One of the best shopping experiences in the world right now is anything but fancy. In fact, it is about as stripped down as retail can get – concrete floors, product on palettes, warehouse ceilings with struts and skylights. Despite the unflattering surroundings, this particular chain also charges customers just to get in the door. And every year, the equivalent of the population of the UK and Austria combined happily hand over their money to do so.
The retailer in question is Costco and while there are many fascinating aspects to this 30+ year old “warehouse club,” what intrigues me most is their understanding of the psyche of the shopper.
The Costco model is super simple. Members only (starting at US$55 per year in the States), very low markup (15 percent maximum), limited choice (4,000 items compared to 40,000 in a typical supermarket), bulk sizing (large packaging and multiple units often bundled together).
If all that sounds pedestrian, it enables two of the three keys to the success of Costco. Firstly, shoppers feel like they are getting a bargain (the trade-off is that packs are super-sized), and they want to earn back the price of their membership fees. Secondly, shoppers don’t have to think too hard (there is very little “choice paralysis” when there are only one or two options per category).
The real magic in Costco though is what co-founder and retired CEO Jim Sinegal calls “triggers and treasures.” Seventy-five percent of what Costco sells is “trigger” products – staples like cereal, detergent, and their number one seller, toilet paper. The remaining 25 percent are “treasures,” limited quantity merchandise that may only be in store for a week or less – “finds” like TV’s, furniture, and toys, even diamonds. What’s more, these treasures are often hidden. In Costco, there are no signs or directories, and shoppers have to hunt down the good stuff.
Put all that together, and you have a retail mix like no other. The lure is irresistible, and customers come away from Costco with over-sized trolleys bulging with the basics at the bottom, and the “must-buys” on top. It’s almost impossible to escape at the checkout for less than a few hundred dollars – in fact Fast Company reported Costco’s average sale as US$400. (I “got out” on the weekend for a total of US$206, but I very nearly bought a $200 bike, which would have made my total bang on the money.)
As marketers we can sometimes over-think our craft. For instance, I spent a morning this past week in a high-level awards-committee meeting, debating the precise meaning of “Shopper Marketing.” Costco doesn’t talk about it, they just do it. They market to shoppers brilliantly, understanding that customers a) want a deal, b) don’t want too much choice, and c) love to uncover “buried treasure.” The result is consistently rising comparable store sales, last reported at 5 percent.
So next time you are looking for inspiration, take a trip to your nearest Costco, and see just how it’s done. Two things are for certain. You will learn something about great retail, and your wallet will be considerably lighter.