Leveraging Membership Price Increases: Costco's Growth Strategy

Historical Trends in Membership Pricing

Recent membership fee increases at Costco, including a rise in Executive Membership fees from $120 to $130, reflect a broader trend of growing membership income, which rose 16% in mid-2024. This strategy aligns with competitive pricing models seen in similar retailers, emphasizing the importance of membership pricing in driving growth.

"Also effective September 1, annual fees for Executive Memberships in the U.S. and Canada will increase from $120 to $130 (Primary membership of $65, plus the Executive upgrade of $65), and the maximum annual 2% Reward associated with the Executive Membership will increase from $1,000 to $1,250. The fee increases will impact around 52 million memberships, a little" --- (COST, press release, 2024/07/10)

"Membership and other income increased $0.2 billion or 16.0% and $0.5 billion or 18.5% for the three and six months ended July 31, 2024, respectively, primarily due to strong growth in membership income globally." --- (WMT, sec filing, 2025/Q2)

"As you think about membership fee income and attracting new members, the tremendous success that we've seen so far is built on discounted membership fee model." --- (BJ, earning call, 2024/Q2)

"I mean, we are competitive on a daily basis. Our buyers are on top of pricing daily, weekly and we all review them each month." --- (COST, earning call, 2024/Q3)

"Membership fee income was $111.4 million in the first quarter of fiscal year 2024 compared to $102.5 million in the first quarter of fiscal year 2023, an 8.6% increase." --- (BJ, sec filing, 2024/Q1)

Impact on Customer Retention and Value Perception

Costco's strategy of maintaining merchandise prices despite rising costs enhances customer retention by reinforcing value perception. By expanding offerings and focusing on member benefits, they aim to deliver undeniable value, which is crucial for sustaining membership growth and positive consumer response.

"Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, negatively impacting gross margin and gross margin in the near term as a percentage of net sales (gross margin percentage)." --- (COST, sec filing, 2024/Q3)

""We consistently strive to offer benefits that focus on our members, aligning with our commitment to deliver undeniable value and convenience." --- (WMT, press release, 2024/08/22)

"I mean, we really do indeed see that. I think especially with our limited SKU count in the warehouse, how can we expand the offering to the members, bring value to their membership card beyond what's within our four walls or what's on costco.com and we see this as a great growth driver for us in the future and a way to bring expanded value to the members as we look forward." --- (COST, earning call, 2024/Q1)

"Additionally, we focus on our mix of businesses, including the expansion of connected value streams with higher margins, such as advertising and membership income." --- (WMT, sec filing, 2025/Q2)

"So we're seeing that benefit from both sides of the consumer that great value in both areas are doing very well." --- (COST, earning call, 2024/Q1)

Revenue Growth from Membership Price Adjustments

Costco's strategy of adjusting membership prices is reflected in the significant 21% increase in membership income reported by Walmart, indicating strong global growth. Additionally, enhancing membership value through benefits, as seen with Amazon's grocery delivery, suggests that well-structured price adjustments can effectively drive revenue growth.

"Membership and other income increased $0.3 billion or 21.0% for the three months ended April 30, 2024, primarily due to strong growth in membership income globally." --- (WMT, sec filing, 2025/Q1)

"And then we have to decide the best way to roll those out over time. As you mentioned, Justin, we just launched a Prime benefit for grocery, which is you can eat delivery for $9.99 a month, which if you order once from Whole Foods a month, it pays for itself or once from Amazon Fresh for orders under $40, it pays for itself." --- (AMZN, earning call, 2024/Q1)

"At just $98/year or $12.95/month, the membership combines digital and in-store benefits like free delivery from store, free shipping with no minimum order, gas and travel discounts, video streaming with Paramount+, early access, returns from home and so much more." --- (WMT, press release, 2024/08/22)

Competitive Positioning in Response to Price Increases

Costco is enhancing member relationships through technology to counteract price increases, while competitors like Walmart and BJ's emphasize aggressive pricing strategies and private label offerings to maintain competitive advantages. This multi-faceted approach highlights the importance of pricing and innovation in sustaining market position amidst rising costs.

"So technology we see is a great opportunity to enhance the member relationship with Costco and also drive a lot more business for us as well as we move forward." --- (COST, earning call, 2024/Q1)

"What does it mean for your price gaps?And then additionally, how do you think private label plays into this as I think we've continued to see those price gaps widen as well." --- (WMT, earning call, 2025/Q2)

"We try and be 25% better priced than conventional grocers, and in some places it is even higher than that." --- (BJ, earning call, 2024/Q2)

"And so during this 3rd phase, what we're really focused on is unit growth and if we see the opportunity at lower prices, we want to be the 1st down." --- (WMT, conference, 2024/06/11)

Future Outlook on Membership Pricing Strategies

Costco's future membership pricing strategies will likely focus on delivering compelling value while investing in member engagement and marketing. A cautious approach may be adopted to ensure sustainable growth, balancing pricing adjustments with member satisfaction.

"Above all, we will always deliver compelling value to our members. I'm proud of our entire team, and I'm excited for our future." --- (BJ, earning call, 2024/Q1)

"We could do those things on a more careful, slow methodical basis and potentially lessen the burden in the back half, but we want to position ourselves in the future for the greatest success that we can." --- (BJ, earning call, 2024/Q2)

"We remain focused on investing in member engagement, marketing and digital strategies." --- (BJ, sec filing, 2024/Q2)

Comparison with Competitors' Membership Models

Costco's membership model is thriving amid a rising market trend, as indicated by its strong member growth. In contrast, BJ's emphasizes its unique benefits, such as a money-back guarantee and combined coupon savings, to attract members, showcasing different strategies in the competitive membership landscape.

"And while you're clearly gaining share, when you compare your own performance to some of the syndicated data out there, does the emerging newness suggest there's also somewhat of a rising tide in some of these categories that saw some pull-forward over the pandemic?" --- (COST, earning call, 2024/Q1)

"Plus, members can save even more through BJ's Fuel Saver Program Risk free: Shoppers can try BJ's risk free with the company's 100% money-back guaranteed membership BJ's coupons + manufacturers' coupons: Members can combine savings using BJ's coupons with manufacturers' coupons Each new BJ's Wholesale Club location is expected to create approximately 150 jobs and hiring is expected to start soon for these new locations." --- (BJ, press release, 2024/04/30)

"Peter Benedict: Great. That all makes sense. Thanks. My follow up question probably around kind of membership, member growth and MFI, comp club member growth is driving two-thirds of the total member growth." --- (BJ, earning call, 2024/Q2)