In cities across the U.S., a familiar pattern is playing out: new burger chains sprout up, only to shutter within a few short years. Despite a crowded field, entrepreneurs continue to invest in these ventures, driven by a belief that they can carve out their niche. Yet, the reality is harsh—many fail, overwhelmed by an overcrowded market. According to the National Restaurant Association, approximately 60% of new restaurants close within their first year, and 80% do so within five years. This recurring story isn’t limited to the food industry. Across various sectors, brands face the question: when is a market simply too crowded to sustain new players?

Market saturation, where the volume of products or services reaches its maximum in a specific industry, is a growing concern for brands worldwide. With each new entry, the competition intensifies, eroding the available customer base and cutting profit margins. The U.S. burger industry, where major players like McDonald’s, Wendy’s, and Burger King dominate, offers a clear example of this saturation. Despite the heavy competition, new chains continue to emerge, attempting to differentiate themselves through quality, pricing, or unique experiences, only to struggle against the overwhelming market forces.

The danger of assuming that trends and initial consumer excitement indicate sustainable growth is a critical lesson here. Like many other industries, Burger chains showcase how oversaturation can lead to an unsustainable business environment where only the largest, most established brands survive. For brands, the key to navigating such environments lies in data-driven decision-making—understanding market trends, analyzing competitor performance, and recognizing the limitations of customer demand.

As industries from tech to retail face similar challenges, the need for accurate market research becomes even more pressing. For established brands, identifying when they’ve reached their maximum market share is essential to deciding their next steps. For new entrants, the challenge is recognizing when a market is too crowded for their innovation to thrive.

What is Market Saturation? Micro vs. Macro Perspectives

Market saturation occurs when the demand for a product or service peaks, leaving little room for growth without significant innovation or the removal of competitors. It can manifest on two levels: micro(specific product or brand) and macro (entire industry). Understanding both perspectives is crucial for businesses seeking to navigate saturated markets effectively.

At the micro-level, market saturation refers to the point at which a specific product or brand can no longer attract new customers without cutting into the market share of its competitors. A prime example is the U.S. burger industry, where iconic brands have dominated for decades. New burger chains frequently enter the market despite the crowded field, attempting to differentiate themselves with unique menus, sustainability claims, or better pricing models. However, these new entrants often struggle to sustain growth as they compete against well-established players with loyal customer bases.

On a macro-level, market saturation affects entire industries. The hospitality and telecom industries are prime examples of how saturation impacts service offerings across the board. In the hospitality industry, market saturation has led to an oversupply of hotels, restaurants, and entertainment venues, particularly in urban centers where consumer footfall is limited. 

For example, according to a report by Statista, hotel occupancy rates in major U.S. cities have stagnated at around 65%, indicating that the market may have reached its capacity.

Similarly, the telecom industry saw significant growth in its early years, with numerous players competing for market share. However, as the industry matured, competition grew fiercer, and many companies either exited or consolidated. Companies like AT&T and Verizon now dominate, leaving smaller firms with little room to innovate or expand. Saturation in the telecom sector has led to a decrease in new customer acquisitions, forcing businesses to pivot by offering new services, such as VoIP (Voice over Internet Protocol), and pursuing emerging technologies like 5G to drive growth.

In both cases, the effects of saturation are apparent: when demand is maximized, growth can only occur by capturing market share from competitors or creating entirely new demand through innovation. For existing brands, this often means investing in R&D, enhancing customer experience, or expanding into untapped markets. Success is even more elusive for new entrants, as they must find ways to significantly disrupt the market to survive.

Mint Mobile: How Ryan Reynolds and a Budget-Friendly Strategy Shook Up the Telecom Industry

Image credit: Mint Mobile

Despite entering a saturated U.S. telecom market dominated by giants like AT&T, Verizon, and T-Mobile, Mint Mobile managed to carve out a substantial niche by leveraging a unique blend of aggressive pricing, direct-to-consumer strategies, and clever marketing. A key factor in Mint’s success was its ultra-low-cost prepaid plans, starting as low as $15 per month. This attracted price-sensitive consumers at a time when many competitors were pushing higher-priced, contract-based options.

Ryan Reynolds’ involvement with Mint Mobile cannot be understated. Not only did his ownership stake boost the brand’s visibility, but his active role in marketing was critical. Reynolds brought a fresh, humorous approach to advertising, which helped Mint Mobile differentiate itself from more traditional telecom brands. His “improvised and borderline reckless” marketing strategy helped capture attention, creating a distinct brand voice that resonated with consumers seeking affordable options without the usual corporate tone.

By 2022, Mint Mobile’s growth outpaced the big three carriers, with significant traction in the prepaid space. This culminated in T-Mobile’s acquisition of Mint Mobile for up to $1.35 billion in 2023, a clear testament to its market success. Mint’s founders, along with Reynolds, continue to play a key role in the brand, with Reynolds maintaining his creative involvement post-acquisition. The company’s ability to thrive in a competitive market highlights how a combination of aggressive pricing, creative branding, and smart direct-to-consumer strategies can disrupt even the most crowded industries.

Identifying Early Signs of Market Overcrowding

Recognizing the early signs of market overcrowding is critical for businesses to make informed decisions about their next steps. These signals often indicate that the market is becoming saturated, which can limit growth opportunities and put pressure on existing players. Below are some of the key indicators that a market is approaching or has reached saturation:

SIGN #1: Stagnant or Declining Sales Despite Marketing Efforts

One of the first signs that a market is overcrowded is when businesses see stagnant or declining sales, even after investing heavily in marketing and promotional activities. In a saturated market, the potential customer base has already been captured by existing competitors, leaving little room for growth. For instance, in the U.S. restaurant industry, many new entrants spend significantly on marketing but fail to see a corresponding increase in sales, as well-established chains already dominate the market. This is a clear sign that the market may no longer have room for additional players.

SIGN #2: Increased Competition Offering Nearly Identical Products or Services

As markets become crowded, new competitors often enter, offering products or services strikingly similar to those already available. In the burger industry, for example, many new chains attempt to differentiate themselves, but ultimately, they offer variations on the same theme: burgers, fries, and shakes. This redundancy leads to fierce competition for a limited customer base, with businesses relying on minor differentiators like price or branding. When the market is full of nearly identical offerings, it becomes difficult for new players to stand out, and even established brands may struggle to maintain their market share.

SIGN #3: Customer Feedback Indicating Fatigue with Existing Options

Customer feedback is another major indicator of market saturation. When consumers express fatigue with the available products or services, particularly in industries driven by trends and fads, it signals that the market may be overcrowded. This can be seen in sectors like fashion, where certain trends—like fast fashion—dominate for a time before consumers grow tired of them. Brands may receive feedback that suggests customers are looking for something new, innovative, or more aligned with their evolving preferences, which is a warning sign that the market is at risk of becoming stale.

SIGN #4: A Slowing Growth Rate Across Many Players in the Industry

A broad-based slowdown in growth across multiple players in the industry is a strong signal of market overcrowding. Unlike the isolated struggles of individual brands, which may result from poor strategy or execution, a widespread slowdown suggests that the market itself is saturated. For example, in the telecom industry, many traditional call centers experienced declining demand as innovations like VoIP (Voice over Internet Protocol) disrupted the market. The shift to internet-based communication reduced the need for traditional call center services, leading to a slowdown in the growth of companies that had once dominated the space.

Why Do New Burger Chains Keep Emerging in a Crowded Market?

Despite the U.S. burger market being heavily saturated with long-established giants like McDonald’s, new burger chains continue to pop up, hoping to carve out a space for themselves. This trend can be baffling, given the challenges of entering such a competitive field, yet the phenomenon persists across industries where consumer demand appears to be maxed out. To understand why, we must explore the cyclical nature of consumer trends, the novelty appeal of new entrants, and the common misconception that new concepts can easily disrupt established players.

The Lure of Novelty and Cyclical Consumer Trends

One of the key reasons new burger chains continue to emerge is the belief that novelty and differentiation will capture consumer interest. Consumers are often drawn to the idea of something new, whether it’s a gourmet spin on a classic burger, a focus on sustainability, or a unique dining experience. Trends in the food industry, particularly in the fast-casual segment, often create bursts of enthusiasm for new concepts. These cycles, driven by shifting consumer preferences, give new entrants the illusion that they can gain a foothold in the market, even when it’s already saturated.

For example, in the early 2010s, the rise of fast-casual chains like Shake Shack and Five Guys created a wave of enthusiasm for gourmet burger experiences. This led to a proliferation of similar concepts, each aiming to attract the same demographic of consumers looking for premium quality at a higher price point than traditional fast food. However, as this trend matured, the novelty began to wear off, and many new entrants struggled to sustain their early success.

Cheeseburger in Paradise: How a Themed Burger Chain Went from Sizzle to Fizzle

Launched in 2002 by musician Jimmy Buffett in partnership with OSI Restaurant Partners, Cheeseburger in Paradise sought to combine tropical island vibes with gourmet burgers inspired by Buffett’s famous 1978 song. At its peak, the chain boasted 38 locations across 17 states and was a popular choice for diners looking to escape the ordinary. The restaurant’s beach-themed décor, lively atmosphere, and quirky menu drew in consumers during the early 2000s when themed dining was all the rage.

However, the novelty quickly wore off. After being acquired by Luby’s Inc. in 2012, the chain struggled to maintain its original appeal. The kitschy beach-bar concept lost its luster as consumer tastes shifted towards healthier options and fast-casual dining. By 2018, Cheeseburger in Paradise had closed all but two of its locations, and by 2020, it shuttered for good.​

The Misconception of Market Disruption

Many entrepreneurs entering the burger industry mistakenly believe that a fresh concept will automatically disrupt the market and steal customers from established brands. This misconception is fueled by success stories of brands that did manage to break through, but these cases are often exceptions rather than the rule. Established brands have deep customer loyalty, robust supply chains, and massive marketing budgets, making them difficult to displace. New burger chains frequently underestimate the strength of these incumbents and overestimate their ability to differentiate their offerings.

A closer look at the data reveals that new restaurants in the burger industry often struggle to gain traction against well-entrenched competitors. While some chains experience initial buzz due to novelty or clever marketing, many lack the differentiation necessary to create lasting appeal. Whether due to redundant menu offerings, poor customer experience, or ineffective pricing strategies, new concepts frequently fail to stand out. As the market becomes increasingly crowded, competition intensifies, and without a strong, unique value proposition, even the most promising entrants quickly lose momentum. The lesson is clear: in saturated markets, success depends on more than just launching—it requires continuous adaptation, innovation, and a deep understanding of consumer needs.

The Reality: Many Fail to Last Beyond the Initial Launch

While the allure of launching a new product or brand in a seemingly thriving market is strong, the reality is that many of these ventures fail to last beyond the initial excitement phase. A new restaurant might enjoy a surge of interest in its first few months, but without meaningful differentiation and a long-term strategy, consumer demand quickly wanes. New entrants often compete on price or minor product innovations, which are insufficient to sustain growth in a crowded space.

In addition, consumer fatigue sets in, particularly when multiple new players offer similar experiences. This leads to a situation where new chains struggle to build a loyal customer base and face dwindling foot traffic after the novelty wears off. Without a clear value proposition or a significant point of difference, new entrants become just another option in an oversaturated market, leading to failure.

Saturation may not always be apparent in emerging niches, giving rise to misguided optimism about market potential. Entrepreneurs and investors often mistake the initial buzz around a trend for sustainable demand, only to realize later that the market is too crowded for their concept to thrive.

How to Measure Market Saturation: Tools and Methodologies

Effectively measuring market saturation is essential for brands to make informed decisions about their growth strategies. With the right data-driven tools and methodologies, companies can assess whether their industry or niche is approaching a saturation point, allowing them to adapt their offerings or pivot before it’s too late. Below are key tools and approaches businesses can use to measure market saturation:

1. Market Share Analysis

Market share analysis is one of the most direct ways to gauge your business’s position within a saturated market. By calculating your business’s share of the total industry sales, you can determine whether there is still room for growth or if you are competing for the same slice of a limited pie. Market share analysis allows companies to benchmark themselves against competitors, helping to understand if they are gaining or losing ground.

For example, if a new burger chain captures 5% of the local fast-casual dining market, it can compare that percentage to industry averages and established competitors like McDonald’s or Wendy’s. This helps assess whether it is on track to grow or is likely to be squeezed out by more dominant players. If a company’s market share remains stagnant or declines, it could indicate that the market is nearing saturation.

2. Supply vs. Demand Balance

Understanding the balance between supply and demand is critical to identifying market saturation. When there are too many products or services relative to consumer demand, the market becomes overcrowded, making it difficult for businesses to thrive. Conducting a supply-demand analysis allows companies to compare the number of providers in a market to the existing customer base and forecast future demand trends.

In an oversaturated market, demand for a product or service doesn’t increase at the same pace as supply. Take the U.S. hospitality industry as an example: hotel occupancy rates in major cities have plateaued, indicating that consumer demand is not keeping up with the continuous influx of new hotels. This imbalance is a clear signal of market saturation, where the sheer number of competitors outweighs the potential for new customer acquisition.

3. Consumer Sentiment Tracking

Another important tool for assessing market saturation is consumer sentiment tracking. This involves gathering customer feedback through surveys, reviews, social media engagement, and other channels to gauge their interest and satisfaction with existing offerings. Tracking how consumers feel about the products and services available in the market can reveal whether they are fatigued by the available choices, particularly in industries where trends or fads play a significant role.

For instance, in the fast-fashion industry, brands may notice a decline in positive sentiment as consumers become increasingly concerned with sustainability and less interested in cheaply made, disposable clothing. A significant shift in consumer sentiment can indicate that the market is shifting or nearing saturation.

4. Competitor Benchmarking

Competitor benchmarking involves tracking your competitors’ growth, market share, and strategic moves to gain insights into the level of market saturation. By closely monitoring how your competitors are performing and adapting, you can identify signs of market overcrowding or potential shifts in the competitive landscape. Benchmarking helps you assess whether growth in the industry is becoming concentrated among a few players or if the market is still open for new entrants.

In industries such as telecommunications, benchmarking against competitors allows businesses to see how they stack up in areas like customer acquisition, innovation, and market share. For example, if traditional telecom providers see declining subscriber numbers while VoIP solutions gain traction, it could be a sign that the traditional market is becoming saturated, with customers moving toward newer technologies.

Without solid data analytics, brands risk misinterpreting business struggles as isolated problems rather than recognizing the broader trends of market overcrowding. Accurate market share analysis, supply-demand assessments, consumer sentiment tracking, and competitor benchmarking are essential to understanding market saturation. These tools allow businesses to pivot, innovate, or expand into new markets before saturation stifles growth opportunities.

What to Do Next: Strategies for Brands Facing Saturation

When a market becomes overcrowded, brands must make strategic decisions to maintain growth and stay competitive. Facing market saturation can feel like hitting a wall, but several proven strategies can help companies navigate these challenges. Below are practical approaches for businesses already operating in saturated markets:

Pivoting Your Product Offering

One of the most effective ways to combat saturation is by pivoting your product offering. Shifting your focus towards adjacent markets or niches that aren’t as crowded can open up new growth opportunities. IBM successfully employed this strategy when it moved away from hardware production as the computer hardware market became saturated. By pivoting to software, services, and consulting, IBM tapped into a less saturated space, transforming its business model and finding renewed success.

For businesses facing a saturated market, identifying complementary markets or related industries can provide new avenues for growth. For instance, a company offering traditional customer support might pivot to delivering specialized, AI-driven customer service solutions, catering to businesses looking to adopt more advanced technologies.

Innovate and Differentiate

Innovation is critical in saturated markets where products and services often appear indistinguishable. To stand out, companies need to introduce new features, redesign their products, or develop unique branding strategies. For example, in the cosmetics industry, brands like Lush and The Body Shop gained a competitive edge by focusing on eco-conscious initiatives. By promoting natural ingredients, cruelty-free products, and sustainable packaging, they attracted a consumer base increasingly concerned with environmental responsibility.

Innovation doesn’t always require developing an entirely new product. Often, small improvements or thoughtful redesigns can set a company apart in a crowded field. Businesses should focus on understanding what their customers value and innovate accordingly to create meaningful differentiation.

Liquid Death: How Bold Branding and Sustainability Disrupted the Bottled Water Industry

Image credit: Liquid Death

In 2019, Liquid Death entered the highly commoditized bottled water market, an industry dominated by established brands. What set it apart was its radical departure from traditional water branding. Founder Mike Cessario wanted to make water cool and edgy, similar to energy drinks or craft beer. The result was a brand that used heavy metal aesthetics, skull logos, and irreverent slogans like “Murder Your Thirst” and “Death to Plastic,” drawing a younger, more rebellious audience.

Liquid Death’s innovation wasn’t in the water itself but in its approach to branding, packaging, and sustainability. The brand’s commitment to using aluminum cans instead of plastic appealed to environmentally conscious consumers. Their “Death to Plastic” campaign highlighted the environmental damage caused by plastic waste, further cementing their place as a brand with a purpose.

This unique branding approach resonated with consumers, and by 2022, Liquid Death had grown from $2.8 million in revenue in 2019 to $130 million. Now available in over 100,000 stores, including Amazon, Liquid Death’s bold strategy helped it achieve a valuation of $1.4 billion by 2023.

Focus on Customer Experience

In an overcrowded market, exceptional customer experience can be a powerful differentiator. When products or services are similar, customers often base their loyalty on how they are treated at every stage of the buying journey. This means businesses must adopt a consumer-first approach that tailors every touchpoint, from the initial branding to post-sale care, to build long-term relationships.

For example, Amazon’s dominance in the e-commerce sector isn’t just due to its vast product offerings but also because of its seamless, customer-centric experience—from personalized recommendations to fast, reliable shipping and easy returns. Brands prioritizing customer satisfaction and convenience can retain a loyal customer base even in highly saturated markets.

Strategic Pricing

In a saturated market, pricing becomes a critical factor in maintaining competitiveness. Brands can either focus on becoming the low-cost provider or, conversely, shift towards premium pricing to capture a specific segment of the market. Both strategies require careful consideration of the target audience.

For example, budget airlines like Southwest Airlines focus on offering competitive prices to attract cost-conscious travelers. On the other end of the spectrum, luxury brands like Apple maintain higher pricing to appeal to consumers seeking premium products. Each strategy can be effective in a crowded market, but it’s crucial to align pricing with customer expectations and brand positioning.

Final Thoughts: Monitoring and Adapting to Market Dynamics

Navigating market saturation requires more than reacting to immediate challenges; it demands continuous monitoring of market performance, competitor strategies, and consumer demand. Brands that stay competitive embrace flexibility, leverage data to make informed decisions, and anticipate changes in the market before they become critical.

In overcrowded markets, brands must be vigilant. Competitors will continue to evolve, and consumer preferences will shift. By implementing robust data collection and analysis tools, brands can stay ahead of these changes. This includes monitoring not only their own performance but also tracking industry trends, consumer sentiment, and competitor behavior.

Flexibility is key. Brands that adapt quickly to new market realities—whether by innovating their product lines, shifting their pricing strategies, or exploring new markets—are better positioned to succeed. In contrast, those who fail to adjust risk being left behind in an increasingly competitive landscape.

Costco has always been synonymous with value, but its recent crackdown on membership moochers is raising eyebrows across the retail industry. The retailer, known for its bulk discounts and no-frills shopping experience, has begun enforcing stricter membership policies to ensure that only paying members enjoy the perks of shopping at their warehouses.

This move isn’t just about protecting profits; it’s a clear signal of how Costco values its relationship with its members. By tightening access to its stores, Costco is reinforcing the idea that membership is not just a transaction but a privilege—one that comes with tangible benefits. In an era where brand loyalty can be fleeting, Costco’s decision highlights its commitment to maintaining the integrity of its membership model, even if it risks alienating some potential shoppers.

Costco’s actions speak to a broader trend in retail, where companies are increasingly focused on fostering deep, long-term loyalty among their customers. According to a 2023 study by McKinsey, 75% of consumers are willing to switch brands for better value, but those who feel a strong connection to a brand are five times more likely to remain loyal. By cracking down on non-members, Costco is doubling down on the value it offers to those who buy into its model—literally and figuratively.

As Costco navigates this new terrain, it offers a case study in how brands can balance the need for growth with the importance of staying true to their core values.

Image credit: Costco

Understanding the Crackdown

Costco’s recent policy changes mark a significant shift in how the retail giant manages its membership base. One of the most notable updates is the introduction of mandatory membership card scanning at store entrances. Previously, a simple flash of a card was enough to gain entry, but now, members must scan their cards using new devices placed at the entrance, ensuring that only valid, paying members can step inside. Additionally, Costco has reinforced its self-checkout process by requiring shoppers to present both their membership card and a photo ID—a move aimed at curbing the use of borrowed or shared memberships.

These changes might seem like a minor inconvenience to some, but for Costco, they are a strategic move to uphold the integrity of its membership program. The company has long positioned itself as a member-exclusive retailer, where the annual fee is justified by the access it grants to a wide range of discounted products. Allowing non-members to enjoy these benefits without paying undermines the value proposition that Costco offers to its loyal customers.

The rationale behind this crackdown becomes clear when you consider Costco’s business model. Unlike many retailers that rely heavily on product markups, Costco’s primary profit driver is its membership fees. In 2023, these fees generated $4.6 billion in revenue, accounting for a substantial portion of the company’s overall profits. By tightening its membership policies, Costco is not just protecting this revenue stream—it’s also reinforcing the exclusivity and value of being a member.

Furthermore, this move helps to maintain a level of fairness among Costco’s customer base. The company’s pricing model is built on the principle that all members share equally in the benefits of bulk buying and lower prices. By allowing non-members to take advantage of these benefits, Costco would risk eroding the trust and loyalty it has built with its paying members, many of whom see their membership as an investment.

In essence, Costco’s stricter enforcement of membership policies is a reflection of its commitment to its customers and its business model. It’s a calculated decision to prioritize long-term loyalty and brand integrity over short-term sales—an approach that many other retailers could learn from.

Consumer Loyalty and Value Perception

The Role of Membership Programs

Membership programs are more than just a revenue stream for retailers; they are a powerful tool for building brand loyalty and fostering a sense of exclusivity among consumers. Costco’s membership model is a prime example of this strategy in action. By requiring customers to pay an annual fee for access to its warehouses, Costco creates an environment where shoppers feel they are part of an exclusive club, reaping benefits that non-members cannot. This sense of exclusivity is a key driver of consumer loyalty. A 2022 survey by Kantar revealed that 73% of Costco members viewed their membership as valuable or very valuable, a sentiment that directly translates into repeat business and long-term customer retention.

Membership programs like Costco’s work by establishing a clear value proposition: pay a fee upfront, and in return, you gain access to benefits that more than justify the cost. This creates a psychological commitment from members, who are more likely to remain loyal to the brand to maximize the value of their investment. The exclusivity also feeds into a consumer’s desire for belonging and being part of something unique, further strengthening the emotional bond between the brand and the consumer.

Impact on Consumer Behavior

The strict enforcement of membership policies, such as those recently implemented by Costco, can have a significant impact on consumer behavior. On the positive side, these policies reinforce the value of the membership, making paying members feel that their investment is protected and worthwhile. This sense of protection can increase member satisfaction and loyalty, as they see the brand actively working to maintain the integrity of the benefits they paid for. According to a 2023 Deloitte report, 65% of consumers are more likely to stay loyal to brands that they believe treat them fairly and reward their loyalty.

However, there are potential downsides to this approach. Stricter enforcement could alienate some consumers, particularly those who might feel that the policies are overly rigid or intrusive. For instance, the requirement to present a photo ID at self-checkout might be seen as a hassle for some members, leading to frustration and potentially even cancellations if they perceive the process as inconvenient. There’s also the risk of negative word-of-mouth, as disgruntled customers may share their dissatisfaction with others, potentially deterring new members from joining.

International Examples

Image credit: Muji

In Asian markets, membership programs are also used to create a sense of exclusivity and loyalty, though they often take on different forms. Take Japanese retailer Muji, for example. Muji offers a membership program that provides members with access to special discounts, early product releases, and exclusive events. Unlike Costco, which focuses on value through bulk buying, Muji’s membership appeals to consumers’ desire for minimalism and quality, creating a loyal customer base that values the brand’s unique offerings. This approach has been successful in Japan and other Asian markets, where consumers place high importance on brand loyalty and are often willing to pay a premium for membership benefits.

Image credit: Tesco

In the UK, retailers like Tesco have also embraced membership programs as a way to foster consumer loyalty. Tesco’s Clubcard program is one of the most successful examples, offering members discounts, personalized offers, and the ability to earn points that can be redeemed for rewards. This program has been instrumental in helping Tesco maintain its position as one of the leading grocery chains in the UK. According to a 2023 YouGov survey, 77% of Clubcard users reported that the program made them more likely to shop at Tesco over competitors. The success of Tesco’s Clubcard illustrates how membership programs, when executed well, can significantly influence consumer behavior, encouraging repeat purchases and brand loyalty.

Costco’s recent crackdown on membership misuse, when viewed through the lens of these international examples, highlights a common theme: the need for retailers to protect the value they offer their most loyal customers. Whether in the U.S., Asia, or the UK, the core principle remains the same—membership programs are a powerful tool for building and maintaining consumer loyalty, but they require careful management to ensure they deliver on their promise.

The Business Perspective

Revenue from Membership Fees

For Costco, membership fees are not just a supplementary income stream; they are the cornerstone of the company’s business model. In 2023, Costco reported $4.6 billion in revenue from membership fees alone, an 8% increase from the previous year. This steady stream of income is crucial because it allows Costco to maintain its low-margin pricing strategy, which is a key element of its value proposition to customers. The recent $5 increase in membership fees, effective from September 2024, is projected to further boost this revenue, reinforcing the company’s financial health even in a competitive retail environment.

The significance of these fees cannot be overstated. Unlike other retailers that rely heavily on product markups, Costco’s ability to generate substantial revenue from memberships allows it to offer consistently lower prices, driving high volumes of sales. This model creates a virtuous cycle: low prices attract more members, whose fees then support the continued offering of low prices. The enforcement of stricter membership policies is a natural extension of this model, as it ensures that the revenue generated from these fees is maximized and that the benefits remain exclusive to paying members.

Global Comparisons

US vs. Asia: In the United States, Costco’s membership-driven revenue model is well established, with over 124 million cardholders contributing to its substantial fee income. In Asian markets, however, the dynamics can be slightly different. While membership fees are still a vital part of the revenue model, the market context requires a tailored approach. In Japan, for example, Costco has successfully adapted its model to local preferences, where consumers are known for their value-consciousness. However, the market is also highly competitive, with local players offering similar bulk-buying experiences without membership fees, requiring Costco to emphasize the added value of membership, such as exclusive product lines and superior customer service.

In contrast, in markets like South Korea, Costco has seen explosive growth, where the membership model aligns well with local consumer behavior that favors bulk buying and premium products. Here, membership fees contribute significantly to overall revenue, similar to the U.S., but with a stronger emphasis on the exclusivity and premium nature of the Costco shopping experience. This regional variation highlights the need for Costco to adapt its membership strategy to align with local consumer preferences while still maintaining its core business model.

UK: In the UK, the concept of membership-driven revenue is handled differently by companies like Amazon with its Prime program. Amazon Prime, much like Costco’s membership, offers customers a range of benefits, from free shipping to exclusive content, in exchange for an annual or monthly fee. However, unlike Costco, where the membership fee is integral to accessing the shopping experience, Amazon Prime is positioned more as a premium service, offering added convenience and perks.

The competitive landscape in the UK is intense, with retailers like Tesco and Sainsbury’s offering loyalty programs that, while not requiring a fee, create a similar sense of belonging and value. These programs, such as Tesco’s Clubcard, drive customer loyalty through points-based rewards rather than direct revenue from membership fees. This difference in approach highlights how UK-based companies leverage customer data and personalized marketing to maintain loyalty, rather than relying on membership fees alone.

For Costco in the UK, maintaining the integrity of its membership model is vital in a market where consumers are accustomed to free loyalty programs. The company’s ability to emphasize the unique value of its membership—access to exclusive products and significant savings on bulk purchases—will be key to sustaining its revenue model in this competitive environment.

Overall, the success of Costco’s membership-driven revenue strategy, whether in the U.S., Asia, or the UK, depends on its ability to balance the exclusivity of its benefits with the needs and expectations of different markets. The recent crackdown on membership misuse is a clear indication of Costco’s commitment to protecting this critical revenue stream, ensuring that its business model remains robust and sustainable in the face of evolving consumer behavior and market dynamics.

grocery-shopper-personas

Measuring and Maintaining Customer Loyalty

In today’s competitive retail environment, measuring and maintaining customer loyalty is more critical than ever. Companies like Costco, which rely heavily on membership models, must continuously assess how their policies impact customer satisfaction and loyalty. Market research provides valuable tools to gauge these factors, helping businesses make informed decisions about their strategies.

One of the most effective tools for measuring customer loyalty is the Net Promoter Score (NPS). This metric asks customers how likely they are to recommend a company to others, providing a clear indicator of overall satisfaction and brand loyalty. High NPS scores are often correlated with strong customer retention, as loyal customers are more likely to continue their memberships and even promote the brand to others. According to Bain & Company, companies with high NPS scores grow at more than twice the rate of their competitors.

Another important tool is customer satisfaction surveys, which can be customized to address specific aspects of the shopping experience. For Costco, this might include questions about the perceived value of membership, satisfaction with in-store experiences, and reactions to recent policy changes like the membership crackdown. These surveys provide direct feedback from members, allowing Costco to identify potential areas of concern and address them proactively.

Additionally, companies can use behavioral data to measure loyalty. This includes tracking purchase frequency, membership renewal rates, and customer lifetime value. For instance, if Costco notices a decline in membership renewals following the implementation of stricter policies, it might indicate a need to reassess the approach or offer additional incentives to retain members.

Impact on Brand Integrity and Long-Term Success

Maintaining customer loyalty is not just about retention; it’s also about protecting and enhancing brand integrity. For Costco, the enforcement of strict membership policies is a double-edged sword. While it reinforces the value of membership, it also risks alienating some customers. This is where market research plays a crucial role—by continuously monitoring customer sentiment, Costco can balance the need for policy enforcement with the need to keep its members satisfied.

Ultimately, the insights gained from market research help companies like Costco maintain a strong, loyal customer base, which is essential for long-term success. As the retail landscape continues to evolve, the ability to measure and adapt to changing customer expectations will be key to sustaining membership-driven revenue models. By staying attuned to their customers’ needs and preferences, businesses can ensure that their loyalty programs remain effective and that their brand integrity is preserved.

Final Thoughts

Costco’s recent crackdown on membership misuse is more than just a policy update; it’s a strategic move that highlights the company’s dedication to preserving the value and exclusivity of its membership model. By enforcing stricter entry and checkout procedures, Costco is protecting its core revenue stream while reinforcing the trust and loyalty of its paying members.

This approach underscores a broader lesson in consumer behavior: in a world where customers have more choices than ever, companies must work harder to ensure that their value propositions remain clear and compelling. Costco’s decision to tighten its membership policies is a reminder that maintaining customer loyalty requires a careful balance between offering value and enforcing the rules that uphold that value.

As other retailers watch Costco navigate this challenge, valuable lessons can be learned about the importance of customer loyalty and the role of market research in shaping business strategies. For those looking to deepen their understanding of consumer behavior and loyalty programs, reach out to us, we would love to help.

Opponents of cannabis legalization often cite concerns about cannabis’s effect on public health, warning that increased accessibility will likely result in an increase in the abuse of cannabis and other substances. However, for a country in the midst of an opioid crisis, with an estimated 47,600 opioid-related deaths in 2017, research is needed to understand the relationship between cannabis and pharmaceutical use, as cannabis is often cited as an alternative to opioids for pain management. Research conducted by Kadence International, a global boutique market research agency, indicates a nation-wide increase, in the past year, in adult use of cannabis to treat pain and other medical issues, often as a substitute for pharmaceuticals or alcohol.

In a national survey with over 2,000 adults, Kadence found that one in five (20%) adults report they have used cannabis in the last 12 months. Of those cannabis consumers, eight in ten (81%) use cannabis for at least one medical reason, an increase from 72% in 2018. Compared to 2018, significantly more adult cannabis users reported using cannabis to help treat anxiety (48% to 58%), sleep issues (39% to 53%) and pain or inflammation (40% to 49%). Many say they use cannabis for more than one of these therapeutic reasons.

While the vast majority of adult cannabis consumers believe that consumption of cannabis is safer than alcohol (92%), people who say they use cannabis for at least one therapeutic reason are more likely to state that their alcohol consumption has decreased as a result of their cannabis use (51% pain users, 48% anxiety users, 49% sleep users vs. 42% average). They are drinking less because they perceive cannabis to be less harmful, healthier and state that cannabis helps them feel better than alcohol. When asked whether they would prefer to consume cannabis or alcohol while doing different popular activities, the vast majority of these users would prefer cannabis over alcohol in nearly all situations. How else do these therapeutic users differ from the average cannabis consumer?

More than 1 in 4 (27%) adult cannabis consumers report that they use cannabis as a substitute for at least one prescription or over-the-counter medication. They are most commonly replacing pain medications with cannabis (21%), followed by sleep aids (17%) and anxiety medications (17%). Many choose cannabis over traditional pharmaceuticals because they feel it effectively relieves a combination of their symptoms. A notable 14% of adult cannabis consumers are using cannabis as a substitute for prescription pain killers/opioids, largely due to perceptions that cannabis is a “much safer”, “more natural” way to treat pain with “fewer side effects”. Interestingly, although there is no difference between opioid replacers and other cannabis consumers, with three in four living in states where cannabis is at least medically legal, opioid replacers may be obtaining their cannabis from the black market more than the average US cannabis consumer, as 61% said they usually buy from somewhere other than a dispensary, compared to 52% of total cannabis consumers.

Kadence’s data indicates there may be an opportunity for medical professionals and dispensaries to help combat the opioid crisis by targeting these black market cannabis purchasers, particularly in light of the recent vaping illnesses, thought to be coming more from black market products than regulated products available in dispensaries.

Stay ahead

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

Across all of these findings, there are no significant differences between cannabis consumers in medically or recreationally legal and non-legal states. Furthermore, the research found that not only cannabis consumers but the majority of adults nationwide believe that we are just beginning to discover the power of the cannabis plant for medicinal purposes (69%) and state that cannabis should be taken off the schedule 1 drug list so that its medical benefits can be explored more freely (69%).

The key point is this: regardless of whether or not they live in legal states, the data shows that adult consumers are already turning to cannabis for symptom relief, often choosing cannabis over pharmaceutical treatments or alcohol.  With increased accessibility, product sales could be more effectively converted from the black market into legal channels where they can be regulated appropriately and taxed handsomely. This also makes more thorough research possible for pharmaceutical companies, medical professionals and public health researchers, and expands product innovation opportunities for brands and manufacturers across a wide range of categories. After due diligence, ultimately, the potential health and well-being benefits of cannabis can be made available, through appropriate channels, to more adult consumers in need.

 Download the full research to learn more about trends in cannabis usage in the US. 

With legalization of recreational marijuana becoming more commonplace alongside a continual rise in the availability of cannabis-based products, it is a turbulent but exciting time for CBD. But do people really understand what CBD is and what it does? Why do people use CBD products … and how are people using it compared to cannabis?

According to our recent study on the topic, CBD usage is rapidly growing in popularity.  4 times as many adults are using CBD products in 2019, compared to 2018, growing from 5% to 18%. 

Unsurprisingly, there is considerable overlap between CBD and cannabis usage, with half of CBD users also using cannabis.  That said, CBD growth is also coming from those who don’t use cannabis. 

Many CBD consumers use these products regularly to address a range of ailments.  Roughly half of CBD consumers use CBD at least once a week, while very few only use the product a couple of times a month.  Most (60%) use it for pain relief or inflammation; the next most common reasons are anxiety (45%) and sleep (33%).

Stay ahead

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

Despite its increasing usage, there is still a large gap in product understanding. Only 24% of US adults believe they are moderately or extremely familiar with CBD, and, more surprising, only half of CBD users (57%) believe they are. 

There are also many misconceptions regarding CBD products. 25% of US adults believe that pure CBD can “get you high”, which is not true. CBD users tend to be more knowledgeable about these products but many are still misinformed.  For example, 13% of CBD users believe that it can get you high.

“CBD is a fantastic option for many, but it’s a very complex landscape for consumers to navigate.  One sees CBD advertised with specific medical claims through dispensaries in medical cannabis states.  Then one sees hemp-derived CBD available at the local natural foods store as a dietary supplement — but without medical claims and available in isolate form, full-spectrum form, or hybrids of the two” comments CBD Industry Executive, Ashley Grace.  “It’s a lot for consumers to decipher and it all doesn’t work the same.  The dispensary CBD might get you high, the isolate CBD may not work at all or might stop working quickly, and many ‘full spectrum’ CBDs are really just oils spiked with isolated CBD.  Then you have US-grown or imported.  While it’s difficult for consumers to find the right products to meet their needs, the good news is there are some amazing products available that are literally changing people’s lives,” said Grace.  

It is important to note that the average CBD user looks just like anyone else. There are no major differences in gender, employment, income, marital status, or geography when compared to the average American adult. Although, younger adults (age 21-44) are more likely to have tried CBD. Interestingly, they are also more confident that they are familiar with CBD but more likely to be misinformed about it.

Download the full report to explore the findings in-depth.

Cannabis talk in the US media is unavoidable these days as changing legislation and recreational dispensaries continue to open up across selected states in the country.  How can companies outside the cannabis space take advantage of this growing trend? Our research with over 2,000 US consumers sought to understand this new opportunity for brands.

One-in-five (20%) adults nationwide report they have used cannabis in the last 12 months. Of those, two-thirds (66%) consume regularly (at least once a week). While two thirds tell us that consuming cannabis has not changed their social life in any way, 17% are staying home more and 8% say they are going out more. 

Ultimately, this opens up a variety of opportunities for marketers to offer products and services that are tailored to the needs of this group. Meal kit delivery companies could make “dinner party boxes” suited to a night in with friends. Game makers could create games that facilitate creativity and fun. Netflix or Amazon could offer content particularly suited for cannabis-influenced viewers. And clearly, snack makers could have a field day.

In the survey, adults were asked whether they would prefer to consume cannabis or alcohol while doing different popular activities. While clubbing and hosting a dinner party are more likely paired with alcohol, for many other pastimes, cannabis wins.  At home, watching TV/ movies, doing chores, playing board games and socializing with family and friends are all activities where cannabis is preferred.  Going to the movies or to watch live music are also events where adults would prefer cannabis.  A host of other activities are decidedly not alcohol activities, but may be considered “cannactivities” – yoga, gardening, outdoor activities, going to the spa, cultural events and reading.  See the table below for details.

How can your business take advantage of this fast-growing industry? Download the full research report to learn more.

“For each of the following, would you rather do this activity while consuming cannabis, drinking beverages containing alcohol, or neither?”

Trusted by

Trusted by