Maybe you know this story. Maybe you've lived it.
This is despite the fact that both Amazon and Walmart are much bigger than Costco. And, it's regardless of whether you can find lower prices on any particular single item at Amazon, Costco, or Walmart (or Target or Kohl's, for that matter).
Instead, it's a longer-term question of branding and customer loyalty, with some very interesting numbers to back it up.
Check out the statistics below. They'll come in handy if you ever want to build your own business with legions of loyal customers.
Between 94 and 100 million reasons.
Amazon and Walmart are often mentioned as prime competitors, and with good reason. They're both retail juggernauts.
But since it's Prime Day* (the asterisk is because Amazon has decided Prime Day is no longer a single day), let's focus on another metric of comparison: paid memberships and loyalty.
Because when you stack these numbers against each other, a surprising pattern becomes clear. Here are the three big retail leaders we're talking about:
- Amazon is historically secretive about how many Prime members there are, but the best guess is around 100 million in the United States. Jeff Bezos once let slip that the there were about that number worldwide; a more recent outside assessment concludes Amazon might have hit that milestone in the U.S. alone now.
- Costco is the more forthcoming about how many paid members it has: 94 million, as of its latest annual report.
- Walmart doesn't require memberships, but it does have a member-based corporate segment: Sam's Club. Walmart doesn't disclose membership numbers, and its media department didn't reply to my questions. But as a rough guess, its total reported revenue was about 40 percent of Costco's in 2018. If the same ratio applies to membership, Walmart would be around 37.6 million members.
Walmart is an amazing company. But think about those membership numbers.
- Amazon: 100 million
- Costco: 94 million
- Walmart: 37.6 million (estimated)*
Does it matter? It does if you value customer loyalty. It's hard to get subscribers, but once you've convinced them -- boom, you've got them.
They'll even thank you for it: for convenience's sake, or habit, or because of sunk costs.
- Buying online: "I already have a Prime account; I'll check out Amazon."
- Buying in person: "I already have a Costco membership; I'll go to Costco."
My colleague Jason Aten wrote about Target's Prime Day campaign, which suggested that not having subscribers is a good thing.
But I think that's wishful thinking. It's awfully hard to compete against a company that has already trained your potential customers not to consider anyone else.
The five pillars.
Growing a subscription base is a long game. But there are five reasons to do it:
- Loyal customers make better businesses. We can throw around marketing buzzwords like "brand ambassador" all day. But the simple truth is that a satisfied subscription customer or member spreads the word. My wife and I were talking as I wrote this about why we joined Costco: it was all word-of-mouth from our neighbors.
- There can only be so many winners. Customers can only subscribe to a limited number of memberships. Early pioneers who actually deliver can build their customer bases while walling out competitors. (My family has Amazon Prime and Costco; you can imagine what it would take to get us to add a third.)
- Subscription revenue eases margin pressure. There's no revenue like recurring revenue. I wrote recently about how Costco got into the retail-clothing business, offering very low prices. It can sacrifice on margin there, because it's getting billions in membership revenue.
- Subscriptions build habits. People are inundated with choices. Getting them invested -- literally -- helps them eliminate one decision. It's a paradox, but they appreciate it and respond over and over -- as long as you continue to deliver.
- Loyal members demand more. Another paradox, but a subscription model like means you know exactly who your customers are. You'll learn to anticipate what they'll want. That will help you retain their business, and attract more similar customers -- but not waste time on things that won't improve their lives or your business.
In that game, Amazon is winning. And Costco is its surprisingly key competitor.