A league of their own: Costco uses data targeting and direct mail for membership surge

In 40 years, Costco has grown into a global retail powerhouse – the fifth largest retailer in the world with 848 warehouses in 14 countries generating CAN$293 billion in revenue in 2022 alone.¹

Since its debut in Canada in 1985, the company has become the country’s second largest retailer, with 108 locations. Costco’s unique warehouse business model offers a variety of products and services, including grocery, clothing, optometry, pharmacy, home furnishings and travel, to its more than 10 million members.²

As the retailer has discovered, however, success can drive its own challenges – and those challenges often require creative solutions.

Challenge

In Canada, Costco does not face a direct challenge from other membership-based chains, yet overall competition remains stiff thanks to numerous big-box retailers across the country. Costco’s biggest competitor, however, is its own success, as nearly one third of the adult population in Canada is already a member.

That means both membership retention and new customer acquisition are key to the company’s success.

“While our focus is on new member acquisition, we have an even greater goal of ensuring our members are taking full advantage of all the benefits of a Costco membership,” said Shannon Ambrose, Director of Marketing, Costco Canada. “When a member makes the most of their membership – not only by buying products at the best value, but booking a trip through Costco Travel, shopping online at Costco.ca, using home and auto insurance services, for example – it strengthens their engagement and loyalty.”

When it comes to acquisition, however, the challenge is less about explaining the opportunities and more about locating the new customers. With the penetration Costco has attained in Canada, they are always looking for new and creative ways to reach people they feel should be members but aren’t.

Relevance

Warehouse stores are physical experiences by design. The sheer size of the stores and variety of products found within create both an exhilarating and overwhelming experience that drive sales. Perhaps more than at any other retailer, accidental discovery and in-store signage are welcome parts of the customer experience.

That doesn’t mean these retailers don’t use technology. When it comes to digital marketing, they use traditional digital ads, while mobile apps deliver digital coupons, allow members to create shopping lists and offer real-time notifications about price drops or personalized recommendations all based on purchase and browsing history.

Many warehouse retailers, including Costco, also have an e commerce presence, although many shoppers find the digital experience of warehouse shopping far less satisfying, especially as the product offerings and prices aren’t always the same as in store. For these warehouse chains, driving people to brick-and-mortar buildings is the key to success – and nothing does that better than physical direct media.

“Sending mail to our members is the right thing to do. When we drive people to the store, it’s most likely going to be a sale,” Ambrose said. “With mail, I know I am reaching every member. That’s not so for digital or email. We want to make sure our members have access to all the information they need from us. Mail does that every time.”

Inciting action

Costco didn’t need a one-off solution – they wanted a strategy with multiple levers for the long run focused on customer lifetime value – from finding new prospects to increasing member engagement.

Direct mail has the unique ability to put our brand physically into the hands of our members and prospective members, further connecting them with our business. Canada Post and its extensive data solutions allow us to reach and inform members of upcoming discounts right in the comfort of their home.

Shannon Ambrose

Director of Marketing

Costco Canada

From helping inform members about sales and promotions to developing sophisticated, customized plans that connect with Costco’s desired marketing segments, Costco tapped into nearly every Canada Post Smartmail Marketing^TM solution, including:

• Strategic and customized data targeting
• Delivery of savings books and Costco Connection magazines to members
• Announcements of warehouse openings and business centre quarterly promotions
• Acquisition targeting in rural areas
• Match-back analysis of new membership sign-ups, demonstrating direct mail’s influence on acquisition
• Analysis of each mailing result, aligning to Costco’s specific metrics
• Foot traffic analysis and visualization tool mapping

Results

Over the last year, Costco has mailed millions of pieces using Canada Post Personalized Mail^TM, Canada Post Neighbourhood Mail^TM and Postal Code Targeting on behalf of warehouses across the country. The results have been impressive:

• 40% lift in responses from prospects and members receiving direct mail vs. a control group that did not receive direct mail.
• 94% lift in new memberships from targeted areas receiving direct mail over those exposed to Costco’s other marketing channels alone.
• Thousands of new memberships attributed to direct mail and CAN$84 million in sales attributed to direct mail in 2022.