Image Source: Facebook | Costco
July 5, 2023
Should Costco Be Going To War Against Card Sharers?
Costco, following the path of Netflix, confirmed it’s cracking down on people sharing membership cards to sneak into stores after noticing a spike in non-members making purchases at self-checkout.
The confirmation comes after posts on social media showed shoppers venting about at Costco employees asking for their ID cards again at the checkout line. Costco reintroduced self-checkout in 2019.
Costco in a media statement said it has always asked for membership cards at regular checkout and the photo-checking extends the policy to self-checkout. The statement read, “Our membership policy states that our membership cards are not transferable and since expanding our self-service checkout, we’ve noticed that non-member shoppers have been using membership cards that do not belong to them. We don’t feel it’s right that non-members receive the same benefits and pricing as our members.”
Membership fees make up almost 2 percent of Costco’s total revenues.
A regular membership covering one primary member and one free household member costs $60 a year with an executive card level with more perks costing $120 annually. Business Memberships ($60 annually) require another $60 fee for each additional user.
CFO Richard Galanti told The Wall Street Journal that only a “really small percent” of members are sharing cards, “but when you’re dealing with millions of transactions, even a very small percentage is something you would want to correct.”
Some social media complainers noted that they were making purchases for their elderly parent. Some felt harassed by Costco’s staff asking for their photo ID. Wrote one angry Redditor, “I get WHY they are doing it, but they need better training because these employees are treating people like we’re all there to shoplift.”
Netflix reportedly saw a spike in subscriber sign-ups in the days after it notified users after rolling out its password sharing crackdown amid fears cancellation risk.Katie Thomas, who leads the Kearney Consumer Institute, speaking to the New York Times said Costco may be feeling economic pressures similar to Netflix but also felt sharing an occasional card was a “not unreasonable hack” for consumers and could lead to paid memberships.
Discussion Questions
Discussion questions: Do you see more benefits than drawbacks in Costco requiring identification at all registers, including self-checkout? Is the online pushback a sign that asking for photo IDs at self-checkout may be an overreach or too inconvenient for shoppers?
Poll
Loading …BrainTrust
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Georganne Bender
Principal, KIZER & BENDER Speaking
Neil Saunders
Managing Director, GlobalData
Recent Discussions
More Discussions
How Can Retailers Crack the Gen Z ‘Riddle’?
Gen Z is becoming an increasingly important consumer demographic, but an elusive one to map. How…Does Bath & Body Works’ Scented Holiday Campaign Pass the Sniff Test?
Bath & Body Works is kicking off a new campaign with scent being at the fore…Which Tech Will Solve In-Store Inventory Woes?
Three major tech lineups are looking to solve retail inventory problems. Which is most suited?
Costco is well within their rights to enforce membership requirements. There is a price to shop at Costco. But while I complete agree that Costco has the right to enforce their membership rules, there’s a lot to be said for how they handle these interactions with their shoppers. Treating shoppers like shop-lifters will not create a lot of good will.
The sad commentary is that scofflaws and cheaters take away rights and freedoms of others. We cannot blame Costco, or any other retailer for protecting their income. Some retailers do not accept certain returns, some require proof of purchase, and some can request that you do not steal from them. As long as it is done elegantly, a retailer can impose protections against bad actors. Don’t shoot the messenger.
I agree. I will state that I have yet to see a costco employee ask in an offensive manner.
Depends what you would call “offensive”. Perhaps it’s not so dramatic – it can be simply be uncomfortable and embarrassing for consumers called out in any way, especially in a brand that prides itself on good consumer interactions and high touch service. While everyone is quick to point out that this is an ‘obvious’ rule, it may not actually be so obvious to the lay consumer who was allowed to do this until this sudden strict enforcement.
I don’t think checking membership cards and/or ID’s is necessarily a bad thing. It’s all in the ask.
Costco is looking out for its business and its members: If you want the deals you have to join. Frankly, being carded isn’t a big deal. It’s just something else to whine about on social media.
Agree with you completely Georganne, but I’d prefer they beefed up card check at the entry rather than disrupt with a second check at the checkout. Or better still, leverage technology with chips and cameras to verify face to membership card when you swipe your card –like my gym membership, even my library card. Far less disruptive and time consuming.
Costco’s business model is based on a membership system helping to subsidize low prices. The rules are clear that membership cards may not be shared. For those who wish to share, there is an Executive membership tier which allows other members of the household to shop. As such, I see nothing unreasonable in Costco enforcing rules. Of course, this should be done in a reasonable way.
Costco certainly has the right o enforce the no card-sharing rule, and I honestly don’t understand the complaints about the enforcement of the long-standing policy. For as long as I can remember, if you wanted to shop at Costco and have access to their assortments and their deals, then it will cost you a small annual fee ($60 currently). If you don’t want access to Costco, then don’t pay the $60. It’s a pretty simple equation.
A membership at Costco has a cost. Costco is very upfront about that cost and the rules for using the cards and shopping at the store. Customers who share cards make a conscious decision to give themselves an expectation to those rules, which they agreed to when they signed up for the card. Now they have the nerve to complain about it? Costo has every right to enforce their rules, and if these people feel guilty, lashing out isn’t a good look.
I suspect that, for the most part, those people that are not happy with Costco requiring identification at registers are those that are cheating the system. Sharing cards with non-members is a form of stealing. Neflix and Costco cracking down on theft is long overdue and loyal members should be happy that they are protecting the honest members. In the long-run, it will help prevent these companies from increasing their membership rates.
I have read more than once that a huge percentage of Costco’s profits are derived from the membership fees. So yes, the integrity of how memberships are used should be protected. Politely, and respecting the fact that most people who are checked will be valid, paid members. I’ve never been carded, but I won’t mind if I am. If……
Costco prices are in part set by factoring in the revenue they make from their annual membership fees. As such, they are 100% entitled to the ask. I suspect if they never asked and it became apparent there were large numbers of abusers, there would be even greater online pushback from paying members. Perhaps they can enhance the technology in their cards to allow for an easier tap or mobile device acknowledgement, so the card validation can remain self-service as well.
As I post these comments, all the existing comments call out that it’s “always been the rule” and just “needs to be handled in a reasonable way”. Well – that’s exactly part of the problem. It’s always been a rule… yet hasn’t been strictly enforced. Now they are having uncomfortable interactions with their consumers who are doing something they’ve likely done for years as they try to suddenly harshly implement these rules. Additionally, I’d rethink the framing of “unfairness”. Seems like plenty of current customers currently think it’s fair to occasionally bring in a friend or family to use their card…
Fair point Katie. COSTCO has, at least in part, created their own problem by not cracking down before this. Also, to be consistent, they should only allow card holders to enter the store. If you are a card holder and I come in with you, do my shopping – independent or along with yours – and pay for the order it is, at best, a sale associated with a member’s card. I haven’t heard of COSTCO stopping non-card holders from paying. But, all of this misses the point. In a consumer facing business care has to be taken to balance policy against customer relations. As you have suggested to me in another forum, why not just issue a day pass for say $20? The margins on a one time shop at a $20 daily fee beat the margins on a $60 annual fee, and would certainly encourage folks to think about becoming card holders on their own. That would be a reasonable – and profitable for COSTCO – solution. If folks didn’t want to pay the daily fee, fine, don’t let them in. The best way to lose business is to make the consumer the enemy.
Costco should take this opportunity to upgrade their process. Card scanners at entry points would help control and flag non-members. This would also help to determine who is abusing the membership.
Using this data could also help identify what customers are not buying and why.
There are many things Costco can do. They just need to get out of the dark ages and start leveraging technology.
What’s the difference between scanning a borrowed card and holding one in your hand at the door? How could a scanner know that “you” are really “you”? The scanner would have to be able to validate the COSTCO card and a second piece of identification and then link them. A better solution would be a biometric scan system similar to CLEAR in airports which would work, but would create its own set of issues.
Just like in airport lounges, the photo of the member shows up as they scan at entry. This would be the added validation and check of the ‘is it really you’.
Costco’s entire business model is based on membership, and they have clear rights to enforce card use at entry, exit and during checkout. I don’t think this is too big of an ask of its members. With respect to how Costco limits abuse, they might want to consider a closer look at the cards upon entry. Every time I enter, the associate notices my card, but never inspects the picture. Perhaps this small adjustment might lead to a lower incidence rate.
Costco isn’t changing their model midstream, reducing the value, or (unlike some cable companies I deal with) playing fast and loose with charges and fee’s. They are pretty straightforward about what the rules of the game are. Only thing I’d do a bit different would be to issue a small number of guest passes per year as part of membership, which would in the long run probably increase the membership. Costco basically covers operating expenses with product margin, and uses the membership fee’s as their profit generator. So it’s a high value privilege all around.
Peter, I love the “free passes” idea!
Peter, They wouldn’t even have to be free, just low cost, say $10 to $20. If you make them free people will start complaining they don’t get enough passes and members will complain that COSTCO is encouraging people to shop without a fee. Besides, there really is no need to burn the whole profitability model down. If the price for a day pass is right, people will pay it.
The difference between Costco and Netflix is that Netflix is changing its policy, whereas Costco has never allowed members to share with outside-of-household consumers. This is a topic that will increasingly heat up as both brands and consumers feel the pressure of the economy. Brands will have to be extremely careful when evaluating their policies here.
All subscription-based operating models are in the business of making money. Costco’s subscription-based membership services represent 2% of its annual revenues. In a margin-compressed business, they have every right to enforce and regulate this during the checkout process.
We have seen Netflix, and other subscription-based services become stricter with password sharing. However, in the retail and services industries, every interaction with customers must be handled delicately to avoid any unnecessary friction. By being transparent and honest with the membership rules and regulations, customers will know how far they can stretch the rules.
Membership may have its privileges. However, increasingly it does not extend to card sharing.
Costco absolutely has the right to enforce its policy for membership. If it wasn’t a valuable membership then people would not be complaining about being denied. It’s time for non-members to join as Costco clearly provides a great deal of value for most households.
Costco has the right to manage their ask as they see fit, however, what I have seen is that some associates ask as if they are trying to imply something that is not.
Some retraining and reminders would be helpful to staff so everyone is on the same page.
Well, I think that’s where Costco makes most of its profits, so yes, I do see more benefits. And (like with Netflix) it’s not like the service is so pricey that it’s a huge ask.
Yes, Costco is well within its expectations to verify card ownership. I suggest some simple signage to make members aware as they approach that their I.D. is require along with their membership card as they check out.
Checking I.D. isn’t the problem. Like most things in life it’s the timing and execution that determines results. Shoppers expect to verify membership when they walk in the store. Why not beef up the system at this point — add a couple more staff, a scanning turnstile with facial match cameras. Make it easier to purchase a day pass to try out membership. Or address the real problem which is their crappy card system that doesn’t have a photo right on the front, and a personalized card for every family member — like my gym membership. Good grief, this is a dumb way to deal with the wrong problem.
I have been a member for many years. Once in a while I’ll bring my daughter or sister if they are having a party. The end result was my sister got her own membership and eventually my daughter did too. I understand that membership is a requirement and I think Costco already does a good job of checking ID’s. I’m not really sure how this is any different than what they’ve already been doing. Maybe it’s different at other Costco’s but I think my Costco does a good job already.
The membership fees are essentially Costco’s profit. They are well within their rights to enforce the member ship rules. It’s probably those who are ‘tailgating’ who are complaining.
Costco is a membership-only retailing model. Allowing non-members to shop undermines compliance and encourages cheaters. In my Costco store, at self-checkout, member cards are checked while you’re in the queue. Does Costco have a right to ensure membership compliance? Of course, the company does. Any consumer pushback will be short-lived, and members should welcome this additional check to ensure continued member values.
We know from research that customers are more inclined to write negative reviews than positive reviews because of the heightened emotional response. As such, I doubt that the negative reactions to the increased enforcement of a long-standing rule by Costco represent the majority opinion. Moreover, we also know from the dual entitlement principle that consumers find seller actions (such as regarding price changes) fair if they know the seller does it to protect its threatened profit, which seems to be true in this case.
Testing a one-day paid guest pass is a fine idea from Ryan. It provides an alternative option that can help justify enforcing the members-only rule. (Pete’s suggestion about providing members with one or two free guest passes per year is similarly wise.)
Here’s a scenario for the experience at checkout: If the credit card presented for payment does not match the ID on the membership card, the POS system could prompt for further ID or offer to add the $20 day fee to the transaction. Most scofflaws would prefer not to repeat this experience the next time.
One watch-out: Non-members might “hack” the concept by using it only to obtain member prices on one or two high-ticket purchases per year. Costco would need to decide if it wants to live with that. Selling a few extra sets of furniture or big-screen TVs wouldn’t be the end of the world, IMO.
Costco has had policies for years relating to membership cards and checking receipts at checkout. I am actually surprised that they needed separate photo ID since the membership card has a photo and that’s how they check for it in person checkout. I have seen them decline transaction at regular checkout that way. Perhaps part of it is training of the employee at the self checkout on how to approach ID check and changes in the software so that once you scan the membership card at Self checkout the employee can do a visual spot of shopper versus card before the transaction begin.
It’s really a ‘no-win’ situation: certainly the goal is legitimate, but people naturally resent being made to prove things (at least as an adult). Perhaps the cards could be made more secure by having a photo themselves (tho that would need to be checked as well). My only absolute recommendation would be to have a well reasoned policy, not cave in to “social media” rabble.
Yes. You pay for a service and you receive said service. You “borrow” someone’s card to get a service you did not pay for….and that is wrong.
Regarding the process in place-they should sttreamline that. A lot.
If Costco (or any other membership retailer) wanted non-members to shop in their store, they would eliminate the membership. It’s well within their right to require confirmation. One way to eliminate the issue is at the entrance. Currently, you have to show your membership card. Most of the time, it’s just a quick flash of the card. However, what if that person checking took a close enough look to confirm it’s the member? If they did, the only ones in the club would be members.
Completely within Costco’s rights and I am sure that as usual, they will also have a great process to address specific exceptions like shopping for an elderly parent. Those taking unfair advantage are are taking it away from all Costco shoppers.
Anyone who owns a Costco card is aware that it contains the customer’s photo ID. In cases where the photo matches the customer, it is reasonable to assume that Costco personnel should not ask for additional identification. Having said that, the rampant issue of the misuse of membership cards persists. As a business owner, it is natural to be concerned about unethical actions that can negatively impact the company’s profitability.
Costco, being a wholesale retailer, executes its operations very efficiently, and its associates are well-trained to actually help out the customers. If customers can understand the situation from Costco’s perspective, they may be more willing to cooperate with the associates.
Agree with ensuring members are members. Disagree with adding friction in the shopping journey with multiple membership checks for the same store visit.