Costco, the third largest retail store in the world, standing shoulder to shoulder with industry behemoths Amazon and Walmart, is celebrated for its wholesale business model and cherished by millions of shoppers. However, beyond the allure of bulk goods, tantalizing free samples, and towering shelves, there lies the exclusive entrance, benefits, and strategies to cut costs that have been instrumental in propelling Costco straight to the top.
Costco’s premium membership system is an effective marketing strategy that enhances the store’s exclusivity and primarily targets long-term loyal shoppers who will spend hundreds of dollars in one visit. However, it also serves another crucial financial purpose: to get into the store you need to have a membership card. This ensures that only paying members can access the discounted prices the store offers. Costco is renowned for its competitive prices, but sustaining these low prices without generating profit is not sustainable. Costco’s membership program brings approximately $3.35 billion in revenue which makes up most of Costco’s $3.65 billion net income. Sol Price, founder of Costco’s predecessor Price Club, commented that “If you take [money from membership fees] and put it back into lower prices, it begins to feed on itself.”
Another part of Costco’s marketing strategy is the customer benefits that come with shopping at Costco. It helps keep customers coming back and promotes loyalty to Costco. The first part is the food court, which is famous for its quarter-pound hot dog and refillable drink at a cheap $1.50, a price that hasn’t changed since 1985! Another popular item is the rotisserie chicken, which sells more than 90 million every year at the low price of $4.99.
The warehouse is synonymous with Costco’s name and is a defining feature that makes it so distinctive. When you walk into the Costco store, you see pallets of items still in their plastic-wrapped shipping containers above what you are buying. Pallets are a very innovative idea that doesn’t need shelves or workers to fill and arrange the shelves. According to Damo Tech, the largest provider of rack safety solutions in North America, “These pallets are efficiently placed onto the pallet racks using forklifts or other machinery, reducing the need for stocking items individually and streamlining the restocking process. This practice minimizes labor costs and saves valuable time”. Using pallets also helps sell items in bulk which not only sells more products than in regular stores but also helps create low prices, as it is cheaper to sell in bulk than individually.
All of the decisions made by Costco’s corporate leadership are far from mere window dressing. They are carefully planned and thought out to put Costco on firm ground. There’s a reason why Costco has become a superstore, and why it is beloved by so many people–me included!
