10.272015

brand experience brief: costco

Here’s a video audit and analysis of Costco.  You might think you know this brand but I’m going to show you the unique customer strategy behind its popularity.

DLYohn Brand Experience Brief: Costco from Denise Lee Yohn on Vimeo.

Costco is one of the seven brands I profile in my new book, Extraordinary Experiences: What Great Retail and Restaurant Brands Do.  Learn more about Costco and how other great retail and restaurant brands create extraordinary experiences in my new book.  Get your copy today here.

other brand experience briefs:

*** transcript:

Here’s a video audit and analysis of Costco.  You might think you know this brand but I’m going to show you the unique customer strategy behind its popularity.

Costco is one of the seven brands I profile in my new book, Extraordinary Experiences: What Great Retail and Restaurant Brands Do, and I write about how Costco exemplifies the brand-building principle Great Brands Don’t Chase Customers. The warehouse club keeps its focus on its ideal member and refuses to chase customers who aren’t a good fit.  Here’s what I mean.

The $55 that Business and Gold Star members pay each year to join the Costco club weeds out lower-income customers.  Higher-end customers pay twice as much for an Executive Membership.  While its rival Sam’s Club appeals to a more down-scale customer, Costco explicitly targets people with more money. Moreover, the company targets business customers whose total spend levels are higher, they make more frequent shopping trips, and have spending patterns that are in general more resistant to economic downturns.

The products and prices at Costco are designed to appeal to the savvy shopper mentality and the disposable incomes that distinguish Costco customers. The selection at Costco reflects a carefully conceived mix of “triggers” that prompt visits – core items such as laundry detergent, cereal, and toilet paper – and “treasures” – other items that become impulse purchases like Patagonia jackets and oversized teddy bears.  Its price mix follows a similar strategy. Low-priced traffic generators such as $4.99 rotisserie chickens and reduced gas prices draw people in, and then they end up buying $3000 TVs.

Another way that shows that Costco doesn’t chase customers is it isn’t afraid to limit their choices.   A typical store stocks 4,000 types of items, including, say, just four toothpaste brands, while a Wal-Mart typically stocks more than 100,000 types of items and may carry 60 sizes and brands of toothpaste.  Also it limits payment options — pay by co-branded Citibank Visa or cash only.

Instead of advertising, Costco relies on member coupons and word of mouth marketing.  Its warehouses are bare-bones in design, with stacks of boxed inventory alongside displays, and very little signage — and customers’ orders are packed into used boxes after check out.

All of these practices allow the company to keep its costs down and therefore offer lower prices, so customers who opt in get the benefit.  And people do love Costco — the outdoor cafe at the location I visited on a weekday was packed with people.

Costco founder Sol Price explained the brand’s unique customer strategy this way: “A store that tries to be all things to all people will end up being nothing to anyone.”

Learn more about Costco and how other great retail and restaurant brands create extraordinary experiences in my new book.  Go to deniseleeyohn dot com slash extraordinary hyphen experiences to get your copy today.

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