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How Costco Creates Fans

Note: Costco’s success is well documented, but this weekend I’m going to talk not about their fiscal success, but how they’ve created evangelists and why I am among them. They exemplify a brand that is worthy of a weekend.

Costco TVsTo me, the exciting thing about Costco evangelists is that lurk in unexpected places. There are lots of people who do not need to pinch pennies or stock a house to feed a family of 12 who will still go out of their way to shop at this membership warehouse. Here’s my take on their ingredients for success:

Amazing Customer Service – How do they achieve this? They take care of their employees (paid an average of $17/hour) which reduces turnover and supports a knowledgeable sales staff. Costco both creates internal evangelists and makes the connection between taking care of employees and their motivation in taking care of customers.

Return PolicyThey return everything for any reason. They have only recently limited electronics to a 90 day policy due to the amount they were losing on those tech returns.

Controlled Markup – Costco marks prices up by no more than 15% over wholesale. So no matter what a great buy they make, they pass along the savings to customers.

The Treasure Hunt – This is the secret sauce. Costco goes out of its way to surprise and excite its visitors with limited availability designer items. This solves two major challenges faced by warehouse stores – with products sold in such huge quantities, why visit regularly and why buy now? According to CEO Jim Sinegal last month:

“We have used the analogy in the past that one time they may come in and see that we have some Coach handbags and they come in the next time and the Coach handbags aren’t there, but perhaps there are some Fila jackets. The attitude is that if you see it, you have got to buy it because it may not be there next time. We purposely try to merchandise to that type of mind-set…We carry about 4,000 stock-keeping units, and about 1,000 of them are constantly in that changing mode, where they provide that treasure-hunt atmosphere.”

ChurroQUESTION TO THE READER – Costco sells very cheap sodas, hot dogs, and my very favorite – the churro. What role do you think this plays in their success??

  1. January 12th, 2008 at 07:10 | #1

    Cheap Churros aside … I would miss Costco if it were to go away tomorrow. Why? I trust their sense of quality with their merchandise mix. I respect their generous return policy. I value their fixed mark-up policy. I enjoy their treasure hunt mentality. I applaud the benefits and pay packages employees receive. There is not another retailer I know where I can get the same products with the same experience. They’ve earned me as a loyal shopper. Costco is definitely a business worthy of a weekend.

  2. January 12th, 2008 at 10:23 | #2

    My wife Ellen is an avid (perhaps “rabid”) fan of Costco. I am a secret fan. Like other ‘guilty pleasures’ I do not like to admit that I like her presents of 4 pairs of black jeans from her Costco run. I love the sense of abundance – 4 pairs!

  3. March 11th, 2008 at 11:52 | #3

    I am a Costco fanatic, as well. Though I have yet to return anything, I constantly buy stuff saying, “well, if it’s no good, at least I can bring it back.” The generous return policy (including their own membership) says the stand by what they sell. They even return shipping fees on their online orders. I’m a big deal hunter, but when it comes to Costco I’ll pay more to have the peace of mind of the return policy and know that they cap margins. I can’t say enough good about Costco.

  4. July 7th, 2008 at 12:50 | #4

    Since Costco sells cheep food for you to munch on, it helps them out in that you can shop longer without leaving the store to grab a bite to eat, if you’re thinking of going out shopping, you can accomplish two things at the same time (lunch & groceries), and it fosters more of a small community feel.

  5. Enrique Ruiz
    September 30th, 2008 at 13:48 | #5

    I also adore Costco! From there wonderful meats to there linens and don’t forget the FREE SAMPLES!! I don’t know everytime I go there I say “self im only here for eggs, ham, and one bottle of wine” inevitebly I end up walking out with one or two items I just had to have because the price was just way to good… It give’s me a warm fuzzy feeling buying it for soooo cheap! Ok ill admit I LOVE COSTCO!!! Oh and another thing I spend summers in Baja, Mexico and the Costco’s out there are just as great just with a upper class Mexican touch (luv the Jamon Serrano and baked goodies)…

  6. February 21st, 2009 at 20:00 | #6

    Maybe if you worked at building #02 you’d have a different opinion. #02 is the busiest Costco on the planet and is by far the most stressful place I have ever experienced working in all walks of life. There are 19 and 25 year old people there on blood pressure medication only after having been hired. 15 bucks an hour isn’t all that great when you’re health is at risk.

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