Subject: Business    / Management   

Costco and the Power of High Quality Relationships

Retailing giant Costco has enjoyed substantial success at building customer loyalty. The warehouse outlets spend almost nothing on traditional advertising but have grown dramatically largely by word of mouth. In short, enthusiastic Costco customers tell other people.

Costco, the wholesale club company, 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 50 million members despite spending next to nothing on advertising or marketing. While a typical discounter carries 40,000 SKUs (stock keeping unions – essentially the number of products sold) Costco stores have only 4,500 – only those items where it can provide outstanding value. 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. New hires start at $10 an hour – high for the retail industry – and progress to $40,000 a year after three years. They 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 remarkable low inventory shrinkage rate, which is only 13% of the industry average. The company eliminates bad profits through 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 to 17 percent a year, over the past decade, even in a difficult economic environment.

Answer the following questions:

    Describe any experiences you have had with Costco. Generally, are you satisfied when shopping there? If you have never shopped at Costco, then describe a similar experience. If you are not an avid shopper, then research what others are saying about Costco and then formulate your responses based on customer satisfaction and customer loyalty.
    Would you describe yourself as a promoter for Costco – someone who you would be willing to recommend Costco to a friend?
    How does Costco appear to be aware of the importance of its internal customers? (Hint: See Costco Mission Document.)
    What challenges do you think Costco will face in the future regarding its customer loyalty?