What do laundry detergent, French Bordeaux, blue jeans and Martha Stewart have in common? No, it's not a handy home spun remedy on how to remove wine stains from your pants. It's that they're all premium products sold under the single, amazingly elastic Costco Kirkland Signature brand.
Anyone who has ever been to a Costco (NASDAQ: COST) warehouse knows Kirkland Signature, the "house brand" first introduced in 1995 and named after original company HQ in Kirkland, Washington. What is hard to believe is that Kirkland Signature has built its success by violating every rule of consumer packaged goods marketing dreamed up by a starry-eyed MBA or classic brand manager. Not only is consumer segmentation out -- no need for different Tide, Cheer, Gain, Era, Dreft, and Ivory Snow detergents -- there's no need even for different brands for different products like Duracell, Pringles, Vicks, Pampers, Clairol, etc. (all the foregoing, by the way are separate Procter & Gamble (NYSE: PG) brands).
House brands are of course nothing new. Every grocery store markets its own brand that purports to be "as good as the leading brand." But Kirkland Signature doesn't strive for parity, it demands superiority. Here's Costco's own explanation of what it takes to be worthy of the Kirkland Signature imprimatur. Or take the case of Kirkland Signature canned tuna fish, it not only costs more and is of higher quality than the national brand Bumble Bee, it is actually made by Bumble Bee to compete with their own, inferior national brand! Kirkland Signature paper towels and toilet paper are two of Costco's all time best selling products (that's why they're always located in the farthest reaches of the warehouse, of course), and they consistently perform better than their national counterparts. Costco does not use product brands to distinguish luxury Kirkland Signature products from the merely high quality. No Lexus, Toyota and Scion product lines for different types of customers. Nor are there even tiers of Kirkland Signature: no Kirkland Signature Ultra, Premium or Select. No Black, Platinum, Gold, Green, Red, and Blue Cards. The Kirkland Signature brand is a branded house of one.
How does Costco get away with this incomparable elasticity? If BrandCultureTalk has consistently asserted one thing, it's that great brands make hard choices, and Kirkland Signature is so catholic in its reach that it appears to make no choices at all. But that's not really the case. Kirkland Signature does make tough choices, but it does so behind the scenes through unwavering fidelity to quality and value. For example, Costco also sells more wine than anyone else in the country, despite being restricted by state laws that limit where it can operate. Costco isn't only the world's largest retailer of high-end wines and spirits, it is in the vanguard in using the Kirkland brand to market premium, super-premium and luxury wines and spirits. Unless you have Costco's perpetual commitment to enhance quality and can leverage huge economies of scale to continually reduce cost, don't aspire to become the next Kirkland Signature brand.
Right next to the bin of 2004 Chateau Margaux for $165 a bottle a savvy shopper may well espy a 2005 Kirkland Signature Margaux for $17.99. Kirkland Signature Champagne isn't just from Champagne, France, they amazingly use Grand Cru and Premier Cru grapes to make it. But you wouldn't know it from looking at the label because the Kirkland Signature imprimatur has become so strong that it evidently requires no additional support to bolster its "signature" quality. Oh, and it costs $24.99.
Such power explains the rush for premium independent brands as valuable as Martha Stewart (NYSE: MSO) , Macallan Whisky (a premium brand that's been around for 300 years) and Starbucks to embrace co-branding with Kirkland Signature to help build their brand equity. Similarly Costco required Tyson to upgrade the quality of "Tyson Skinless Chicken Breasts" before they earned the right to be "Kirkland Signature Tyson Skinless Chicken Breasts."
Yet even the elasticity of Kirkland Signature is not infinite, despite its ability to span boat batteries to cashmere sweaters to glucosamine to prime rib. One Kirkland Signature product the world will never see, no matter how high the quality or fervently coveted: Kirkland Signature Smokes.