Exceeding Customer Expectations As Business Models Change: Reflecting On Costco

A few years ago in  a report I wrote, "What's The Right Customer Experience Strategy?", I asked whether it looked more like Apple or more like Costco. The reality is that Costco outperforms Apple on Forrester's Customer Experience Index. While both companies actually perform well, they differentiate themselves in very different ways to exceed the expectations they've established for their target customers. I recently came across an article about Costco, which reaffirmed why the company continues to perform well through the massive digital change that challenges the business models in many industries. Here are a few takeaways for CX leaders: 

  1. Be very clear about your target customers. Instead of trying to be all things to all people, Costco goes deep in serving its target customers, leveraging its strengths (most important, business capabilities) to solve bigger problems for them.
  2. Look beyond the boundaries of your own industry for opportunities to serve customers (Costco is selling cars, helping small businesses with inventory and payroll, etc.). This is where the real competitive scenarios will take place. Costco is competing with USAA (auto program), investment firms, and insurance companies . . . as well as other big-box retailers.
  3. Evolve the business model. The move into services gets Costco into a subscription business that has recurring revenue and inherent stickiness. In some ways, big retailers or department stores have always been "platform" businesses that others plug into (think software/hardware ecosystems). But this changes elements of Costco's operating model, which traditionally has focused on activities like supply chain and inventory management . . . these don't exist with the new services. Costco's becoming a department store or a one-stop shop for basic services, not just physical products.
  4. Build the ecosystem to deliver value. Costco partners with auto dealerships, Intuit (payroll), ShareBuilder (investing services), First Choice Loan Service (mortgages), and Identity Guard (identity protection). It's no longer about just suppliers of packaged goods; it's about suppliers of services.