Friday, June 21, 2013

Four KPIs for Costco

What are four key performance indicators for Costco, the $100 billion members-only retailer that charges $55/year for the privilege of shopping in its gigantic, no-frills warehouse stores? If I were in charge of marketing, these would be at the top of the KPI list:

1. Sales. The company closely tracks same-store sales and carefully analyzes fluctuations. It also looks at website results, which are decent (according to outside analysts) but don't begin to approach the kinds of figures achieved by web stars such as Amazon, for example. "We view Amazon as one of our primary competitors in almost every category. We all believe we are going to have to adapt in some form," observes Costco's head of membership, marketing, and services.

2. Membership. Currently, Costco is just shy of 70 million members. The retailer tracks new members, renewal percentages, and defections to gauge loyalty and identify potential issues or opportunities. Membership is a vital metric because, as discussed in #4, it directly impacts profits, not to mention being a bellweather of consumer attitudes and behavior.

3. Product category results. Gasoline is a big draw: According to Costco's CFO, "thirty or so of those [shoppers] for every 100 that pump gas, go to shop." Groceries are another important category, which is why Costco watches online competitors that are trying new home-delivery offerings. The "treasure hunt" aspect of Costco sometimes defies categorization. Caskets in the same store as candy? Analyzing how one category affects another category can turn up valuable clues to customer behavior.

4. Profit margin. Membership fees account for 80% of its gross profit. In other words, when you pay your annual membership fee, it drops right to the bottom line--especially if you're a renewing customer who doesn't even need a new card. People (including me) become members because Costco's merchandise is value priced. The company rarely prices any of its 4,000 products at more than 15% above cost. And anybody who's ever shopped at Costco knows the retailer spends nothing on store ambiance, protecting that bottom line.

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