Abusing a strategic asset – Kirkland Signature of Costco – Opus Magnum
Newsroom, OCB Commentary

Abusing a strategic asset – Kirkland Signature of Costco

This post is by Evening UST MBA student Vitaly Demin, a strategy consultant at Eames Management Group.

abusing[1]I knew that the Kirkland Signature brand was being stretched beyond possible but I never really thought how bad it was till recently. I was at a Costco store the other day and I bought a $20 Robert Mondavi cabernet. As I was checking out, I asked their wine person if it was good and he said yes. Then he added that I should also try a Kirkland cabernet which is priced a little higher, at $30, but is really good. I said – a Kirkland wine at $30? He said – Yes, and please don’t be confused by the name… and that’s what got me thinking. There are certain things that you just can’t do to a brand.

Kirkland Signature is being positioned as a superior brand and it’s a great strategy and I’m sure it works for Costco but you still cannot stick it on everything. Moreover, the more high-end a brand is, the easier it is to destroy it by stretching it. Most executives don’t believe in this but it always happens. There’s always a short run for a brand that keeps it going while it’s being milked but eventually it’ll get damaged to the point of no recovery. Costco did a great job on building this house brand and it’s an extremely valuable strategic asset but if they keep managing it like this, may be 2-3 more years and it’ll start losing its brand equity because people will no longer take it seriously. It’s ok to have this brand on groceries or batteries but it’s not ok to stick it on a bottle of wine, especially an expensive one (leave alone shirts and some other product categories).

Think about it this way. Would Steve Jobs ever put his Mac name on the Apple’s mp3 player, the phone and the tablet? No, he called them an iPod, an iPhone and an iPad. Did Coca-Cola put their name on their energy drink? No, they called it Burn. Does P&G stick their name on everything they make? No, they develop separate brands for almost every product and that’s exactly the reason why they are one of the most successful and most profitable companies in the world.

ks_toiletpaper[1]Costco invested a lot of time and money to build the Kirkland Signature brand and get it where it is right now. If they’re willing to give it up in a few years, it’s their call. But if they want to preserve it and make it stronger, they have to start contracting it right now and launch more private labels for categories that they want to be in. Wine and shirts would be a great start. Not only will they keep Kirkland Signature from damaging, they’ll also gain additional brand assets by introducing new names for other categories. You cannot own everything with one brand – it never worked and it never will.

As Craig Jelinek, the COO of Costco, is about to take over the CEO position at the company, the performance of Kirkland Signature will hugely impact his future reputation. When the brand eventually weakens and starts bringing less money, it’ll be his failure. If he does something about it now and gets the private label back on the right path, it’ll make him a more successful CEO as the brand will keep adding up to the bottom line. With Costco’s margins being razor thin the private label is a major profit stream. They have to protect it as hard as they can or their margins will start eroding before they know it.

And here’s a quick question to the Costco executives and the Kirkland Signature brand manager in particular: “How does the Kirkland wine taste now?”

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