“We market to our Costco members,” said Ginnie Roeglin, senior vice president of e-commerce and publishing. “We don’t go outside of our membership base of 48 million members because we already have an enormous audience that knows what we have to offer.”
So why should Costco members that can visit any of the company’s 555 locations (of which 408 are in the US and Puerto Rico alone) visit the Web site? Because Costco.com offers its members an additional selection of merchandise that’s not available in the physical warehouses, which means members who shop online are privy to even more SKUs than are available in the company’s enormous locations.
“In the warehouse, 50% of our business is in the food category,” said Roeglin. “On Costco.com, we do carry some gourmet foods now, but it’s still a relatively small category for us.”
The warehouses and the site do offer similar categories in non-foods but to varying degrees. For instance, the site and the warehouses both sell computers, but Costco.com offers higher end versions of what’s available offline. On the other hand, Costco.com offers furniture where the warehouses only offer furniture in off seasons, after the holidays and busier shopping times have passed.
“The same thing is true of cameras, GPS units, or anything of that nature,” said Roeglin. “The warehouses offer a couple of SKUs in those categories; we offer a few extra.”
Costco.com’s selection of higher end products appeals to its online customer constituency, which Roeglin said is the cream of the crop of Costco members. A high percentage of online shoppers are executive members, the highest level of Costco membership, and they are often the biggest spenders. “An average sale on Costco.com exceeds $300, which is higher than the average sale in the warehouse,” she said.
No advertising? No problem
What makes Costco successful is the company’s complete mission to offer its members the lowest possible prices while not compromising on quality. Costco.com has built its reputation using the same philosophy.
The site’s buying teams spend time each day comparing prices and features to other top Web sites to ensure it’s not falling behind on delivering outstanding value. Some of the team’s research is also cetnered around making sure the site itself is easy to navigate while taking full advantage of the information the online memberships provide.
When Roeglin transferred to Costco’s e-commerce division five years ago, she came with an IT and marketing background. She quickly noticed the Web site hadn’t done a significant amount of marketing up until that point. “We were in the process of collecting e-mail addresses from our members, and we’d send some e-mails to them, but the one thing we weren’t leveraging was the overall membership base—those members already shopping in the warehouses,” she said.
Today, Costco.com sends a lot of direct mail to members who have purchased from Costco.com, as well as people it considers prospective members. Non-members can shop on the site but are often subject to surcharges members are not.
Costco.com is also testing search engine marketing with Google, but Roeglin said the goal is to keep the site’s margins as low as they have been for the past 11 years. “We don’t advertise on other Web sites,” she said. “We frankly don’t have the margin to give some of the affinity to Web sites even if it might drive traffic to our site, but we still have more opportunities available aside from advertising.”
More than half of Costco’s members have registered on Costco.com, but that means there are still millions more out there to reach, and an enormous built-in database to market too. “We have plenty of room to grow,” said Roeglin. “We don’t have the marketing and advertising budgets that most other retailers have, but we don’t need it.”
The real appeal
Maintaining strong relationships with suppliers and vendors is key to Costco’s ability to provide the kinds of low-cost, high-value products its members have grown accustomed to. In fact, the company’s code of ethics lists the following: obey the law, take care of members, take care of employees, and respect vendors.
“When we do all of those things correctly, we ultimately reward our shareholders,” Roeglin said. By taking care of its vendors, Costco remains top of mind with them when new deals become available. The company values the long-term relationships it deals with as well, and any suggestions to terminate a vendor relationship require in-depth analysis.
“We have to get approval from our top executives to terminate relations with a long-term supplier because many of them rely on us,” said Roeglin. “We want to make sure we’re not dismissing a good supplier without giving it careful consideration.”
In lieu of the shaky economy, many of Costco’s vendors are struggling, finding they need to cancel POs, for example. Because of its buying power, Costco has been able to step up and pick up some of those cancelled orders and move them through its system.
“We pay promptly, which is somesthing many other businesses are not doing at this point,” said Roeglin. “We’re a very solid company financially, and that’s a relief to many of our suppliers.”
But whether it’s finding ways to make the shopping experience more convenient for members or helping vendors stay afloat in an upside down economy, what makes Costco appealing is the treasure hunt it sends each of its members on as they walk the aisles of its warehouses. Roeglin said her goal for the future is to develop the company’s online personality by building on that approach.
“If you go into a location or you go onto our Web site, you will find things you were surprised to find at a price you can’t pass up,” she said. “We’re just trying to further the treasure hunt online.”