The Exclusivity Illusion
Have you every wondered how big box retailers such as Costco are killing in their space when they are simply budget retailers who specialize in quantity? Their executives would love to spout of at least 10 ways that Costco offers a supreme value, which would range from “friendly customer service” to “best prices on the market” when in reality that trait is also what their competitors are offering.
So what gives? How is Costco able to sustain growth and keep users interested? The exclusivity illusion.
Membership
Want to walk in and get the same prices everyone else is getting? Not so fast.. pony up the cash for your membership I.D. and then you can get those bulk deals. Haven’t been in a while? D’oh! I bet you feel guilty paying for that membership and not shopping there, and stats show that you are much more likely to become a regular of an establishment if there is a minimal monetary connection involved regardless if it is the most cost efficient option.
What about the community aspect of a membership? Sure there is not a network per say that users directly interact with that makes them part of Costco, but rather the connected feeling that users have when all of their friends are using the same services, shops and outlets. This is where friend recommendations drive further memberships, larger collective ecosystem and additional revenue for the business (e.g. Costco).
Levels of Access
This is where Costco really has the upper hand on their other big box foes. Guess who get’s to enter an hour earlier than the average Joe 6-pack membership? Yeah, the “Executive Membership” which not only costs more but has stipulations for qualifications. This is where the illusion of exclusivity, rarity and value all come into play, if you want to have access to the goods earlier you will need to step up as a consumer to a whole new level.
V.R.I.O. Customers (Instead of Framework)
The essence of what Costco has done for it’s membership program to drive sales is really the application of V.R.I.O. on the customer base instead of just as a business model as key resource. For those who are not familiar with what this means, it stands for Value, Rarity, Imitability & Organization. So how does restricted access through memberships use these traits to create the illusion of exclusivity?
Value
Costco offers the obvious value of bulk pricing, and their leverage with suppliers to arrange a good deal for the end consumer. This is the most easily imitated trait of Costco and is seen across multiple consumer channels, however it still offers a great deal of consumer value (positive brand correlation).
Rarity
The restricted levels of access through tiered memberships create a feeling of need to get a product before somebody else does. It creates that illusion that the product in stock is in high demand, that the deals wont last forever and only the “Elite” are able to get a hold of these products before anybody else.
Imitability
While the price efficiencies of Costco can be copied across multiple channels (e.g. Wal-Mart), the positive membership association with the brand, the products and the exclusivity create a strong dedicated community that will support Costco through a smoother revenue curve.
Organization
This is where the efficiencies of the community really come into play with the Costco business model. The fact that customers are not only willing to buy items in large quantities (much higher revenue per customer, let’s be honest; How often do you leave Costco under $100?), but they are also willing to pay a subscription for the privilege of doing so! To top it all off, that paid subscription is tiered to allow customer to buy up the chain as opposed to only bargain hunting. This type of consumer behavior where customers buy upstream in a product line is only imitated (recently) in the Apple product lineup where by offering lower cost goods your average selling price actually increases.
Take Away
So as a start-up business, you need to figure out how you can incorporate such a unique dynamic into your business model that not only draws the highest paying customers, but brings in customers who want to be a part of your audience, who want to build your community and positively correlate themselves with your brand. And if at the end of the day you can even convince your customers that paying for a membership is beneficial to them (levels of access) then you have succeeded as building a sustainable entry for hopeful long term growth.
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