Retail Customer Experience: Keeping and Growing Your Highest-Value Customers

 

Gemini is the Latin word for “twins.” In astronomy, Gemini is the constellation that lies in the northern sky between Cancer and Taurus; its brightest stars are the twins Castor and Pollux. To seasoned loyalty marketers the “Gemini Effect” is when a small- or medium-sized business earns small business program member benefits — and an individual (usually the business owner) triggers the realization of those benefits. To Jim Sinegal, CEO at Costco, the Gemini Effect had an even more basic and concrete definition: It defined the most valuable, most profitable member segment at Costco. This was a member segment that drove two (twin) revenue streams simultaneously — one wholesale and one retail.

These business members would make purchases (usually on weekdays) at Costco for their business needs — bulk and volume purchases that drive merchandise volume efficiencies that the warehouse club business model needs to continuously leverage to grow buying power and keep prices low. These same higher-spending members would then come back to Costco on weekends with their families to buy food, electronics, hardware, sporting goods, lifestyle goods and personal needs merchandise — driving the higher margin side of the equation necessary to enable and grow operating margins.

In 1999, Sinegal challenged his Membership Marketing team: Start building a fence around these highest of high-value Gemini Effect members. Get to know them well, keep them, grow their spend, grow their margins and make certain their customer experience was the very best Costco could deliver. In turn, their word-of-mouth marketing would attract similar high-spending retail customers; it would be the only marketing Costco would need to grow.

The Costco Membership teams’ answer to this challenge was to launch the company’s $100 Executive Membership and co-branded American Express card. Executive Membership costs twice as much as regular membership but comes with a 2% annual reward on purchases. In a business model where membership fees (at that time) accounted for 70% of operating income, this was a big deal. It meant a nearly 2X return in gross profitability per member, compared to regular memberships fulfilled at the time the member paid the fee.

With the help of American Express, Costco rapidly grew the Executive Membership program by using point-of-sale, firmographic and demographic member data insights and deploying very well-trained and segment-knowledgeable employees to interface with “Gemini” members at checkout. They could show these customers their purchase history and illustrate the value of the potential 2% return on the annual purchases. This was especially persuasive when the member purchase volume had already reached the spending threshold needed to pay for — cover the cost of — their new Executive Membership.

The retail world has gone around many times since 1999 when Costco launched the Executive Member program. The retailer has grown from $8 billion in annual revenue to $196 billion in fiscal year 2021. Costco now boasts 108.3 million cardholders and 25.6 million Executive Members (currently the fastest-growing member segment: less than 25% of the overall total but representing 50% of the member growth last quarter over quarter). And, even with market pressures from the juggernaut that is Amazon Prime, Costco continues to achieve nearly 92% member renewal rates.

Putting Value First

More than 220 million people are currently members of one or both Costco and Amazon. In 2001 — four years before Amazon launched Amazon Prime — Jeff Bezos met Sinegal for morning coffee at a Starbucks near Seattle. The meeting was Bezos’s idea; he wanted to talk about customer loyalty and the Costco customer experience. Bezos wanted to better understand the emotional attachment Costco members felt for their membership in the brand.

“The membership fee is a one-time pain, but it’s reinforced every time customers walk in,” Sinegal told Bezos. “My approach has always been that value trumps everything. The reason people are prepared to come to our strange places to shop is that we have value. We deliver on that value constantly. There are no annuities in this business.”

Meeting the Demands of Your Gemini Customers

It’s important to take stock in how you’re meeting the needs of your “Gemini” customers — your most valuable, most profitable consumers. Are you delivering the continuous, personalized value and customer experience (CX) needed to build their trust and customer loyalty? Are you using the customer insights to understand who they are? Are you building a digital fence around them? And are you enabling them to use the channels they want to communicate with you?

The difference between now and the early 2000s when Costco was successfully scaling its executive memberships — one “Gemini” customer at a time — is data and technology. Now you can use artificial intelligence, machine learning, predictive routing and predictive customer engagement across the enterprise to augment and enable well-trained CX agents to better identify, recognize and show your most-valuable customers the present and future value of your brand.

Just as Costco did in its brick-and-mortar stores, you can execute digitally across your customer platforms. Explain data and inspiring action through a highly relevant value story to maximize those moments of truth with individual customers and reinforce the value of your brand.

 

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