Beyond Bulk Buying: The Costco Connection - Building Lifelong Customers

As everyone says, food is the way to a girl’s heart, and I am absolutely lovestruck with Costco. And I know I’m not the only one.

In 2021, Costco had a 91% membership renewal rate in North America and 89% worldwide. Recently, Costco released their 2023 Q3 reports, and rates were up even higher, with a 92.6% renewal rate in North America and 90.5% worldwide.

The statistics in 2021 already established Costco as the master of customer loyalty programs, but to see continuous growth over time really begs the question of what is Costco’s secret sauce. How are they able to make their customer loyalty program even more enticing than it already is?

Economic Decision-Making

For context, Costco has insanely low profit margins despite being a massive retailer. It saves a lot of costs by using its storage and warehouses as the storefront and negotiating lower prices when buying from suppliers, as well as through various other strategic decisions. As a result, Costco has the ability to devote itself to customer service and care.

That means Costco is playing the long game. Costco frames its strategy around loyalty and retention, so it adjusts its business model to reflect its customer-centric approach. For instance, despite inflated prices for necessities, Costco maintained cheaper gas prices compared to competing gas stations and kept trademark items, such as its rotisserie chicken and hot dogs, at $4.99 and $1.50, respectively. Furthermore, Costco has planned to hike membership fees but have since held off on it due to customer disapproval. Because Costco knows the specific incentives behind its customer’s loyalty, the company has chosen to capitalize on it and grow its business by playing into its strengths.

Takeaway: While pricing may not be an all-encompassing approach to establishing customer loyalty for B2C businesses, the point here is to build a niche for your brand, find customers that will stay loyal because of your niche, and double-down on it.

How to Have Happy Customers: 101

I earlier alluded to this idea that Costco is really good at listening to its customers, so, in addition to its humble pricing model, Costco is fantastic at making its non-customers feel FOMO. After all, there are so many benefits to becoming a Costco membership – why wouldn’t you get one?

It’s almost like there’s no benefit for Costco – they just love spoiling their customers. While that’s not true at all, Costco has realized a common thread between all of its shoppers: they love cheap prices and easy access to their common needs. That’s why the membership benefits are so incentivizing. Not only are the deals a steal, but all you have to do is pay a fee to access these advantages.

Now does this mean you should drop everything and cater to the every demand of your customers? Absolutely not. But you should think about what specific value-adds your champion customers should experience.

Takeaway: Create clear and enticing delineations between your champions and other customer segments. See if you can find a common thread among all of your shoppers, and figure out how to turn that into an incentive to encourage your non-champions to become champions.

Conclusion

Obviously Costco is a very specific and outstanding example of a retailer, and not all B2C companies can follow a similar business model. However, the key ideas here are:

1. Your strength is your competitive wedge. Keep honing it!
2. Treat all of your customers with kindness, but give your best a bit more love.