in keeping with CEO Jim Sinegal's demand, Costco adheres to some uncompromising pricing philosophies.

The company takes an unorthodox approach to e-commerce as well. Even in the online realm, Costco would rather win the price game on a few items than hurt its margins by competing in all categories. And in the same way the company eschews offline advertising, it doesn't advertise online.

This isn't about being stubborn: After a persistent pool-table supplier begged for a test to gauge the benefits of paying for keyword-search ads on Google and Yahoo, Ginnie Roeglin, senior VP-e-commerce, gave it a try. Sure, the ads showed a lift in pool-table sales-but a hard look at the math showed it wasn't enough to make the margins work.

All that said, does Costco deserve to be tagged a renegade? Oddly, some might slap it with that label these days, when marketers seem to be on a never-ending quest for the holy grail of advertising.

But they'd be wrong.

Maybe what ultimately pays is much less glamorous: plain old good business.

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