Retailing wholesale club Costco has enjoyed substantial success at building customer loyalty. The warehouse outlets spend almost nothing on traditional advertising but have grown dramatically primarily by word of mouth. In short, enthusiastic Costco customers tell other people.
Costco is a real-life example of how great customer relationships generate economic benefits. More than 80 percent of customers report a willingness to recommend Costco to their friends and associates. The company has grown to almost 60 million members despite spending next to nothing on advertising or marketing. Total sales exceed $76 billion a year. While a typical retailer may carry anywhere from 30,000 to 150,000 SKUs (stock keeping units—essentially the number of products sold), Costco stores have about 4000—only those items where it can provide outstanding value.9 Sales per store are almost twice those at Sam's Club, its closest competitor. Costco's success funds a generous compensation package for its employees. Employees receive a benefits package virtually unequalled in the industry. Low turnover and long tenure reduce hiring and training costs and boost productivity; they also contribute to Costco's remarkably low inventory-shrinkage rate,10 which is only 13 percent of the industry average. The company offers a generous return policy— there is no time limit on returns except for a limit of one year on computer technology items. Costco's earnings have grown at about 12-17 percent a year, over the past decade, even in a difficult economic environment.
Probes
1. Describe any experiences you have had with Costco. Generally are you satisfied when shopping there? Why?
2. Would you describe yourself as a promoter for Costco—someone who would willingly recommend it to friends?
3. How does Costco appear to be aware of the importance of its internal customers? (Use online search to learn more, as needed.)
4. What challenges do you think Costco will face in the future regarding its customer loyalty? How must it apply core competencies to remain successful?