A closer look at Costco's Membership Data

Let me introduce myself, my name is Samie. Right now, you do not know much about me, but let me share with you my Costco receipts so that you can investigate my life and learn a little bit about me. 

You will find in the attachment section my last 4 Costco receipts. Download them and tell me what you see. 

By looking at the receipts, you may feel a little bit overwhelmed by the details. Therefore let's take a step back and let me show you my transactions from February 2022 - until today. Based on the table below, what does Samie's life look like? 

If I were to generate a word cloud on all of the items in the past 6 months, can you tell a further story? 

How Costco uses data?

Long before other retailers started to issue loyalty cards, Costco had already done it. 

Costco Helps Solidify Customer Loyalty with Fast Warnings

If you need another reason to love Costco, here’s a good one. Like other big box retailers, Costco tracks what you buy and when. That should come as no surprise. What may surprise you, however, is that the information they collect could prevent you from getting very, very sick.

A California fruit packing company warned Costco about the possibility of listeria contamination in its stone fruits (peaches, plums, nectarines). Rather than send out a blanket warning to everyone who shopped at Costco recently, Costco was able to notify the specific customers that purchased those particular items. It first notified them by phone and followed up with a letter.

Costco has been collecting reams and reams of user data even before big data was a marketing buzzword. They were able to help the Centers for Disease Control pinpoint the source of a salmonella outbreak back in 2010.

https://neilpatel.com/blog/retailers-are-using-big-data/

Dan Caplinger (Membership): One huge way Costco stands out from nearly every other retailer in the industry is in how it aims to earn its profit. Retail tends to be a low-margin business, and retailers consistently compete on price while still trying to squeeze out enough profit to remain financially viable. Costco's membership model gives it a huge advantage, and the profitability of that gives the company more flexibility in setting prices where they will be most beneficial to its customers and its bottom line.

Specifically, membership revenue is almost pure profit, and it typically makes up nearly all of the net income Costco brings in. As a result, Costco can price its merchandise in a way that allows sales proceeds to just barely cover merchandise costs and the warehouse retailer's overhead expenses. Other retailers, by contrast, have to set prices higher because they don't have that cushion of membership revenue to support their profitability.

The membership model also gives customers the same incentives that Costco has to maximize sales. Once you pay your annual membership fee, taking advantage of savings opportunities becomes a vital part of the value proposition of your membership, leading to increased spending. With such high renewal rates, Costco clearly has its finger on the pulse of its shoppers and knows it's giving them what they want.

Demitrios Kalogeropoulos (Inventory management): Costco churns through its inventory more than 12 times each year. That lightning-quick turnover rate means it gets paid for what it sells before the bill to its suppliers comes due. That effectively shifts the responsibility of financing inventory over to Costco's vendors, helping make this one of the most efficient retailers in the world. 

Rapid sales volumes are made possible by an intense focus on offering only the fastest-selling models, sizes, and colors for any particular product. Yes, Costco carries a wide selection of merchandise categories -- everything from electronics to tires to fresh food. But within those categories, a shopper's options are limited: The typical warehouse is stocked with less than 4,000 products, compared to 45,000 at a Kroger (KR -2.08%) grocery store, or 80,000 items at Target (TGT -3.09%). 

But customers have been eager to take the trade-off of fewer overall choices in exchange for lower prices. In fact, Costco's shopper traffic has grown at an above-market 4% rate for six years running. The increased traffic is feeding a virtuous cycle of faster inventory turnover, translating into lower costs, lower prices, and still more traffic.

Costco offers a range of products unlike almost any other business, including eyewear, wine, pharmacy, apparel, and electronics, allowing customers to maximize their memberships, and consumers overwhelmingly approve of the quality of the merchandise. They also love the little things about Costco, like the $1.50 hot dog and soda deal (it sold over 100 million hot dogs last year) and the free samples peppered around the store.

Because Costco rotates products often, consumers have the chance to find a new deal or new item they like nearly every time they come into the store, making it a more exciting experience than most shopping trips. Its no-hassle return policy is also popular since Costco even offers cash refunds.   

Throw in the thrill and comfort of getting a good deal, and it's easy to see why Costco has retention rates of around 90%.

https://www.fool.com/investing/general/2015/07/30/the-costco-effect-5-ways-it-stands-out-from-the-co.aspx