Tossing and Tortured 'Till Dawn

I come back to you now, at the turn of the tide.

Wednesday, November 11, 2009

Preamble: Costco is a company that I overall have a great deal of respect for. Their cost-cutting, volume-based business model is simple to understand, saves me and other customers money, and their equitable treatment of employees makes the shopping experience physically and ethically more pleasant.

So, please take this criticism in the spirit it is offered.

I just got a book of coupons for Costco. Actually, I got two of them, since my landlord has not changed her address with the company.


For Costco.

What gives? What sense does this make? These are not manufacturer's coupons being passed down to club members, they are internal, store coupons.

If you're not with me yet, let me explain: Costco is a warehouse club. This means you have to pay a modest annual fee to shop there, and then you're on the list. Once a member, you get the same low pricing (most of Coscto's products sell at about 10-12% gross profit margins) as all other members. SKU count, the total number of items, is low on the floor, as are costs.

I won't get into excessive detail about these cost cutting measures, but, the point is that on any given item, Costco makes a little money, but not very much. It is a great place to buy name brand items for reliably cheap.

This differs from premium grocery stores, like Safeway, in my area, which have single-unit items at considerably higher retail prices, but many items are frequently on sale. In a given product category, I'd wager there's at least SOMETHING on sale, every week, at Safeway. Furthermore, they sometimes offer "loss leader" sales, a doorbuster product sold for an unsustainably low price, designed to entice shoppers into the store. The idea is that you'll buy enough full-margin items to make up for it.

In your market, you probably get the traditional Tuesday grocery flier, with specials from all of the local shops, all vying for your business with specials like this. They send this flyer to literally every house in your neighborhood, attempting to lure your business.

Coscto doesn't spend the money on either the mass media advertising or the loss-leaders, as it would be antithetical to its EDLP (Every Day Low Price) business model.

The coupons they are sending me arrive at my place because I AM ALREADY A MEMBER. Their coupon distribution is one coupon book, one member.

Do you see what I am getting at?

If everyone eligible to shop at the store, and only those people, are offered the same price, what is the point of the coupon?

It's just an advertisement.

I used one, anyway, last week. Sure, I can complain, but I'm a cheap date. The cashiers scan the coupons, but they do not require their surrender.

This further demonstrates my point.

So, knock it off. Just lower the price to whatever it is that the coupon indicates, and, if you must, send members a flyer indicating what the price is.



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