WHAT IS COSTCO’S DIFFERENTIAL

ADVANTAGE IN RELATION TO SAM’S? HOW

ABOUT SAM’S COMPARED TO COSTCO’S?

Submitted By:
Koushik Bhowmik
ID-131001101022
Stream- BBA(H)
INTRODUCTION
In the world of retail, the consumer has a lot of
choices, so for a store to pop up and be successful, it
often needs to have a unique pull. Big retailers like
Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT)
use low prices to draw in customers, but this isn't a
model that works for everyone. Other retailers must
find different ways to drive consumers to their
businesses. We see those that focus on healthy foods,
locally grown or made products, specialty niche
stores, those that only carry high end brands, those
that only carry low end brands, and in the case of
Costco Wholesale Corp. (COST) and Sam’s Club, those
that only sell in bulk.
 The Costco Business Model

Costco is considered the original bulk retailer. It has

been selling bulk goods through its warehouse style
stores for over 30 years now, and has had that area of
the market captured for quite a while in most states.
Costco's worldwide headquarters are in Issaquah,
Washington, USA. The company opened its first
warehouse in 1983 in Seattle. Through mergers,
Costco's overall corporate history dates back to 1976,
when its former competitor Price Club was founded
in San Diego, California.
The Sam’s Club Business Model

Sam’s Club is actually just as old as Costco. Both

were founded in 1983 and have more or less the
same business model in place: sell memberships
to a store where customers buy bulk items. The
difference is that Sam’s Club didn’t expand to
the same areas as Costco did.  
 Corporate Backing

 Costco is owned by Costco. It has several smaller subsidiaries,

such as Costco Travel and Kirkland brand, but aside from that,
the company has not branched out into a multitude of other
brands and stores.
 Sam’s Club, on the other hand, is owned by Walmart. Some
may recognize, through the names of the stores, the founder
of the company: Sam Walton.
 Both Walmart and Costco are huge multinational corporations.
Some people have a special allegiance to one or the other
because of the prices, the way they treat employees, or a host
of other reasons. But for the most part, shopping at either one
of these stores is supporting large corporate America.
 Customers

 While both Sam's Club and Costco offer the same thing, membership to a store
that sells in bulk, the two pull largely different customers. The value is the
same, the pricing is essentially the same (you can see a breakdown of how they
compare here), the membership dues are essentially the same, but the sales
are vastly different.
 Costco membership has a certain caché that membership to Sam’s Club
doesn’t have. Although it costs less than $5 per month, the membership comes
with the idea that you are now a part of an elite club. Not everyone has a
Costco membership, but once you sign up, you get to be a part of the special
few that are members. Does it matter? Not really, it’s all psychological.
 Sam’s Club also offers the membership, but that membership doesn’t carry the
emotional feeling that Costco's does largely due to the fact that many people
feel that Sam’s Club is just bulk Walmart. Why pay for a membership so you can
buy, in bulk, the same thing that you can get at Walmart? While there are
unique offerings and this isn’t entirely the case, it does weigh on consumers'
emotions.
 Sales
 Those emotional ties also translate into how well each of the businesses are
doing as far as sales go. While both are successful, there is a big discrepancy in
profits, and a lot of it boils down to these intangibles.
 When you hold a Costco membership, and you don’t use it for a few months, you
begin to wonder why you have it. Because the price is slightly higher, the
membership actually drives more people to shop at the store. It’s similar to
paying for a gym membership: it’s a financial incentive to work out. Costco could
afford to offer their products to the general public without the membership dues;
they are a tiny drop in the bucket on their bottom line. But they keep them
because people will shop at their store simply because they don’t want to
“waste” their membership. By offering a membership for slightly less, Sam’s Club
is taking the gamble that more people will sign up, even though fewer might
have that emotional draw to shop.
 In 2009, when the recession was well underway, most businesses were either
losing money, or saw a huge decline in sales. These two bulk suppliers were an
anomaly. Costco saw sales dip a mere 2% (and then increase right back up in
2010). Walmart saw a steady growth of sales. It turns out that people aren’t as
short sighted as we like to believe, and they still see the value in bulk and good
prices even if it means more money out of pocket now.
Conclusion

 Costco and Sam’s Club have very similar business models. They
charge essentially the same prices for their memberships and
the same prices for their goods. Yet Costco generally fares
better. The reason is that Sam’s Club may be shooting
themselves in the foot with their counterpart Walmart. Many
of their potential customers simply shop at Walmart for many
of the same deals, but without the hassle of membership
 Two companies, both founded the same year, both with similar
business models, both attracting the same customers, and
both highly successful. Who says that you need a unique idea
in order to draw in customers and have a thriving business that
lasts over 30 years?