The October, 2009 issue of Costco Connection (Costco’s membership pub) outlines key principles behind Costco’s own “Kirkland Signature” brand. It provides detailed examples of Costco’s brand approach in foods, OTC medicines, linens, laundry soaps and other categories. (Yes, it is a house pub, and subject to a bit of puffery, but the data seems fairly solid to me.)
Why the Kirkland Signature brand is important
Costco’s Kirkland Signature brand is important for two reasons: 1) it’s a brand that operates as an agent of Costco members (customers), rather than as a tool of persuasion; and 2) it’s a retail brand model for disrupting manufacturer “name brands” that have dominated markets for decades. In select categories, the Kirkland Signature brand aims to be as good—and cheaper—than leading manufacturer brands, delivering greater brand value to Costco members.
Currently, around 10% of Costco warehouse products bear the Kirkland Signature label.
The retailer pushes the brand envelope
The Kirkland Signature brand is a case of a retailer pushing the brand envelope for products, instead of defaulting to manufacturers. Costco does this by specifying higher-value products from suppliers. Costco’s approach is not completely unique, but it’s execution is generally first rate, across the vast scale of a leading warehouse chain. You can see their focus on brand quality in how they procure Kirkland Signature tuna and Kirkland Signature shrimp. And stories persist that Kirkland Signature vodka is the spirit equivalent of Grey Goose–at greatly reduced cost.
The Kirkland Signature brand approach
The Kirkland Signature brand approach focuses on quality and value. Here is how Costco describes it:
Why invest in our own line of private label products? There are several reasons, explains Jim Sinegal, Costco president and chief executive officer. With Kirkland Signature, Costco can:
- Develop popular items with wide appeal to expand sales volume
- Control the quality of the product
- Drive down prices on national brands
- Control the packaging
- Achieve pallet efficiencies
“Pallet efficiencies” are key factors in the warehouse world because they help cut costs and save energy in shipping and warehouse operations. And packaging control helps across many operational dimensions (delivering very low shrinkage rates.)
The working rule for the Kirkland Signature brand
At Costco, the working rule for Kirkland Signature brands is that they must be “equal to or better than national brands.” That sets a high bar. A corollary is continuous product improvement, where Costco “buyers” (the rough equivalent of product managers) revisit key quality and price parameters for Kirkland Signature products every 12 to 24 months.
Product testing and quality assurance
As shown in the above links, Costco puts candidate Kirkland Signature products through an extensive regime of product testing. Kirkland Signature standards may be higher than industry norms. For example, some major meat brands have not sold ground beef to Costco because of Costco’s rigorous testing for E. coli bacteria. See this New York Times report and a followup story.
Kirkland Signature: the brand as customer agent
With its focus on high standards the Kirkland Signature brand acts as an agent of Costco members, cruising the world of manufacturers to find (or demand) the best combination of quality and value. This model differs from the traditional brand approach of using the brand as a stylized sales stimulant and/or tool of persuasion. In the Kirkland Signature model, the brand serves a customer agenda, providing a level of brand confidence previously found only in the top-tier of name-brand products.
This approach helps build the brand trust that keeps Costco growing and Costco members paying their annual membership dues. When combined with Costco’s legendary return policy it delivers a brand experience with few peers.