How Costco's Crackdown Alienates Loyal Customers and Hurts the Brand

"Show me your papers."

"License and registration."

"I'll need to see some ID."

How do you feel when you read or hear those requests?

There are subtle accusations buried in each one, even if you didn't do anything wrong. On a biological level, it can make you tense and defensive as you wait for another person to judge you. People don't liketo be singled out, even if they didn't do anything wrong.

Is this the first touchpoint you want to have with your customers?

Costco announced last week that it will implement ID checks at all of its locations, expanding a program that has been in place at the Northern Virginia locations for more than a year.

Costco members have always had to scan their IDs at checkout and have their receipts reviewed at the door. Now, they must also have their IDs checked before entering the store, and sometimes also before getting into line to checkout line.

That's up to four times when the customer has to prove they aren't doing something wrong.

Brand trust is hard to measure until it's gone.

The idea makes business sense: Costco collected $4.7 billion in membership fees last year, but some people still skirt the rules by sharing memberships.

Trust is a fundamental aspect of relationship marketing, which cultivates long-term customer engagement and loyalty. Loyalty makes business sense because it's cheaper to maintain an existing customer than replace it with someone new.

The repeated ID checks are an erosion of that trust and the customer-brand relationship. When customers feel that a company no longer trusts them, their emotional connection to the brand weakens, making them more likely to leave or shop elsewhere.

For a customer base that's accustomed to scanning fobs and ID badges at work, this may not seem like a big deal, but it's an inversion of "membership perks."

Rather than having an exclusive shopping experience at Costco, members now have a scrutinized experience, especially compared to Costco's competitors. For example, Food Lion, Harris Teeter and similar grocery stores have "member only" deals that are frequently extended to all customers.

Costco's dragnet approach alienates its members, and makes access unattainable for those at the low end of the socio-economic bell curve.

Customer friction matters.

With this move, Costco is fundamentally changing the relationship with its members, introducing more friction to a process at a time when competitors are reducing friction and personalizing the experience.

This will lead to some of their members canceling to go elsewhere, or at least shopping at the warehouse less often.

Netflix recently cracked down on people sharing passwords, and seems to have done this successfully. The difference is that Netflix has unique products (shows and movies they own exclusive access to), and Costco does not.

Costco has peer wholesale competitors in Sam's Club and BJ's, e-commerce competitors in Amazon and Wayfair, and retail grocery competitors in every small town in America. There are no guarantees that cracking down on membership will be a break-even gamble, especially at a time when they are raising the price on members for the first time in years..

Costco has traditionally been an empathetic, human-centric brand.

Over the years, Costco has been a brand storytelling master. Co-founder James Sinegal famously (allegedly) responded to a CEO's proposal to raise the $1.50 hot dog price by 25 cents with, "I will kill you."

Every Costco has a board filled with the faces of its member associates who have worked with the brand for 20+ years, and the company leadership recently supported a move by staff to unionize.

A corporate entity that consistently acts on its brand values is usually dialed into customer loyalty. But just like an extra quarter for a hotdog-drink combo seems like a "little thing," so is the idea of not being hassled at the grocery store.

The "little things" add up over time, and they can have an outsized impact on how the brand is perceived. Excellence is a lot of little things done right, but the opposite is also true.

As you think about your own brand, try to understand the complex, multi-faceted value that you provide to your customers. Branding is your reputation: hard to win and easy to lose.

Lastly, trust your customers, and they’ll keep trusting you.

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