How Costco Convinces Brands to Cannibalize Themselves

An unlikely marriage where both sides win

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Reddit quotes in this post are broken. Can we please fix them? :(

Interesting, especially the financial breakdown. I think another reason might be that a brand can have its cake and eat it, too. By having a Kirkland look-alike in Costco replace the brand, the brand can maintain a relationship with other retailers so people go to, say Target or Walmart or Safeway for the branded item. The brand gets to set two price tiers and profits from the knock-off that would normally be made by someone else. They also gain economies of scale, as they are manufacturing both lines. I have often seen a Kirkland product sell alongside the original branded item, then after a while, the branded item disappears and only Kirkland remains.

@brian.chatterton almost 2 years ago

I don't see the marketing budget as having anything to do with it. Unless you are planning to drop your own brand and become a Kirkland only brand, then the marketing still has to be done. It's an overhead, not a 'per item' cost.

I think what you are missing is that you always want to be producing a bit more than you can sell to cover:
- any production stoppages/issues and
- cover an increase in demand, which is exactly what your marketing and sales is trying to achieve.

So if you've done a good job, you have more product than you can sell.