When we ended the radio show, we started looking at forming strategic partnerships with companies that needed tech support for their customers. It seemed like the right next step in our marketing strategy. While in my COO’s office one day, he mentioned that one of our employees had a connection to Costco. I immediately responded with, “That’s the right fit as they have an extreme customer service model like our own, but they aren’t a good fit for us as they are a low price leader and services are not their focus.” He kept trying to convince me otherwise.
After a few months, I finally decided to meet with the contact. We discussed how Costco needed a “Geek Squad” similar to Best Buy. I learned their electronics division was roughly 30% of their revenue and their margins were thin. While Costco makes its bottom line on member dues, the electronics division was in need of some new energy to stimulate its position amongst the online retailers. I decided to head to Seattle and meet with Costco.
In the initial meeting, Costco made it very clear that they wished to have a services partner and they required a company that would always put their member first. It didn’t take long to convince them that we were that company. The deal happened.
We launched in 20 Costco stores in Southern California. We had a pallet, just like the TVs and computers in the electronics section. We sold an hour of service for the lowest price we’ve ever offered. We staffed the stores to train their staff on who we are and what we do. While Costco doesn’t employ sales staff, they do wish to provide information to their members so the electronics team was there mostly to answer questions.
Over the next few months, sales started to climb. We were excited. Costco members seemed to like our offering. I however was concerned.
Costco is an amazing company. They truly care about their members and they do in fact attempt to provide the lowest price possible. They are all about customer service and they only sell products they believe in. I was impressed, but also, I started realizing that my hunch prior was now coming to reality. Costco didn’t know how to market services, or they chose not to. Either way, the sales kept flowing but not to a level that would help us or them achieve our mutual goals. After a while, they pulled our pallets from the floor.
All was not lost however, as we were now about to launch a much larger presence but this time via Costco.com. The thinking was Costco members would need our services at a later date and when they called their free Concierge service, we could be referred in situations where an onsite visit was needed. Also, customers could find us on the Costco site when searching for tech support. This all really made good sense.
We worked tirelessly to get this new offering up and running. Our design team provided all the graphics and code to enable the site. We built our own infrastructure to support it. Meanwhile, our company was struggling. Our focus on Costco had led to increased labor costs and lower sales from our regular business model. We were bleeding cash and running out of time. We kept pushing and driving forward, but in the end, we ran out of time and money.
Looking back, I learned a few things.
- When choosing a partner, its important to ensure your goals are aligned, but more importantly, you must agree on execution. Costco did not want to sell, market or offer our service in the way we believe it should be done. We needed a kiosk, in the store, staffed during business hours and we need Costco to market our service to its members via their direct mail, magazines, email and in-store. They never did.
- The contact that took us in to Costco was supposed to be our advocate. While he did in fact help us in many ways, he had a 30 year relationship with Costco selling toys. He wasn’t willing to risk that relationship by pushing Costco to do what we all knew needed to be done. I don’t blame him, but in hindsight, he should’ve step aside and allowed us to find someone who would work in our interests alone. The conflict of interest that existed between him and his 30 year Costco relationship proved to be a major challenge and may have led to the demise of this opportunity.
- When partnering with big companies, prepare to move slow, spend much and be willing to change course often. While they can help you achieve your goals, politics, culture and their objectives may keep you from achieving success. We were under-capitalized in general, but getting involved with Costco proved that to be a much larger issue.
While I’m certain the company would eventually have seen its demise, we fought hard and kept going. We never gave up on finding new and creative ways to market the business. The lessons learned are invaluable. I hope to share them with our clients at Greenspan Consulting.