Product and Service Development for Competitive Advantage at Costco

This project analyzes product development strategies for Costco, a multinational company known for its low-pricing model. The assignment proposes two new offerings: a holographic smartwatch targeting tech-savvy consumers and an enhanced after-sales service. It explores the development process, distribution channels (online sales and demonstrations), and a skimming pricing strategy to maximize profits. The project also addresses the use of Customer Relationship Management (CRM) software, social media marketing (Facebook and Twitter), and mass media strategies (television and internet) for promotion. The analysis considers market segmentation based on demographics and psychographics, identifying the target market as high-income, younger, and tech-savvy individuals. The assignment provides a comprehensive overview of the company's product development, competitive advantages, and marketing strategies, including a discussion of the costs, risks, and benefits of the proposed products and services. It concludes that by developing innovative products and services, Costco can improve its competitive edge in the retail industry.

Running head: PRODUCT DEVELOPMENT
PRODUCT DEVELOPMENT
Name of Student
Name of the University
Author Note

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Introduction
Competitive advantage refers to that attributes of the products and services of the
company that helps in distinguishing the company from its competitors and gives it an advantage
over its competitors. This advantage can be related to anything for instance the pricing strategy,
or the quality of the goods or any other attributes. Competitive advantage helps a company in
overcoming its rivals through its point of differentiation. Competitive advantage can help an
organization in gaining loyal customers by offering better value to its customers. Michael porter
had identified two main strategies for gaining a competitive advantage that is the cost strategy
and differentiation strategy (Schemmann et al., 2016). The company chosen for the purpose of
this study is COSTCO Company that is a US based multinational company engaged in providing
merchandise, warehouse club and other cash and carry activities. The company earns a
competitive advantage over its competitors through its low pricing strategy (www.costco.com.,
2019). The main aim of the paper is to develop two products and services for the chosen
company that will help the company in gaining competitive advantage over its competitors. The
paper will discuss about the development of the products and services, the distribution channel
for the same purpose, the pricing strategy and other activities.
Identification of two new products and services for the company
The two new products or services that can be developed by the company and can be used
to gain competitive advantages is the smart watch that is holographic and the other is an after
sale service that the company can provide regarding the same. The customer needs have been
identified through proper marketing research activities by the company, consumer surveys and

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by properly mapping the customers need (Cooper & Kleinschmidt, 1995). This watch will help
to meet the needs of the tech savvy customers who want a watch that not only shows the timing
but also provides various other features and is a smart watch. It is digital watch that is expected
to revolutionize the traditional watches. The main target market for this product is the sports
people and the younger generation as this watch also has phone facilities and is expected to also
provide measurement features. The company cam also improve its after sales services related to
the product because people may find it difficult to use the product in that case after sale service
becomes important to help the people in using the product. The competitive edge that this
product will bring is that the watch can not only provide timings but also various other
innovative features and it will meet the needs of the tech savvy people. The risks associated with
introduction of this product is that if the product is not explained to the customers properly they
may not be able to understand the same and as a result the sales will fall. Without proper
aftersales services the customers will fail to use the watch properly (Noe et al., 2017). These
risks can be reduced by improving the consumer’s awareness of the product through various
promotional techniques. The risk related to after sales services can be reduced by making after
sales services mandatory by the company irrespective of any other factors.
Customer relationship management software system
Customer relationship management software can be used to track the sales and inquiries
through the use of Radio frequency identification devices tags and scanners along with the
Enterprise resource planning software for the same purpose. With the help of the RFID tags and
scanners the Customer managers can get all the information regarding the highest selling
products and therefore track the sales of the products (David & David, 2017). The customer

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relation can help to share the same information with the manufacturing department regarding the
highest selling products such that the same products which are gaining the highest sales can be
produced by the company based on the information (Moe & Schweidel, 2017). The company can
share the same information with the suppliers to get the supply of materials on a timely basis.
The Customer relationship manger can also make use of the social media tools in order to track
the queries and feedbacks of the products in order to maintain better relationship with the
customers. Customers may post various feedbacks about the products and services of the
company that information can be used by the CRM in order to track the sales and inquiries of the
customers. This information can be shared with all the associated parties. Information can be
gathered by the CRM from various launch events.
Distribution channel for the products and services
The distribution channel that will be used for the purpose of sale of the watches is online
sales channel of distribution because products like watches need a lot of care in handling to
reduce the risks associated with the same and also to ensure that the goods are delivered at a
faster rate. Online sales will ensure that the prices of the products are maintained at an economic
rate because in case of offline sales many mediators are engaged that increases the price of the
product so in order to avoid the same online distribution and sales channel will be used. For
providing the after sales services individuals will provide a demonstration of the product and its
uses to the customers such that they can use the product (Kumar & Pansari, 2016). In case the
product is delivered to the customers without proper after sales services they will find it difficult
to make use of the same. The key factors or considerations in case of entering the global markets
is the agreements of the company with other companies operating in other countries, forming

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alliances and others and these methods help in understanding the needs of the customers because
the local companies have a better idea about the same (Namada, 2018). The technological
environment, the political environment, the social factors and various other factors needs to be
considered before entering the market to avoid the risks associated with the same. The global
supply chain will affect the company’s new products or services because it can affect the
availability of the inputs for the organization, the ways in which a company interacts with its
suppliers, customers and others (Bharadwaj, Fahy & Varadarajan, 2015).
Pricing strategy
The pricing strategy that will be used by the company is that of Skimming pricing
strategy wherein the prices of the products initially high however with time, the prices of the
product is reduced. The main aim of using this skimming pricing strategy is that the company
can acquire the consumer’s surplus during the initial stages of the product life cycle in order to
attain the monopolistic position and earn higher profits (Kumar & Pansari, 2016). In this
strategy, the company charges a high price from the consumer initially and once when the
demand is satisfied the company decreases the price in order to attract the customers from price
sensitive segments. This strategy is basically used in the technological markets in order to
initially attract the high price payers and once the highest prices are skimmed off during the early
product life cycle phase, the product are charged lower prices when it reaches the maturity stage.
This strategy is used when a product is newly launched into the market because the demand for
the newly introduced products is initially higher and eventually the prices are lowered when the
demand for the product starts falling and it is mostly used in vase of technological markets such
that when a product is introduced the customers are ready to pay a higher prices however after

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some time the prices are reduced. The costs associated with the development of new products
and services are approximately 100,000 dollars. Consumers accept a high price for technological
commodities initially because the demand is high and the consumers are ready to pay the same.
Consumers tend to purchase the technological commodities at higher prices because these
commodities show prestige of the owners and it is used as a prestigious goods many times and
after the technological commodities have been introduced for some time the demand reduces and
as a result the prices reduces. These watches have not yet been introduced in the market and
therefore the competitor’s prices are not evaluated for the purpose of this study.
Promotional strategy
The two social media channels that I will use to promote the products and services is
Facebook and twitter. These channels will be used for promoting the goods and services of the
company because millions of people use Facebook and twitter and the information that is shared
in these social media sites reach out to wider people globally. The present generation is socially
active and therefore by using these channels the younger generation can be targeted. A company
can not only create awareness with the help of these channels but also generate sales with the
help of the same. The market segmentation is done on the basis of different factors such as
demographic factors, psychological factors and others. Demographic factors are dependent upon
the salary of the individuals, the age group and other factors. The target market for the
company’s product is people with higher range of income, younger generation and tech savvy
people. The two mass media strategy that will be used by the company for promotions of its
products and services is television and internet. This is because millions of people watch
television and if the advertisements for the company’s products and services are shown on the

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television then customer’s awareness can be created. Mass media aims at communicating many
people at the same time. The two main sales promotional activities that will be used for
promotion of the product are coupons and contests for attracting wider audience and converting
the audience into potential customers.
Figure 1: Usage of social media in different countries
Source: (Bloom, Cleary & North, 2016)
Conclusion
From the above discussion it can be concluded that, companies can develop products and
services to gain a competitive advantage over its competitors. The main aim of the study is to
develop such goods and services for the chosen company that can help the company in gaining

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competitive advantages over its competitors. The study also discusses about the customer
relationship management system used by the company to track the product and services inquiries
and sales, the selection of a proper distribution channel for the goods and services developed for
the company, the pricing strategy used by the company and the promotional strategy of the
company. The company chosen for the purpose of this study is the COSTCO Company that is
known for earning customers loyalty through its low price strategy however by developing new
products and services for the company they can earn a better competitive advantage over its
competitors in the retail industry.

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References
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