There are retailers with different very successful value propositions around the world. There are the massive formats of large surfaces and models more attached to being neighborhood stores, with smaller M2, reduced product catalogues, but with fresher and better quality offers on perishables. There are those dedicated to offering products with lower prices and also for segments that are willing to buy high quality and fresh products. But in the countries where it is located, a brand stands out for its way of marketing and product selection as well as its business model: it is called Costco.
Founded in July 1976 in the United States, initially under the name of Price Club, it opened its first store in what was an old aircraft hangar, focused on serving small and medium-sized businesses. It has been present in Mexico since 1992. It is an access model through paid memberships that offers very specific products and services, focused on small and medium-sized companies, as well as for families with larger purchase volume needs than a conventional supermarket.
Costco’s business model is one of the most successful in the world. It has two main sources of income: 1) income from the sale of products and services, and 2) income from the sale and renewal of memberships in its different categories (Executive, Business and Gold Star). It has a total of 117 million users worldwide and 833 stores. 37% of Americans shop at Costco. Costco’s standard consumer is Asian-American, married women between the ages of 33 and 44, the latter according to a report published by Nasdaq.
Reviewing in detail, the membership model is a paid loyalty scheme that gives users access to a unique shopping experience. Exclusive assortment, clean, orderly stores, unique and seasonal products, an own brand (Kirkland Signature) that has products with the highest quality standards, as well as competitive prices in all store categories and very careful customer service and with excellent care. According to the same Nasdaq report, the average Costco spend per visit is estimated to be $114 with a total of 23 visits per year. By comparison, the average spend per visit at Target is $49 and at Walmart $54 for a total of $3,400 per year (63 visits per year).
Costco’s user base is very loyal: membership renewal rate in the US is 91% and in Canada 89% (for reference, Amazon Prime retention is 93% for 12 months) . In its stores that are attended by a smaller number of employees compared to other supermarkets, the user finds merchandise at competitive prices with a pleasant experience. The executive membership level allows the user to have a 2% cashback of the total annual purchases. If we use the average annual expense in the United States, an amount of US$ 53 in return could be reached.
Costco’s membership loyalty model can be summarized in the following elements:
1) Access to more than 833 warehouses worldwide.
2) Access to a catalog of products and services of excellent quality, including the own brand Kirkland Signature with competitive prices. In some stores it also offers the option of gasoline stations and tire service.
3) In the case of executive membership, a 2% cashback of annual purchases.
Something that draws Costco’s attention is that, having all the data and purchase information from users, they do not make personalized communication based on consumption habits. Your communications are very generic. Other success stories in the membership model are Amazon Prime, Sam’s Club, Sephora to name a few. The case of Rappi Prime, which grew during the pandemic, reaching 50% of its total users in Mexico.
The paid membership model is very effective if it manages to offer differentiated products and services, in which the consumer is willing to pay to have access and where he quickly sees the return value for the products and services he receives in exchange for paying. The Costco case is an example of an effective, simple loyalty model with an attractive value proposition for the user and that generates value for the brand.
