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Retailers make money from their relationship with customers in ways consumers may not consider. Advertising has been an obvious one. Consumers are being sold to, and they may not even know it’s happening. That’s something Walmart does through its Walmart Connect program. Walmart makes money from ads through its Walmart Connect platform through: Online ads: Brands pay for sponsored products, search placements, and display ads on Walmart.com and the app. In-store ads: Brands pay for shelf space, endcaps, and digital signage inside stores. Targeted advertising: Walmart uses shopper data to help brands reach specific customers, allowing it to charge a premium. Revenue model: Mostly pay-per-click (CPC) or pay-per-impression (CPM), similar to Amazon’s retail media network. Amazon, Target, and other large retailers have similar programs. Costco, however, because it charges people a membership fee to shop in its stores, has been more protective of selling data. The warehouse club recently launched a media sales program, but that’s only one of the methods it’s considering to make more money from its members. Costco builds out media sales Costco CFO Gary Millerchip shared details on the chain’s efforts during its fourth-quarter earnings call. “This is a multiyear journey. And as we complete the foundation elements of our plan, we are able to launch new experiences for members. For example, during the fourth quarter, we launched more relevant messaging on the Costco.com homepage, highlighting different offers, depending on the individual’s membership type and co-brand credit card status,” he shared. The company is, so far, using the technology to pull people on their Costco journey. “Executive members are shown information about executive benefits, while Gold Star members are encouraged to upgrade their membership and nonmembers are shown information about becoming members. Co-brand cardholders will be shown offers associated with ongoing spend campaigns, while noncardholders will be shown acquisition offers,” he shared. Millerchip made it clear that this technology could be moved into selling outside ads. “These digital capabilities are also a key enabler for retail media, as they allow us to target specific ads that deliver greater value for both members and suppliers while always honoring the privacy choices of our members,” he added. Costco pursues more “alternative revenue” “When we talk about alternative revenue, for us, I think it’s broader than media for sure,” Millerchip answered to a question during the call. He noted that Costco has multiple initiatives well under way. “The question earlier that was asked around financial services and credit card. We think that’s a continued strength in our business and an opportunity to continue to grow,” he added. Costco also recently added a new payment method. “We launched the buy now pay later product with Affirm earlier in the year, which is doing well,” the CFO shared. More Retail: Watchdog group warns Costco members on key health threat Chocolate prices are scary high Children’s retailer closing 150 stores, slashes jobs Millerchip also pointed to another very popular service as a revenue driver. “We have a tremendously successful travel business that delivers significant value for members and have strong growth in our overall model in delivering value for member and top line growth in the company as well. And media then is another component of that,” he added. A deeper look at Costco’s media plans “Costco is building out an ad network built on its trove of loyalty membership data, using its 74.5 million household members’ shopping habits and past purchases to power targeted advertising on and off its website,” wrote Ryan Burwick at Marketing Brew. Costco knows it’s late to the party. “It’s not incorrect to characterize Costco as behind the rest of the industry in retail media,” Mark Williamson, AVP of retail media at Costco, told Marketing Brew, later adding that “when it became clear to the leadership team here that retail media isn’t just a profit center…When they determined that retail media revenue could directly drive increased value for our members, that’s when they said, ‘Okay, this is something we need to get involved with.’” The retail media space, which is estimated to reach $166 billion by 2025, is responsible for 20% of all digital media spend this year, according to eMarketer. Costco is well-positioned to succeed in this space.
