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10 minutes of expert insights every weekday. Your morning ritual for staying ahead in retail media.
Editorial: Costco profile
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[00:00:00] Remember the effortlessly cool kid at school who never seemed to try too hard while everyone else scrambled for attention, they just existed. Tussled, hair aloof, confidence, universally admired, precisely because they didn't need [00:00:15] the validation. That's Costco's retail media network.
[00:00:19] While over 80 retail media networks compete for advertiser attention. In the US alone, Costco has been suspiciously absent from the [00:00:30] hype. No splashy announcements, no big advertising, trade media takeovers, no vendor partnerships, trumpeted in press releases. Mark Williamson is the assistant vice [00:00:45] president of retail media at Costco, and he freely admits that the company is somewhat of a last mover in this space. Now, mark doesn't do traditional press interviews, just the occasional podcast interview making.
[00:00:58] Basic [00:01:00] information about Costco's retail media plans hard to come by, but this mystery seems to be part of the strategy. After stints building retail media at Sam's Club and a Hold Del Hayes, plus a year on the tech vendor side at [00:01:15] Citrus Ad. Now part of Epsilon Mark Williamson joined Costco two years ago with a clear mandate build a retail media business that serves membership value, not margin extraction.
[00:01:27] Since he doesn't do press interviews, I [00:01:30] had to scour some recent podcast interviews that Mark has done to get a little bit of a look into. The Costco Retail Media network, what they're building and how it's differentiated. And I wrote up my [00:01:45] findings in a post for my column at the drum, which we'll link to in the show notes here.
[00:01:50] And you can also find it republished on my blog and retail media breakfast club.com.
[00:01:55] Now, let's jump in.
[00:01:57]
[00:01:58] At most retailers, the [00:02:00] pitch is straightforward. Retail media generates high margin revenue that can offset e-commerce losses or fund price investments. The business case writes itself, but Costco flips that [00:02:15] logic. Let's listen to what Mark said on the CPG guys podcast in June of this year.
[00:02:21] Peter: You, you mentioned something about driving sales and revenue. More often than not, I hear other RMNs think about the RMN as a be all [00:02:30] and end all for monetization.
[00:02:32] What I hear you saying is that if you are not driving sales. For the merchant organization, then you are not doing the right thing. Talk more about that.
[00:02:43] Mark: Yeah, so I mean, like [00:02:45] we, we actually don't use the word monetization. Uh, not that like or profit center like, like we work very, very hard to make sure that we maintain our purpose.
[00:02:53] And as a media publisher, yes, it's a profitable business for us. It's, it's meaningful in the way that we fund our business, [00:03:00] but it's not the reason why we do it.
[00:03:02] And so we view it holistically to say whether you're acting in your, in your, in your realm as a supplier, and you have, you have a budget to help you drive, whether it's price point, promotion, end cap fence. [00:03:15] Whatever it may be. You have, you know, you could drive those levers and those levers work very, very well at Costco.
[00:03:19] Or if you're a brand marketer who's thinking a little bit more upper funnel or your agency that's thinking on a performance basis. Like everybody, you know, everyone's interested in activating it at Costco. But, um, but what we're [00:03:30] trying to do is like to drive to outcomes that are as mutually beneficial as possible.
[00:03:34] And so if all, if the only success metric we have is media margin, then then we've failed. And one way that we've, we've really, uh, we've really worked to align, um, the retail media initiative [00:03:45] with our core business strategy is that, uh, we, we have set it up in a way that the, the, the money that our retail media business generates is immediately allocated to our, to our merchandising departments where they can then [00:04:00] go invest.
[00:04:01]
[00:04:03]
[00:04:03] Kiri: Many retail media networks talk about this concept of doing no harm to shoppers, but Costco's bar is even higher. Every initiative has to prove that it's [00:04:15] adding value to membership. Otherwise, they just don't do it.
[00:04:19] Let's hear how Mark described it on Flywheels Commerce Collective podcast in October. Because it is, as a, as a member, as a consumer, it [00:04:30] is refreshing. 'cause every, every company, and especially every retailer says the, the customer is number one. Always. And, and I think in general that's true, but I've never experienced a, a culture. That means it to its core [00:04:45] and will happily walk away.
[00:04:47] From free money in order to maintain the reputation that they have with their members and that that's Costco all the way down. There are days where this reality frustrates me because there's just opportunities sitting in front of us. There's [00:05:00] things that we could do, there's decisions we can make.
[00:05:01] There's, there's capabilities we can build tomorrow. If only we could get rid of this PEs. Member thing, uh, that that kind of gets in the way. And this like, and I, I constantly, like, I have to be reminded, I have to remind myself that when you [00:05:15] charge people to shop at your store, you are obligated to give them some value in exchange for that.
[00:05:21] And so I could say, you know, like, like say, Hey, we, we could, I could, I could say to our leadership team. We could do $5 billion in retail media. We have so [00:05:30] much data and so much engagement, and if we did this and that, and whether it's non-endemic or some other thing, like it's just, we could totally do this.
[00:05:37] We could build a $5 billion ad business. So okay, that's fine. But what business are we in? We're in the business of selling memberships [00:05:45] and if we can't do both things at once, like there's definitely an order of of operations or there's a hierarchy. And at the top of that hierarchy is his member base signing up new members and keeping the members we already have.
[00:05:59] And [00:06:00] unless I can demonstrate that what we're doing within retail media. Is in service to that. It's not just about do no harm, it's like how can we use retail media to actually reinforce the value of membership? Because that's what we're all here for. We buy, we buy merchandise for membership. [00:06:15] We operate warehouses for membership.
[00:06:18]
[00:06:19] Kiri: Okay. Part of what makes Costco unique is the structure of the retail media team within the broader organization. And At most retailers today, you'll find retail media [00:06:30] operating as a separate fiefdom, a different p and l different leadership, often reporting through a different leader rather than. Being directly connected to the merchandising team, that separation creates organizational [00:06:45] efficiency, but fractures strategic alignment.
[00:06:48] At Costco Merchants rule the roost. And to bridge the gap between traditional merchandising negotiations and agency driven media opportunities, the company [00:07:00] created a growth management team. Let's hear how Mark described it on the CPG guys podcast.
[00:07:07] Mark: Uh, 'cause we, we are on a bit of a journey. We've, we've created, uh, what we call our growth management team. And, uh, they are [00:07:15] aligned by merchandising department. Uh, and so their job is to translate all of this. This, like this, uh, this, uh, nascent retail media stuff that our merchants don't really live and breathe every day.
[00:07:27] Their, their job is to translate these [00:07:30] opportunities into merchant speak. And so there, there's nine people on the team now that's, we went from zero to nine, so I'm very excited about that. But nearly every single one of them work merchandising, and almost all of them started their Costco journey in the warehouse.
[00:07:43] And so they bring this [00:07:45] mentality of retailer first. But, uh, but what we've really positioned 'em to be as the Costco Sherpa, so even if we have some self-serve tools and a lot of managed, a lot of managed service stuff, their role is really, whether they're talking to a DSP or a managed service [00:08:00] agency, a brand directly, or a supplier, like a shopper marketer or whatever.
[00:08:04] They, they really are that point of entry, uh, or that throat to choke if needed to help remove as much of that friction as possible to lubricate the process.
[00:08:12]
[00:08:13] Kiri: And this structure [00:08:15] forces accountability when reporting results to the chief merchant. Mark can't simply cite media margin. Instead, he has to demonstrate how media investments translated into actual sales growth for [00:08:30] Costco. In the interview, he says, if it's not 3 billion, 4 billion, 5 billion of returns, we could have spent that money differently.
[00:08:37] He explains.
[00:08:38] Retail media revenue at Costco gets immediately allocated back to [00:08:45] merchandising departments. Merchants then use those funds for deeper promotions, longer promotional windows, or everyday price investments. Mark describes this as clearing our p and l. That is [00:09:00] that retail media doesn't hoard margin or operate as a profit center detached from the core retail goals.
[00:09:07] Other retail media networks use advertising revenue to pad out net margins. Costco ostensibly uses [00:09:15] it to make its membership better value. Retailers know that a marketplace model can dramatically boost product assortment, shopper [00:09:30] engagement, and total revenue. But to get the most out of your marketplace, you need an ad tech solution that can really engage sellers. Miracle Ads is powering the future of retail media for leading retailers to [00:09:45] activate both three P Sellers and one P brands.
[00:09:48] Kiri Masters: Learn more@miracle.com. That's M-I-R-A-K l.com.
[00:09:55]
[00:09:56] Kiri: Now let's talk about how Costco's retail media performs [00:10:00] and what its data foundations are. So first of all, every Costco transaction is member identified, not 80%, not 95%, but a hundred percent.
[00:10:10] And that creates a deterministic [00:10:15] foundation that goes across all categories. Obviously at Costco there is gas, tires, health and beauty, apparel, food,
[00:10:26] and because every single purchase is tied back to a member [00:10:30] Id.
[00:10:30] The audience is super specific and very, very accurate. Secondly, at Costco, the investment dynamics work differently. Members aren't buying single units on promotion. They're buying bulk quantities that represent [00:10:45] real commitment and that creates stickiness and loyalty that runs deeper than traditional retailer shopper relationships.
[00:10:53] Over the past two years, mark talks about how Costco has invested in a data [00:11:00] foundation, which includes a unified data platform on a private Google Cloud instance, and they're stitching together more than 15 unique identifiers that previously didn't talk to each other.
[00:11:12] This all needs to be, privacy [00:11:15] compliant, of course, and Mark describes it potentially as over compliant.
[00:11:21] But this data foundation enabled Costco to launch an offsite retail media offering around about a year [00:11:30] ago, and that really demonstrated the payoff of all of that underlying foundational work. So Costco builds custom audiences from first party data, onboards them through LiveRamp, pushes them out to multiple DSPs, including the trade desk [00:11:45] stack, adapt.
[00:11:46] Epsilon and Yahoo Advertisers can activate on their preferred DSP and on the backend. Costco then brings that performance data into a clean room, marries the ad exposure with transaction data spanning both [00:12:00] online and warehouse sales.
[00:12:02] And then that flows through to custom campaign analytics, including new to item, new to brand, and new to category metrics. On the CPG guys podcast, mark gets into a little bit more detail on the [00:12:15] mechanics of the RMN, which is super interesting.
[00:12:18] So if you want a little bit more of a deep dive, definitely recommend. Checking out that interview. So what does all this mean for everyone else? I think that Costco's approach [00:12:30] raises three questions for competitors. One, can you justify media revenue that doesn't clearly connect to retail value when margin becomes the goal rather than the means advertising risks becoming clutter rather [00:12:45] than discovery.
[00:12:46] Costco's merchant first structure forces that question constantly. Number two, is your organizational model aligned with merchants or competing with them? Separate p and ls create efficiency, but fracture [00:13:00] strategy Costco demonstrates that integration while potentially messier operationally can produce better outcomes for both advertisers and shoppers.
[00:13:10] And number three, are you building data infrastructure for ads or for [00:13:15] loyalty and renewal? A lot of retailers treat their data play as advertising first, but Costco is building what might be called a renewal graph, understanding what drives members to renew their memberships with advertising as just one [00:13:30] application of that insight.
[00:13:32] The cool kid routine only works if you can deliver. Costco is demonstrating that the retailer who appears least interested in retail media might be building the version of it that actually works, the members, [00:13:45] the merchants, and ultimately for brands,
[00:13:47]