How Costco Earns Loyalty and a Dedicated Customer Base
We read a lot these days about how modern customers are more fickle than ever and brands have to work overtime to earn repeat business and loyalty from them. If you really think about it, the whole concept of a customer being loyal to a brand is fairly bizarre and would seem to be an arrangement which only benefits one side.
Modern shoppers are savvy to this concept and, thanks to the proliferation of online ecommerce stores, shopping around and finding the best deal or product which suits them in that moment is easier than ever.
You want a product, you search for the best deal on that product, and you buy it. Then, the next time you are in the market for a product, do you automatically return to the store you completed your purchase with last time? No, you head online and start the process over and, more than likely, buy from a different seller.
However, some brands out there have nailed the loyalty equation and have found ways of keeping customers coming back time and time again.
Costco
Big box retailer, Costco is just one such brand. Costco is known across the US for selling everything from electronic goods to cupboard staples at incredibly low prices making seemingly very tight margins. However, the secret to Costco’s success is in its ability to move products in large volume and its membership program, which earns further profit and drives customer loyalty.
And it works incredibly well.
According to the retailers Q4 2022 reports, renewal rates for its membership program are remarkably high. By the end of the period, its renewal rate for the US and Canada sat at an impressive 92.6% which equates to a base of 65.8 million paid household members and 118.9 million cardholders.
"We’ve been fortunate in the last couple of years to see new member signups increase at a higher rate and renewal rates to go to their highest levels in history,” Costco CFO, Richard Galanti said in an interview with Progressive Grocer. "Even for first-year members, when they sign up for year two, those rates are higher than they have been historically.”
However, Costco doesn’t only succeed in the way it is perceived by customers as its employees also rate the company as a great one to work for. Costco took the number one spot on Forbes’ prestigious list of America’s Best Employers by State in Colorado, Idaho, Nevada and Washington, and placed in the top five in nine additional states. On a global basis, Costco was seventh on Forbes’ 2022 ranking of the World’s Best Employers.
People and Planet
With an industry leading average wage of $23.56 per hour and a commitment to hiring people who represent the communities it serves, it’s not surprising that Costco has great retention rates and is viewed favorably by both employees and customers.
However, Costco also invests heavily in environmental matters as well. The retailer is a participant on the Roundtable on Sustainable Palm Oil and made good on its commitment to reduce its packaging by a massive 17 million pounds in 2022. Costco also has an ambitious climate plan with tiered goals running all the way to 2024.
"This year [2022] Costco has initiated several pilot programs to explore additional decarbonization opportunities related to emissions,” said the company in a press statement. "Among other programs, these opportunities include the testing of electric bakery ovens at a warehouse location, conducting solar electric vehicle-charging tests at multiple warehouse locations, exploring renewable-diesel options for business delivery trucks in California, and testing refrigerant leak-reduction technology systems at twelve of its warehouse locations.”
With how focused modern shoppers are on the way companies treat their staff – check out our recent article covering Amazon for more on this – Costco’s reputation as a good employer can only help bring more customers through its doors. Research has consistently shown that Millennial and GenZ shoppers are less willing to do business with retailers which fail to meet expectations regarding ESG concerns and are more than happy to take their business elsewhere if they perceive this to be the case.
In this regard, it seems Costco is succeeding where Amazon is failing.
Final Thoughts
Costco’s commitment to keeping prices low and driving revenue through its membership program is only part of the puzzle when it comes to figuring out the success of this famous big box brand. Whilst customers are sure to appreciate great value – especially during the current cost of living crisis – the company’s commitment to looking after its people and the planet are also key determinants of the repeat business and loyalty it enjoys.
Driving customer loyalty through ethical behavior is sure to be a hot button issue at eTail Boston 2023, being held in August at the Sheraton Boston Hotel.
Download the agenda today for more information and insights.