Costco Makes a Surprising Change Members May Not Like

Costco offers a limited selection. That's a key part of its business model.

Instead of selling three brands of ketchup in multiple sizes, it offers the most popular brand in a single size. That enables the company to buy each product it does carry in massive volumes, which helps it deliver cheaper prices to members.

DON'T MISS: Here's the One Thing Costco Will Never Do (Sam's Club Does It)

Costco (COST) - Get Free Report buyers can go to their vendors and offer huge orders but also demand that the partner use the volume of the order to find ways to produce it more cheaply. That can mean the manufacturer must source ingredients or packaging at lower cost or simply be more efficient in producing the goods.  

The warehouse club does not promise its members a good selection. It promises them low prices.

That model makes sense when it comes to most items. It's not important if you have to buy Tylenol or Frosted Flakes in large packages as your only choice, as long as you get a good price per pill/flake.

In other cases, however, Costco has to carry multiple brands because while products may do the same thing, they're distinctly different. The warehouse club, for example, carries both Apple and Microsoft Windows-powered computers because each one has a distinct fanbase.

A Mac user probably won't switch to PC just because the price is better or vice versa. That's why Costco has generally offered wireless-phone service from multiple providers -- T-Mobile (TMUS) - Get Free Report, AT&T, and Verizon (VZ) - Get Free Report -- in its warehouse clubs.

That made sense because while people do switch between the brands based on price, many customers have a reason they want one over the other. That may be based on experience or knowing which one performs best where they live.

Now, however, Costco appears to have switched to offering a single provider in each of its stores.    

Costco Goes To One Wireless Provider

For most products, Costco trusts that value is the most important thing its members want. 

That has not been its model with wireless service. Under the old system, the Big Three carriers all had kiosks or counters in Costco locations. That model assumed that customers had a preference and it was AT&T (T) - Get Free Report, Verizon, or T-Mobile driving the sale.

"It’s unknown how long it will last, but for now, Costco appears to be settling into a single-vendor strategy for selling wireless services, divvying stores up between AT&T, Verizon, and T-Mobile," Fierce Wireless reported.

The warehouse club has essentially given each brand a third of its stores. That could be an attempt to play the three companies against each other, or it could just be business logistics.

"Wireless Advocates, which ran kiosks in Costco stores that sold all three big-name wireless brands, abruptly shut down last December, leaving a lot of employees in the lurch," the wireless website reported.

That may have forced the change, but Costco is making the best of it to figure out whether it can increase or maintain sales with a single carrier in each warehouse. If that strategy works, it frees up space for other merchandise. 

This may also show that one carrier performs better than others, enabling Costco to leverage a better deal for its members by picking a featured provider across its stores.

Costco regularly shops its competition and tries to offer members -- who pay $60 or $120 per year depending on their class of membership -- the best value possible. To do that, the chain regularly negotiates with vendors and makes switches when needed.   

Less choice may on the surface seem like a bad thing, but remember that the chain is going after people looking for a new wireless carrier. Offering those customers a better price on a single carrier may prove more valuable than offering them multiple choices.

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