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?