How Costco is Winning at the Consumer Experience

by | 08 April 2019

Costco, the country’s leading membership warehouse store, raked in $141 billion in revenue in 2018, a 9.73% increase from 2017, with the bulk of its earnings driven by annual membership rates and complemented by low price offerings. The company recently underwent a global expansion, resulting in more than 750 warehouses representing 87.2 million square feet worldwide, nearly 25% of which operate in 10 countries outside the U.S. And while many brick and mortar retail stores are suffering from the impacts of increased e-commerce demand, Costco is proving that customer satisfaction and quality products can still prevail.

For 40 years, Costco has been the leader of the pack within the membership-only retail sector, alongside big-box retailers Sam’s Club and BJ’s. In recent years, however, their competitive set has broadened to include Target, Home Depot and the behemoth we know as Amazon. And in a surprising coup, Costco recently replaced Amazon as the top ranking online service in customer satisfaction, according to the 2018 American Customer Satisfaction Index (ACSI) Retail Report, which monitors customer satisfaction metrics for top retailers, both traditional and online. Amazon owned the #1 position for nearly a decade.

Costco is recognized around the globe for offering consumers top quality products at the best prices and creating the ultimate shopping experience for its legions of members. From try-before-you-buy food sampling stations, to bargain deals on home and garden, to an almost obsessive following for its pizza, Costco has created a fierce tribe of loyalists within its membership. “Costco-holics” flock to the warehouse outlet for everything from eggs and milk to gas, eyeglasses, hearing aids and a vast selection of wine.

The ACSI report credits Costco’s private-label, Kirkland brand, as one of the reasons the company is a value leader among online retailers. Even Warren Buffet concurs. He recently suggested that Costco is an unlikely competitor in the retail space, largely because of the popularity of its “explosive” private-label brand, which dominates the packaged-goods space and “does 50% more business than all the Kraft Heinz brands combined.”

But there’s far more to Costco’s success than the popularity of the Kirkland brand. According to Buffet, the company’s success is part and parcel of its original entrepreneurial vision, which relies on a slow-and-steady approach to changing people’s habits and driving consumer engagement.

When it comes to e-commerce, Costco has also been taking a slow and steady approach, but three recent innovations have the potential to speed things up:

  • Instant gratification: In a definitive play-to-stay competition with Wal-Mart and Amazon Fresh, Costco now offers a variety of delivery options, including same day fresh food home delivery through partnerships with Instacart and Shipt.
  • Smarter shopping: An upgrade to their mobile app allows for a seamless shopping experience. Members can now browse selections and shop directly from the app, checking an item’s availability and opting for either home delivery or pick up in-store.
  • Mobile payments: And probably one of the most exciting developments—especially for millennials and early adopters of mobile tech—Costco now accepts mobile payments. Members can now use Apple Pay, Google Wallet and Samsung Pay to finish their purchases.

Despite these innovations, Costco will need to continue making bold moves to stand out from its competitors, especially when it comes to the checkout process. As the cashier-less environment becomes more mainstream, so will “shop and scan” technology. First pioneered by Kroger, the technology is a big win with consumers. But it is Sam’s Club, a subsidiary of Wal-Mart, that Costco really needs to keep an eye on. Sam’s Club recently applied for a patent to enhance its Scan & Go checkout technology with computer vision and artificial intelligence to simplify and speed up the shopping experience.

As I predicted in 2014, virtual reality is coming soon—to a warehouse store near you.

Have you ordered Costco Pizza while standing in the checkout line? Or are you a Costco loyalist? If so, what do you love most about the Costco experience? I’d love to hear from you! Find me on Twitter @anjeesolankiCRE.

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