Costco Down Under entre Australia
Globalization has led to increased trade and business transactions across the world. Companies are seeking to develop their business practices and increase profitability by expanding their business operations to international markets. Establishment of international business calls for marketing across borders. There are two typical schools of thought concerning international marketing. The global standardization approach holds that the behavior of multinational companies should be uniform in order to promote a corporate image globally and minimize the costs (Czinkota and Ronkainen, 1998). On the other hand, adaptation approach argues that multinational companies should adjust to fit in the unique dimensions within each local market. The standardized international marketing mix comprises of product, place, price promotion, people, physical evidence and process management.
Some multinational companies might choose to apply this marketing mix and a single strategy to all countries regardless of the local conditions. This is due to the fact that the global market is increasingly becoming more similar hence the need for companies to standardize their operations. There is an increased interaction and sharing of information which leads to similarity among many companies.
Standardization is therefore seen as the best way for multinational companies to survive in the current competitive world. However, some may choose to alter the marketing mix as well as the strategies so that they can fit in distinctive dimensions of the local market (Jeannet and Hennessey, 2001). This group of companies articulate their position on the difficulties involved in applying a standardized approach to international marketing. They advocate for tailoring of the marketing mix to adapt to the local market. Companies have to make appropriate choices depending on the prevailing circumstances.
The global standardization approach is based on the belief that the needs and wants of consumers do not differ across countries and markets (Czinkota and Ronkainen, 1998). This approach holds that the world is continuously becoming more similar both in customer and environmental requirements. Consumers are believed to have the same demands regardless of their geographical location. Standardization of all the elements of a marketing mix and development of a single strategy for the whole global market is considered to be the best way of lowering costs. Standardization also increases consistency with the customers as the company will be able to provide similar services in all countries. Some of the well-managed multinational companies have shifted from customization of products to provision of globally standardized products which are reliable, advanced, low priced and functional.
The global company can operate with constancy at relatively lower costs as if the whole world is a single market. A company using this approach sells the same products in a similar manner across the world. However, there are many critics to the global standardization approach to international marketing. According to Lipman (1988), the current world is still characterized by differences in culture and other aspects of life hence marketing of a single product in a similar way across all the markets may scare away the customers, blind the company to customer needs and alienate employees.
The adaptation approach is based on the view that an international marketer subjected to new macro-environmental factors, different constraints such as climate, topography, language, race occupations, tastes and education (Kanso and Kitchen, 2004).
An international marketer is also exposed to frequent conflicts that result from different cultures, societies and laws. People from different nations speak different languages and the rules and regulations vary from one country to the other. The cultural differences are the most difficult to deal with since they are deeply rooted in religion, history, values, education and attitudes. The adaptation approach holds that multinational companies have to find out ways of adjusting their marketing strategy to accommodate new market demands. The elements of the marketing mix and marketing strategies should be adjusted to meet special market needs and suit the local tastes.
A company that is entering into a new market can decide either to use a standardization strategy or and adaptation strategy. When a company uses a standardization approach, there are hardly any changes made on the product assortment, store design, promotional effort and service offering (Jain, 1989). On the other hand, a firm that uses an adaptation approach modifies the merchandise mix, store environment, promotions and service delivery to fit the local culture. A company that chooses to use a standardized strategy assumes that the consumers within other countries have similar preferences and tastes as those in the home country. These companies assume that consumers in the new country will respond in the same way to the promotional strategies being used. This approach enables the company to present a consistent and clear brand image across different markets.
Such companies are able to benefit from economies of scale that translates to increased profitability. However, a firm can adjust its products and services according to the local market by applying an adaptation strategy. This strategy enables the new entrant to take into consideration the tastes and preferences of local customers which may help the firm to capture the market share (Kanso and Kitchen, 2004).
Costco Company, a membership warehouse club uses a standardized approach in its operations across seven countries (Sternquist, 2007.). The company only offers a limited assortment of products as compared to other competitors.
Costco`s warehouses are of standard size and design across all markets and merchandise is sold in bulk. However, the standardized strategy is not suitable for the Australian market. The retail market in Australia is characterized by great diversity in size of business, retail format, competition within sectors, nature of goods and region. The long-term business trends and current trading conditions are very challenging especially due to the entry of online retailing and innovative global retailers (Archarya & Elliot, 2001). The level of competition is very high within the country. Adaptation of a standardized approach may not work in Australia due to the diversified nature of the retail industry. Businesses in Australia vary according to regions and they offer a wide variety of products to meet different customer needs.
Australia consists of people from different backgrounds with various cultural believes and lifestyles. The needs, tastes and preferences of these people vary from one region to the other. This has led diversification of most companies to fit local cultures and meet the new demands. The retail format varies from one region to another and the level of competition is different in each sector of the industry.
The Australian government has also implemented several regulations that restrict retailers in the country. The planning and zoning regulations are very complex and excessively prescriptive (Archarya & Elliot, 2001). The trading hours and workplace relations are also regulated by the government.
All companies operating in the country are expected to fully comply with the law. This greatly affects foreign companies as they are forced to realign their operations according to the government regulations. The standardized strategy adopted by Costco Company cannot apply in Australia as to company is required to comply with the local law. The planning and zoning regulations are likely to affect the typical warehouse design adopted by the company. The government controls construction and development activities across the country through strict laws. This will compel Costco Company to change its strategy to an adaptation approach that will enable it cope the new market. The company should also offer a wider variety of merchandise to satisfy the needs of many customers and increase sales. The level of competition in the Australian retail market is high and the consumers are diversified. Offering a wide variety of products will enable Costco to gain a competitive advantage by increasing profitability.
The main advantage of using Costco Company as an international channel of distribution is that the company has a strong brand name that is well recognized across the world (Sternquist, 2007). Costco is the fourth largest retail company in the United States and the eighth largest in the whole world. It has a total of 527 outlets operating in seven different countries. A wide branch network and strong brand recognition gives the company a competitive advantage globally making it suitable for distribution of wine. Costco is a profitable company that has been able to attain great profit margins. Using the company to distribute wine is likely to be more profitable if the profit-making trend continues. Costco has allocated the largest share of its stock to alcoholic beverages. 23 percent of the company`s assortment consists of alcoholic beverages making it the best company to distribute wine. Costco will be able distribute greater units of wine due to the larger share it has allocated to alcoholic beverages.
The company`s warehouses are designed to utilize the selling space and control shrinkage. The low levels of shrinkage minimizes loses and increases profitability. A standardized approach adopted by the company will ensure uniform services are provided in all market which increases customer loyalty and reduces costs.
However, there are also some disadvantages of using Costco as an international channel of distribution. One of the main disadvantages is that the company only sells its merchandise in bulk as opposed to single items. That is major limiting factor as it locks out a great portion of the market. The largest share of the market is made up of consumers who buy single units. The company will deny the wine market a lot of customers by only selling the product in bulk. Offering a limited assortment of products is also a disadvantage because limits the company`s sales (Buzzell, 1968).
There are a wide variety of wines in the world and different consumers have different tastes and preferences. Using Costco Company to distribute wine will limit the brands to be exported since the company only offers a limited assortment of private and national branded merchandise. Costco is a new entrant in the Australian market with no market share. Using the company to distribute wine may not be very effective since the company is yet to capture the Australian market. This will prevent it from effectively distributing wine across the country and exporting the Australian wine. The standardized approach used by the company may prevent it from penetrating into certain regions of the country due to diversity.