Polaris recently announced its promotional partnership for its power sports division with Costco Auto Program (CAP) — a new take on the large retailer strategy. Costco will not sell, only display, a select group of products and then direct interested members to the closest dealer who has signed up with the program.
“Costco is not trying to make a profit selling power equipment to its members. Its primary mission is to deliver value to members so they will join and renew,” says Jeff Skeen, president and general manager of Affinity Auto Program, which operates the Costco Auto Program. A similar program has existed for car dealerships for more than 20 years.
Here are the logistics of the program. Dealers sign on to the program and Costco asks them to pre-arrange a price for its members as well as designate a specific person to be trained by Costco. There is a $200 monthly participation fee that Costco applies toward its marketing of Polaris products. Polaris dealers can use co-op money to cover 50% of that fee. Costco then displays the latest models in their stores directing members to a toll-free number or to Costcoauto.com where they provide their contact information and vehicle request. Then, Costco directs them to a specific dealer.
“If I was a dealer, I can’t imagine not participating in this,” says Skeen. “We’re going to help drive more traffic to dealers. We take all the calls and send them directly to you and bypass the overhead structure of advertising and commission. If you sold that unit for $1,500 under what you would normally sell, you are still making more money on a Costco member than on somebody just walking through your front door,” Skeen says.
Dealers need to hold up their end of the partnership by delivering a customer experience that meets Costco standards. A Costco representative follows up on each sale, encouraging customers to fill out a survey. By doing so, the customers earn a $200 Costco gift card, with Polaris picking up that cost as well.
I’ve been mulling over the arrangement to find a disadvantage or threat to dealers, either in the short or long term. Skeen emphasizes that Costco does not want to compete with dealers, but work with them to provide value to its members. Could it intensify the competition among local dealers? Also, customer surveys are generally viewed as training tools, not something that could affect a business relationship. Skeen says the program has never led to “an angry mob of dealers. Overwhelmingly, our dealers love us. All we want is for them to treat our members like they’re part of the family — and do exactly what they should be doing. Our dealers on the auto side have been with us more than 10 years on average and give us the highest ratings possible according to J.D. Power.”
Right now, the partnership is only for power sports equipment and Costco stores are based in large urban centers. That may mean limited involvement by rural lifestyle dealers outside metro areas. However, Skeen says that the partnerships could be expanded to other brands, based on the success of the Polaris partnership.
Dealers, what do you think? Do you trust a large retailer strategy? Share your comments below. Also, if you’ve signed on with the program, keep us posted on what it has meant for your dealership. As large retailer strategies go, this at least brings dealers and customers together at the time of a purchase, not just to fix a broken machine.