This is my third post discussing how Costco could make the most of their brand and expand business. If you didn’t catch it yesterday or the day before, my posts were all about a recent Motley Fool article about how Costco could expand to be even bigger. The author has three points. I discussed e-commerce on Tuesday and international expansion yesterday. Today though, I’m on to last suggestion in the article, which is to advertise and add more marketing pizazz to their strategy. Do you really want to see Costco commercials? What kind of advertising should they do? Print ads? Internet ads? Radio or television? Would that waste more money than it was worth to recruit new members? And would it have any effect at all on how much people spend on an average shopping trip to Costco?
I’m just going to repeat the three suggestions that the Fool.com article made, just so we’re all up to speed:
- Bookmark Costco.com: You want more visitors, more frequently? Leverage Costco.com, one of the only virtual warehouses that comes anywhere near the variety you’ll find at Amazon.com. (Part 1 post)
- Stay home: Lest the online strategy chip away at the warehouse-and-membership model that has brought Costco this far, Jelinek and Co. need to home in on scouting out domestic store locations, putting international expansion plans on the back burner. (Part 2 post)
- Promote the brand: It may seem like everyone has heard of Costco, but the company has no official advertising strategy beyond targeted home mailings.
As far as advertising goes, I don’t see why Costco needs to do it at all. The author of the Fool.com article doesn’t really provide a reason why she feels like they need to advertise. I can’t determine if she thinks they should do it to get new members or to somehow lead existing members to spend more since those are really the only two goals for Costco and anything else seems totally pointless. I can only speculate that she somehow feels it would be a way to get new members, so that’s what I’ve based my post on today.
When I started writing my blog, Costco had considerably fewer members than they do today, over 10 million less. On my happy birthday to Costco post in 2008 I said that they had 51.8 million members but that number has now grown to 64 million members (as of the end of their fiscal year 2011 at the end of August, so even more now). Costco has a pretty impressive 85% membership renewal rate worldwide, but in addition to retaining all of their existing members they have, in just 3 years, picked up an additional 12.2 million new members; 4.07 on average per year. Could they add more members, even faster through advertising? Possibly. But anyone that has been at their local Costco on a weekend will tell you that they are pretty much already full and can’t handle many more new members.
Opening days are crazy at new stores too! Their new locations would presumably be where you might think a little advertising would do some good too because that would be a way to get people interested and let everyone know when and where they will be opening. But they don’t need that because the crowds just know and they flock to the new locations on opening day in droves. They get all those people coming to their new locations through word of mouth, local media coverage, and by the simple act of just putting up their big sign that says that soon there will be a Costco on the location. From what I have heard, they really don’t need to entice more shoppers on opening days because they are already kind of overwhelming as it is.
There’s no need for Costco to waste a big bunch of money on ads, of whatever type, when they clearly do pretty well with word of mouth advertising. The Fool.com article points out that if they would spend just a little bit for online ads they could draw more visitors to Costco.com. Which is probably true and certainly some of those visitors would convert to members and shoppers. But of course, they would have to spend money to do that and I’m not sure that the cost of getting involved in advertising would be worth it for the number of new members that they would actually gain. The alternative, as I see it, is that they could keep satisfying existing customers, who evangelize about the wonders of Costco to friends and family and convert some of them to new members and shoppers. And that strategy doesn’t cost Costco anything above what they already spend on running a company with one of the best shopping experiences around.
I’m a pretty good example of how well Costco does in this regard without spending any additional money or staff on advertising. I don’t know how many people I’ve convinced to sign up as members as a result of my blog, but I do know that I have converted a lot of family and friends to Costco members. I’ve even managed to convert some serious Sam’s Club/Walmart shoppers to the Costco way of life. The good thing about this kind of new member recruitment is that aside from not costing Costco anything, it means that Costco hits their desired demographic without even trying. The people I’ve convinced to join and shop at Costco, are the kind that now spend a lot of money there on a regular basis, much like I do (okay, maybe they’re not as crazy about Costco as aI am). I’m pretty sure you can not get that same type of return on your advertising dollars; it’s hard to beat free.
Personally, I like their non-advertising strategy, both as a member and an investor. I think it makes sense for their business model and they seem to be doing just fine without blitzing us all with useless advertising. But more importantly, I don’t want them to waste the money on advertising. I would rather they use their money to keep their margins low, to offer quality goods for better prices than I can get them at their competition. I’d rather they put money towards their excellent customer service and towards keeping their return policy as flexible and awesome as it is currently. I would prefer they not run ads and keep their $1.50 hot dog and soda deal in the food court. I would prefer that they skip advertising and continue to pay their workers well and offer them good benefits. There are so so many ways that I would rather Costco use their money than blowing it on advertising.
And really, aren’t we all the best advertising that they have? Everyone I know that shops at Costco loves to tell other people about how great the deals are there and that kind of endorsement from someone you actually know and trust (presumably) is worth way more to Costco than any ad.
Please share your thoughts on Costco’s advertising strategy and whether you think they need to do more of it or not.
To read the full Motley Fool article: