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I have heard that Costco is brutal with their suppliers and has no compunction about dropping products if they can't get them at a price that makes sense, given

I have heard that Costco is brutal with their suppliers and has no compunction about dropping products if they can't get them at a price that makes sense, given the limited number of SKUs they're prepared to stock. Their customers are now more or less trained to expect this, but I think it's a definite weakness in their model. If Amazon can reliably provide me with my "favorite" detergent, I'm likely to forgive a few dollars a year in added cost. Wine selection is probably a little easier to explain, given the bizarre maze of the three tier system. Thank god for the 21st Amendment, but the way states handle alcohol distribution makes me thankful for an expansive reading of the Commerce Clause.

mikeash 13y ago
I'm not sure that's a weakness so much as merely a difference. Some people have a "favorite detergent". Other people, such as myself, just want something of decent quality, and could not really care less what name is on the container. For you, Amazon's approach is better, because you're willing to pay more for the specific item you want. For me, that's completely unimportant, so why would I pay more? The two companies are covering different niches in that respect. Nothing wrong with that. No single company needs to be all things to all people, although I suspect Amazon wants to (and Costco does not).
- twoodfin 13y ago
  Sure. If you can live the "Kirkland Life", you are Costco's perfect customer. But as the parent comment pointed out, their strategy puts them in a somewhat awkward position. As a rule, you want your customers to love your products. But then your business model requires that you take away products whether they're loved or not. Indeed, if they're loved so much that your supplier thinks they're entitled to a higher premium than an un-loved competitor, it's the more popular product that goes! Even the Kirkland products are doubtlessly farmed out to varying suppliers (with varying results). You're probably right that there's a big market for consumers of "good enough, consistency be damned". But I think a lot of Costco's market is after convenience and "low enough" prices. If Amazon can hit "low enough" prices and a wider, more consistent selection, Costco could be in trouble. Zero trips to the store is better than one, especially when you don't need to supplement Costco with other retailers to cover their gaps.
  - mikeash 13y ago
    Costco needs their customers to love their products in aggregate, but not any one product in particular. They're good about quality, so I don't really have to care about brands. If I want detergent or paper towels or whatever, I just pick whatever looks good. If they pull one in favor of another, I don't care. If you want to buy specific brands on any given trip, Costco isn't for you, but if you just want something decent and don't care who made it, it works out well. You don't have to love the specific brands, just the stuff they carry in general. I'm sure Amazon could cause a lot of trouble for Costco if they can match their prices or come close, but I don't see that happening. I basically buy three categories of products at Costco: frozen food, fruit, and non-perishable bulk items like paper towels or toilet paper. I can't see Amazon ever coming close on the first two, simply because the inherent costs of delivering perishable items to the house are too high. They can pull off Prime because they're delivering items that have no problem being in transit for two days, but I can't see how they could deliver e.g. strawberries for a reasonable price ever. I'd love to be wrong, but I don't see it happening.
    - jmduke 13y ago
      I think I agree with both you and the commenter to whom you're replying. My general purchasing process involves: 1. Go to Costco and purchase as many huge things in bulk as I can. People like to equate 'buying in bulk' with 'pricing', but honestly for me its just as much about the convenience: I don't care about saving $.50 on toilet paper so much as I care about having to buy toilet paper only once a year. I'm picky with some things (like hand soap), but like you said I know Kirkland products are going to be good enough. 2. For everything else, buy off Amazon/Target/TJ's. One of the cues I'm surprised Costco hasn't taken is subscription-based shopping (as in, I set up a list of X items that I can schedule for a pickup every few months) that would make this process even better. Given the decidedly non-marketing-oriented layout of their stores, I don't think they'd miss the opportunity for up-selling.
      - twoodfin 13y ago
        Given the decidedly non-marketing-oriented layout of their stores, I don't think they'd miss the opportunity for up-selling. I think they're more marketing-oriented than you're suggesting. There's a reason I have to walk by the big-screen TVs every time I walk in to my Costco, and why they hire all those workers (who are contractors, no?) to give out food samples. Come to think of it, at my local store, everything you might want to "browse through", from clothes to books to seasonal stuff, is in the low-shelved center of the store, while the "dependables" are in the back. I'm sure they make money from the members who buy the same dozen things every time they visit, but I bet they make a lot more from the folks who browse the sample stations and who buy TVs on impulse. Anyway, that counters my argument about Amazon, since they'll never be able to hand out Bagel Bites!

mikeash 13y ago

I'm not sure that's a weakness so much as merely a difference. Some people have a "favorite detergent". Other people, such as myself, just want something of decent quality, and could not really care less what name is on the container. For you, Amazon's approach is better, because you're willing to pay more for the specific item you want. For me, that's completely unimportant, so why would I pay more? The two companies are covering different niches in that respect. Nothing wrong with that. No single company needs to be all things to all people, although I suspect Amazon wants to (and Costco does not).

twoodfin 13y ago
Sure. If you can live the "Kirkland Life", you are Costco's perfect customer. But as the parent comment pointed out, their strategy puts them in a somewhat awkward position. As a rule, you want your customers to love your products. But then your business model requires that you take away products whether they're loved or not. Indeed, if they're loved so much that your supplier thinks they're entitled to a higher premium than an un-loved competitor, it's the more popular product that goes! Even the Kirkland products are doubtlessly farmed out to varying suppliers (with varying results). You're probably right that there's a big market for consumers of "good enough, consistency be damned". But I think a lot of Costco's market is after convenience and "low enough" prices. If Amazon can hit "low enough" prices and a wider, more consistent selection, Costco could be in trouble. Zero trips to the store is better than one, especially when you don't need to supplement Costco with other retailers to cover their gaps.
- mikeash 13y ago
  Costco needs their customers to love their products in aggregate, but not any one product in particular. They're good about quality, so I don't really have to care about brands. If I want detergent or paper towels or whatever, I just pick whatever looks good. If they pull one in favor of another, I don't care. If you want to buy specific brands on any given trip, Costco isn't for you, but if you just want something decent and don't care who made it, it works out well. You don't have to love the specific brands, just the stuff they carry in general. I'm sure Amazon could cause a lot of trouble for Costco if they can match their prices or come close, but I don't see that happening. I basically buy three categories of products at Costco: frozen food, fruit, and non-perishable bulk items like paper towels or toilet paper. I can't see Amazon ever coming close on the first two, simply because the inherent costs of delivering perishable items to the house are too high. They can pull off Prime because they're delivering items that have no problem being in transit for two days, but I can't see how they could deliver e.g. strawberries for a reasonable price ever. I'd love to be wrong, but I don't see it happening.
  - jmduke 13y ago
    I think I agree with both you and the commenter to whom you're replying. My general purchasing process involves: 1. Go to Costco and purchase as many huge things in bulk as I can. People like to equate 'buying in bulk' with 'pricing', but honestly for me its just as much about the convenience: I don't care about saving $.50 on toilet paper so much as I care about having to buy toilet paper only once a year. I'm picky with some things (like hand soap), but like you said I know Kirkland products are going to be good enough. 2. For everything else, buy off Amazon/Target/TJ's. One of the cues I'm surprised Costco hasn't taken is subscription-based shopping (as in, I set up a list of X items that I can schedule for a pickup every few months) that would make this process even better. Given the decidedly non-marketing-oriented layout of their stores, I don't think they'd miss the opportunity for up-selling.
    - twoodfin 13y ago
      Given the decidedly non-marketing-oriented layout of their stores, I don't think they'd miss the opportunity for up-selling. I think they're more marketing-oriented than you're suggesting. There's a reason I have to walk by the big-screen TVs every time I walk in to my Costco, and why they hire all those workers (who are contractors, no?) to give out food samples. Come to think of it, at my local store, everything you might want to "browse through", from clothes to books to seasonal stuff, is in the low-shelved center of the store, while the "dependables" are in the back. I'm sure they make money from the members who buy the same dozen things every time they visit, but I bet they make a lot more from the folks who browse the sample stations and who buy TVs on impulse. Anyway, that counters my argument about Amazon, since they'll never be able to hand out Bagel Bites!