Read time: 10 minutes
The Costco Membership Card has become a right of passage for most people. This quiet giant of a company has become an 800-pound gorilla in the retail space, capturing a significant market share, and outpacing all of its competitors.
So what makes Costco such a force to be reckoned with?
We break down what Costco is doing well by looking at 7 essential aspects of any business.
1. MISSION STATEMENT
“Costco’s mission is to continually provide our members with quality goods and services at the lowest possible prices.”
The YogaBabble Test
For a company based out of the Pacific Northwest, the mission statement of Costco is surprisingly clear and straight to the point. Quality Goods for Low Prices. That’s it — no Messiah complex or changing the world through enlightenment. Customers don’t have to burn a single calorie trying to figure out what this company is all about. It may not be sexy, but it is clear and to the point.
On top of being obvious for the customers, this mission statement helps guide the actions of its employees. A single question can influence every single decision in the company, “Does this help us deliver a quality good or service at a low price?”
2. CLEARLY DEFINED PRODUCT OFFERINGS
Costco draws you in with a $1.50 Hot Dog / Soda Combo and gets you to stick around with an ever-refreshed inventory of quality home goods. Customers who go all the way down the rabbit hole will find deals on Travel, Vehicles, and Home Repair.
3. DIFFERENTIATION - SOLVING THE PROBLEM
People are looking for a deal. They want to be able to provide for their families while enjoying quality products. This is true for all walks of life.
Costco uses the economies of scale to bulk buy large quantities of goods and pass the savings along to their customers. By keeping their business model uncomplicated and straightforward, they make it difficult for others to compete with them. Looking to create a Costco competitor? You are going to have to purchase a ton of quality products and offer them at a similarly discounted rate, without having the benefit of a large customer base and long-lasting vendor relationships. This is going to be very difficult to do from scratch. More than likely, it will require an existing brand to pivot to a Costco model.
4. CLARITY OF MESSAGE
“Simplifying home and life.
This is one area that Costco does well but has an opportunity for improvement. While the Mission Statement is crystal clear, the store motto and messaging get a bit lost in vagueness.
Costco relies on word of mouth is the main source of advertising, with printed and digital marketing to reinforce the savings. This is made obvious by showcasing the dollars saved in big, bold letters in a larger font than anything else.
Costco also takes the walled garden approach with its “Members Only” Savings. For you to truly discover how significant the savings are, you have to give them $60.
Where could they improve? We believe there are several ways that Costco could strengthen its message:
• Tell the story of quality products available at the lowest prices, instead of only highlighting the discounted rates. This is done well on Social Media but is not reflected on their website or advertising.
• Take a page out of P&G or IKEA and show what all of those items look like in a household. Show a family enjoying life while pinpointing all the items around them that were purchased at Costco.
• Highlight Kirkland Brand products. Kirkland brand products are comparable with some of the premier brands and even beat out most in side-by-side comparisons. (For example, Kirkland Brand Extra Virgin Olive Oil is celebrated by most chefs as a superior oil at a ridiculously low price.)
5. SOCIAL PRESENCE
Facebook - 2.1M
Instagram - 505k
LinkedIn - 285k
The Costco Facebook page is being utilized incredibly well with recipes, customer highlights, product offers, and even customer feedback. Even the most basic product photo is animated in order to catch the attention of those scrolling through their Facebook feed.
The Instagram approach is all about showcasing the quality products available to members, and utilizing the #CostcoFinds plays into the Walled Garden and Treasure Hunt aspects of the membership, rewarding loyal members with great finds.
While surprisingly absent on the US account, the international Costco Instagram accounts showcase smiling happy customers enjoying their Costco experience. Our feedback to Costco: showcase more smiling, happy customers enjoying their quality products!
Costco on LinkedIn (289k followers) seems to focus only on getting businesses to print their business cards. Every so often, you see stories highlighting inspirational customer stories or deals on products. Costco should utilize this platform for Employee Recognition, Customer Highlights, Kirkland Brand Differentiation, Highlighting High Standards, and driving their own content.
For having 52 Million members, these social media numbers are just... okay. We could see Costco embracing social media more in the future to capture more of a younger market.
Another thing to note: the Costco Facebook page has over 2 Million followers, but their posts only receive around 500 interactions and 50 comments. Even the big guys have a hard time getting likes.
6. CUSTOMER ENGAGEMENT
Costco’s boasts a 90% renewal rate in North America and 87% worldwide. For a business model based that hinges on memberships, that is a phenomenal rate.
So what is their secret sauce? How do they build such deep customer loyalty? While it may not be one particular thing, here are a few of the reasons:
A clear mission statement allows them to keep their promise. You purchase one quality item at a low price, and Costco has delivered on their promise.
Costco takes amazing care of its employees. (This is an understatement. We would need an entire article to go into detail about how they take care of their employees.) The result: happy employees that are engaged and willing to protect the customer experience.
Constantly rewarding their customers while showing the value of a Costco Membership. Rewarding their members with cash-back coupons and highlighting the money they save on their receipts tips the scales in their favor when customers have to decide whether to renew or not. That $55 membership fee pales in comparison to the perceived value of what the membership brings, making the decision to renew a no-brainer.
7. FINANCIALS
Costco finished 2018 with $138 Billion in sales.
A few surprising facts about how Costco functions:
• Costco maintains a low Debt to Income ratio, preferring to pay cash where it can. Keeping their debt low allows them to bring more value to their customers, employees, and ultimately its shareholders.
• Costco warehouses only stock on average 4,000 items, while compared to other retailers who stock an average of 100,000.
• Costco caps its product markup at 15% to ensure low prices, including their Kirkland Signature product line. However, since Costco is selling their product directly to the customer with this line, they can offer these products at a lower price while maintaining the same 15% markup.
WHAT CAN YOU TAKE AWAY AS A BUSINESS OWNER BY LOOKING AT COSTCO?
• A simple, straightforward mission statement allows you to deliver on your promise to your people.
• Solve your customer’s problem quickly and showcase what you are all about upfront (i.e., the $1.50 meal or the $5 Rotisserie Chicken).
• Reward your customers for digging deeper into your product offerings.
• Happy, engaged employees protect the customer experience.
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