THE EFFECTIVE STRATEGY OF AMERICA’S SECOND LARGEST RETAILER
I know this might be common knowledge for some Costco Warehouse members but how many other consumers realize Costco does not advertise? At least, not in the traditional sense. How many large, big box retailers or buying clubs could make that claim?
From what I’ve gathered by looking at online ads, TV commercials, and through junk mail, my unscientific conclusion indicates only Costco could make that claim. The company, headquartered in Issaquah, Washington, does not advertise through news print or TV channels and has been able to build their brand through good customer service, a liberal return policy, high quality products, and a merchandise markup of only 15%. This means their brand and business revenue has steadily improved without advertisements. That might change years from now but over the past several years, Costco has operated without an advertising budget.
I’ve seen Costco advertised/highlighted a number of times on TV but it wasn’t coming out of an advertising budget that doesn’t exist. CNBC premiered its documentary “The Costco Craze: Inside the Warehouse Giant” on April 26, 2012. Even though it wasn’t an infomercial for Costco, it was quite positive and helped explain the “craze for Costco” and the fact that this Warehouse Giant continues to grow in stores and revenue.
How do they do it without traditional advertising? A lot of their success happens because once the doors open, Costco employees perform well in the store and members come back because they’re satisfied and sometimes these warehouse members tell others. Satisfied customers often engage in word of mouth advertising — a key component of Costco being able to continue to grow without an advertising budget.
When I say Costco’s employees perform well in the store, what specifically do I mean? Well, with such a small markup, the majority of items are competitively priced. It’s really tough to beat their prices. Even though there are only 4,000 items or so on display in a typical warehouse, the selection for the most part is adequate, especially considering they typically stock high quality merchandise. Costco also adds new items to the store regularly which helps to keep the interest level high — members don’t know what new and interesting items may appear on a given end-cap. Many warehouse shoppers also like the idea of regularly seeing free samples available in certain parts of the store.
To help keep their brand current and on the mind of the regulars, members receives the Costco Connection month, it’s free and it includes articles on existing and new products, featured articles on certain members, product and service advertisements. Even though the expense of mailing this magazine to all members may not fall under the advertising budget, it certainly serves a similar function.
Another regular mailing from Costco comes in the form of warehouse specials. This helps to bring customers in the store — it appears Costco’s goal is to help entice members to make several trips to the warehouse during the sale period. Saving another $20 by using coupons in addition to such a small markup is quite attractive to many members. Costco also periodically sends a mailing that highlights some of the online specials not available in the warehouse. Perhaps their mailing strategy is to educate, inform and leverage these mailings in lieu of traditional advertising.
You won’t see Costco advertising low prices or providing shoppers with the opportunity to utilize the hot new item in retail called “layaway.” You won’t hear Costco advertise on the local radio about their President’s Sale, Fourth of July specials or special financing for a specified period. As mentioned above, when it comes to weekly TV, radio, or print ads, Costco is not in the mix.
I don’t know if this unique marketing approach could work for some or all retailers, but it certainly works for Costco. Is it not remarkable for a warehouse club that charges a yearly membership fee to its clients and forgoes traditional advertising continues to increase its revenue and reputation?