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{"id":3210,"date":"2023-02-19T16:11:57","date_gmt":"2023-02-19T16:11:57","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/apply-it-15-2-price\/"},"modified":"2025-06-25T15:29:33","modified_gmt":"2025-06-25T15:29:33","slug":"apply-it-15-2-price","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/apply-it-15-2-price\/","title":{"raw":"Apply It 15.2: Price","rendered":"Apply It 15.2: Price"},"content":{"raw":"<section class=\"textbox learningGoals\">\r\n<ul>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand what pricing means to the customer&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand what pricing means to the customer<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand how product pricing can help businesses achieve goals&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand how product pricing can help businesses achieve goals<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand how businesses use discounts and allowances&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15171,&quot;3&quot;:{&quot;1&quot;:0},&quot;4&quot;:{&quot;1&quot;:2,&quot;2&quot;:16777215},&quot;9&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand how businesses use discounts and allowances<\/span><\/li>\r\n<\/ul>\r\n<\/section>\r\n<h2>Price Strategy and Market Positioning<\/h2>\r\n<p>This Apply It continues using the Costco case study video from earlier in this module. The video is included below in case you want to refresh your memory about specific details, but if you have already watched it, you don't need to watch it again.<\/p>\r\n<section class=\"textbox recall\" aria-label=\"Recall\">Costco has a unique approach to pricing where they maintain strict margins for both national brands and Kirkland products.<\/section>\r\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><script src=\"https:\/\/www.youtube.com\/iframe_api \" type=\"text\/javascript\"><\/script>\r\n<p class=\"cc-media-iframe-container\"><iframe id=\"tpm-plugin-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD\" class=\"cc-media-iframe\" src=\"https:\/\/www.youtube.com\/embed\/042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD?enablejsapi=1 \" frameborder=\"0\" data-mce-fragment=\"1\"><\/iframe><\/p>\r\n<p class=\"cc-media-iframe-container\"><script src=\"\/\/plugin.3playmedia.com\/ajax.js?cc=1&amp;cc_minimizable=1&amp;cc_minimize_on_load=0&amp;cc_multi_text_track=0&amp;cc_overlay=1&amp;cc_searchable=0&amp;embed=ajax&amp;mf=13387227&amp;p3sdk_version=1.11.7&amp;p=20361&amp;player_type=youtube&amp;plugin_skin=dark&amp;target=3p-plugin-target-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD&amp;vembed=0&amp;video_id=042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD&amp;video_target=tpm-plugin-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD\" type=\"text\/javascript\"><\/script><\/p>\r\n<p>You can view the\u00a0<a href=\"https:\/\/course-building.s3.us-west-2.amazonaws.com\/Intro+to+Business\/transcripts\/Why+Costco+Went+All+in+on+Kirkland+%E2%80%94+and+How+It+Paid+Off+%7C+WSJ+Case+Study_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \u201cWhy Costco Went All in on Kirkland \u2014 and How It Paid Off\u201d here (opens in new window).<\/a><\/p>\r\n<\/section>\r\n<h3>Analyze how Costco's strict markup limits (14% for national brands, 15% for Kirkland) impact its business model and relationships with suppliers.<\/h3>\r\n<p>[reveal-answer q=\"89523\"]Click to Show Sample Answer[\/reveal-answer]<br \/>\r\n[hidden-answer a=\"89523\"]While most retailers typically mark up products 24-30%, Costco's dramatically lower margins require an extremely high-volume business model to generate sufficient profits. This creates a cycle where lower prices drive higher membership sales, which in turn enable the company to negotiate better deals with suppliers and maintain these slim margins.<\/p>\r\n<p class=\"whitespace-normal\">The slightly higher markup allowed for Kirkland products (15% vs. 14%) gives Costco a strategic advantage when developing private label items. This small additional margin helps make the private label program viable while still providing tremendous value to customers. This pricing approach gives Costco negotiation power with suppliers, as they must either meet competitive price points or risk losing shelf space to Kirkland alternatives.<\/p>\r\n<p class=\"whitespace-normal\">The markup limits also change supplier relationships by making them more transparent and data-driven. Costco's buyers are very aware of the prices of the raw ingredients that go into manufacturing products. This deep knowledge of production costs allows Costco to push suppliers for fair pricing based on actual costs rather than market positioning, sometimes even leading to supplier changes as demonstrated when Costco shifted to First Quality as its diaper manufacturer to \"produce a higher quality product at a lower price.\"[\/hidden-answer]<\/p>","rendered":"<section class=\"textbox learningGoals\">\n<ul>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand what pricing means to the customer&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand what pricing means to the customer<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand how product pricing can help businesses achieve goals&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand how product pricing can help businesses achieve goals<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand how businesses use discounts and allowances&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15171,&quot;3&quot;:{&quot;1&quot;:0},&quot;4&quot;:{&quot;1&quot;:2,&quot;2&quot;:16777215},&quot;9&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand how businesses use discounts and allowances<\/span><\/li>\n<\/ul>\n<\/section>\n<h2>Price Strategy and Market Positioning<\/h2>\n<p>This Apply It continues using the Costco case study video from earlier in this module. The video is included below in case you want to refresh your memory about specific details, but if you have already watched it, you don&#8217;t need to watch it again.<\/p>\n<section class=\"textbox recall\" aria-label=\"Recall\">Costco has a unique approach to pricing where they maintain strict margins for both national brands and Kirkland products.<\/section>\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><script src=\"https:\/\/www.youtube.com\/iframe_api\" type=\"text\/javascript\"><\/script><\/p>\n<p class=\"cc-media-iframe-container\"><iframe id=\"tpm-plugin-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD\" class=\"cc-media-iframe\" src=\"https:\/\/www.youtube.com\/embed\/042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD?enablejsapi=1\" frameborder=\"0\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p class=\"cc-media-iframe-container\"><script src=\"\/\/plugin.3playmedia.com\/ajax.js?cc=1&amp;cc_minimizable=1&amp;cc_minimize_on_load=0&amp;cc_multi_text_track=0&amp;cc_overlay=1&amp;cc_searchable=0&amp;embed=ajax&amp;mf=13387227&amp;p3sdk_version=1.11.7&amp;p=20361&amp;player_type=youtube&amp;plugin_skin=dark&amp;target=3p-plugin-target-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD&amp;vembed=0&amp;video_id=042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD&amp;video_target=tpm-plugin-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD\" type=\"text\/javascript\"><\/script><\/p>\n<p>You can view the\u00a0<a href=\"https:\/\/course-building.s3.us-west-2.amazonaws.com\/Intro+to+Business\/transcripts\/Why+Costco+Went+All+in+on+Kirkland+%E2%80%94+and+How+It+Paid+Off+%7C+WSJ+Case+Study_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \u201cWhy Costco Went All in on Kirkland \u2014 and How It Paid Off\u201d here (opens in new window).<\/a><\/p>\n<\/section>\n<h3>Analyze how Costco&#8217;s strict markup limits (14% for national brands, 15% for Kirkland) impact its business model and relationships with suppliers.<\/h3>\n<p><div class=\"qa-wrapper\" style=\"display: block\"><button class=\"show-answer show-answer-button collapsed\" data-target=\"q89523\">Click to Show Sample Answer<\/button><\/p>\n<div id=\"q89523\" class=\"hidden-answer\" style=\"display: none\">While most retailers typically mark up products 24-30%, Costco&#8217;s dramatically lower margins require an extremely high-volume business model to generate sufficient profits. This creates a cycle where lower prices drive higher membership sales, which in turn enable the company to negotiate better deals with suppliers and maintain these slim margins.<\/p>\n<p class=\"whitespace-normal\">The slightly higher markup allowed for Kirkland products (15% vs. 14%) gives Costco a strategic advantage when developing private label items. This small additional margin helps make the private label program viable while still providing tremendous value to customers. This pricing approach gives Costco negotiation power with suppliers, as they must either meet competitive price points or risk losing shelf space to Kirkland alternatives.<\/p>\n<p class=\"whitespace-normal\">The markup limits also change supplier relationships by making them more transparent and data-driven. Costco&#8217;s buyers are very aware of the prices of the raw ingredients that go into manufacturing products. This deep knowledge of production costs allows Costco to push suppliers for fair pricing based on actual costs rather than market positioning, sometimes even leading to supplier changes as demonstrated when Costco shifted to First Quality as its diaper manufacturer to &#8220;produce a higher quality product at a lower price.&#8221;<\/div>\n<\/div>\n","protected":false},"author":21,"menu_order":15,"template":"","meta":{"_candela_citation":"[{\"type\":\"copyrighted_video\",\"description\":\"Why Costco Went All in on Kirkland u2014 and How It Paid Off\",\"author\":\"WSJ\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/042pDj9FJ7Y\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube license\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":3193,"module-header":"apply_it","content_attributions":[{"type":"copyrighted_video","description":"Why Costco Went All in on Kirkland u2014 and How It Paid Off","author":"WSJ","organization":"","url":"https:\/\/youtu.be\/042pDj9FJ7Y","project":"","license":"arr","license_terms":"Standard YouTube license"}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"<script type='text\/javascript' src='https:\/\/www.youtube.com\/iframe_api'><\/script><script type='text\/javascript' src='\/\/plugin.3playmedia.com\/ajax.js?cc=1&cc_minimizable=1&cc_minimize_on_load=0&cc_multi_text_track=0&cc_overlay=1&cc_searchable=0&embed=ajax&mf=13387227&p3sdk_version=1.11.7&p=20361&player_type=youtube&plugin_skin=dark&target=&vembed=0&video_id=042pDj9FJ7Y&video_target=tpm-plugin-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD'><\/script>\n","media_targets":["tpm-plugin-ccgfddae-042pDj9FJ7Y?si=9fWSAP6KtDJbeuiD"]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/3210"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/users\/21"}],"version-history":[{"count":8,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/3210\/revisions"}],"predecessor-version":[{"id":9820,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/3210\/revisions\/9820"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/parts\/3193"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/3210\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/media?parent=3210"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=3210"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/contributor?post=3210"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/license?post=3210"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}