Companies

Costco – Making card carrying fanatics, one deal at a time


I never thought I would need a 4-pack of shave foam and a 6-pack of toothpaste. That was until this past August, when some friends made one of the best breakfasts I have ever eaten while camping. Our discussion about this culinary delight quickly turned into an earnest testimonial from them about the food at Costco. Needless to say, my wife and I signed up for a membership the next weekend and I am delighted to report that we’re now happy Costco ambassadors. To paraphrase the writers of Modern Family, “It’s big, it’s not fancy and it dared us to not like it.”

To some, Costco will always be a beacon of conspicuous consumerism. However, I believe that Costco has built it’s reputation by offering something much simpler than vulgar consumerism… an honest deal – great quality products at unbeatable prices. And, Costco does this while facing fierce competition from companies that are several times its size.

As always, the buy, use, love sleuth in me had to investigate to see if Costco’s ways hold any lessons for Product Managers like me. My search was not in vain, here’s what I found…

  1. Better instead of more: The number of products carried by a typical Costco warehouse(about 4000 SKUs) is fraction of the number of products carried by competitors. This makes it easier for Costco to reinforce the value proposition and attract discerning customers with deep pockets. I bet all Product Managers have felt the need to do more – more features, more options, more tiers. For some reason, it always seems like it’s easier to sell when one has more, but guess what, doing better is almost always stickier and it drives return business and word of mouth (free marketing!). It also makes it easier for PMs, marketing and sales to succinctly explain what your product and business does and stands for.
  2. Build a community of customers: Everyone who shops at Costco, including me, is a card carrying member. Expecting shoppers to pay(billions of dollars annually) for the privilege to spend more money seems laughable, unless your brand generates massive goodwill, trust and word of mouth like Costco’s. And once in the club, members stay loyal. Most software and web Product Managers can’t expect their customers to carry membership cards (or maybe they can) but there is ample evidence that communities of passionate users can drive massive adoption and success. Spend the energy to make it easier for customers to connect with other customers and with you. If they love your product, there will be a constant stream of success stories to drive more business and if they hate your product, you’ll learn earlier to change course.
  3. Nobody wins unless everybody wins: Costco is constantly criticised by Wall Street for being too generous to their employees. At the same time, Wall Street is bullish enough about Costco shares to drive up its Price/Earnings ratio(~23 at the time of this writing) much higher than rival Wal-mart’s(~13). Not surprisingly, Costco’s ability to retain and motivate its workforce is a primary driver of growth and success. As Product Managers, we interact with a large and diverse set of people in our organizations. Being forthright, respectful and attentive to the various interests on the team is essential to build a common vision and to deliver exceptional value quickly, efficiently and joyfully.

I started writing this series with a belief that there are some universally applicable ideas, cultures and personality traits that drive outstanding product success. My endeavor is leading me in many different directions(domains, companies) but I feel like everything I learn is somehow vaguely familiar. Let me know if these ideas align with your own experience as a PM.

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