Costco’s MVM Coupon Program
Costco’s core philosophy is to sell products at the lowest retail price while maintaining merchandise gross margins. To achieve this, Costco buyers negotiate the lowest net cost with all discounts factored into the cost of goods.
However, over the years, coupons have become key part of a Costco program. This has forced buyers to figure out how to balance the goal of negotiating a product’s lowest cost while also extracting marketing funds from suppliers to use in coupon books.
Costco’s Coupon History
After Costco merged with Price Club in 1993, the combined company faced weaker comparable sales, macro-economic issues and operational problems in combining two large organizations.
To increase sales, Costco introduced a coupon program in 1995 called the passport which offered larger than normal savings (15% to 20%) on an assortment of 80 to 90 in-club products.
1996 to 2008 – Costco’s coupon program evolved to include two coupon books. The programs ran for two to three months each and included both in-club and online items. The first coupon program began in January and was called the wallet and the second coupon program began in June and continued to be called the passport.
The coupon books were mailed to members (and handed out at the clubs) prior to the beginning of each program. In addition, Costco offered a smaller assortment of product coupons during and in between the wallet and passport programs.
2008 – Costco offered seven of these smaller assortment coupon books or MVMs (multi vendor mailers). Costco changed its coupon strategy and eliminated its passport and wallet programs in favor of its MVM program. Costco found that the sales impact from the wallet and passport programs lessened.
Additionally, Costco no longer wanted to announce its promotional plans to its club and non-club competitors two to three months in advance.
2013 – With its August, 2013 coupon book, Costco eliminated the need for members to “clip and present” coupons. Items were divided into two categories: an instant redeemable coupon (IRC) and a coupon that requires the book or the Costco smartphone application to be presented to the cashier. The items with coupons/discounts that require the coupon book or Costco app are identified in the coupon book with a blue arrow that says, “book or app required”.
Costco would no longer hand out coupon books at its clubs and only Costco members would be eligible for the coupon offers. Eventually, the need to present the coupon book or Costco smartphone application ended and, eventually, Costco’s entire coupon book transitioned to an IRC and the coupon amounts are automatically deducted.
2017 – Costco began incorporating “Your Cost” items into its coupon books. The coupons for these items list the discounted purchase price and do not include the coupon amount.
Redemption Rates
Redemption rates for Costco coupons are high and purchase limits are common. Participating vendors have seen sales increase 8-times to 14-times normal velocity during a coupon period. Costco and its vendors plan for those high redemption rates and order an appropriate amount of product prior to an item’s coupon period. As a result, coupon items typically receive a free end cap.
Complicates Buyer Meetings
A food vendor said Costco’s coupon programs complicate program negotiation. He said, “It definitely has made meeting with club buyers more complicated. It seems that 35% of our time as a manufacturer are centered around coupon negotiations.”
MVMs Drive Volume
A food vendor said, “It certainly makes it challenging as they expect the best of both worlds. They still want to get the lowest possible cost on an item, however they also now want to talk about their coupon programs. And it is challenging for vendors because the coupon programs have become a major factor in how Costco really pushes volume.”