Benoliel resists retail media trends, insists it's all word of mouth

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Joel Benoliel considers advertising an addiction.

And as senior VP-membership and marketing at Costco, it's his job to just say no: No to the occasional print ad. No to the allure of short-term gains from a quick TV spot. No, in fact, to any form of conventional ad.

"It's not our culture," said Mr. Benoliel, 61, who also holds a trio of other titles at the warehouse retailer: chief legal officer, corporate secretary and senior VP-general administration. "It's like an addiction. Once you start, you can't stop."

It's this unconventional philosophy that allows Mr. Benoliel to easily dismiss the plan by Wal-Mart Stores' Sam's Club to hire an agency and up its ad spending from an estimated $15 million to as much as $100 million.

no ad war

Retail watchers consider it unlikely there could ever be an advertising war-despite the continuing price war-between No. 1 Costco and No. 2 Sam's Club. Costco's marketing chief confirms it.

"Don't expect us to follow suit," Mr. Benoliel said. "That would take warehouse retailing in a direction it's never come before, and that $100 million has to come from somewhere. When you increase this spending, you decrease profitability. They seem willing, in the short term, to bleed to buy the business.

"With us, marketing is really talking to our members," he said. "Marketing to us is completely different from the way other retailers view it. It's all about word of mouth."

Although there's no Costco advertising, the retailer publishes a monthly magazine titled Costco Connection, produced in-house and considered its most influential ad medium. Only 5 million members get copies by mail, but Costco distributes millions more in its stores. Yet even this marketing vehicle is practically self-supporting, garnering co-op dollars from brands that place coupons in the publication.

The retailer relies on buzz and the word of mouth produced from its famed treasure-hunt shopping experience. The anti-marketing marketing culture that pervades the company has helped push Costco to the No. 1 position in the warehouse segment and the No. 5 retailer in the nation, with $52 billion in sales in 2005.

But the treasure-hunt/no-ads approach could end up hurting Costco, despite its affluent customer base, as gas prices continue to climb, said Philip Rist, VP-strategic initiatives at BIGresearch. "Consumers, when they are stretched, rely on traditional advertising like newspaper inserts," he said. "They want to plan where to go before they spend $3 driving."

Mr. Benoliel began his career at Costco 14 years ago as head of real estate, transitioning to the marketing role in 2001. Since Mr. Benoliel also had a law degree, CEO Jim Sinegal, who started Costco in 1983, asked him to also serve as general counsel. He now oversees the retailer's 17 in-house attorneys.

NO-FRILLS culture

It was Mr. Sinegal who laid the groundwork for the no-frills culture by harshly scrutinizing the typical expense lines on the balance sheets of other retailers, and advertising was among the first to go, saving Costco an estimated 2% of sales.

Mr. Benoliel, married for 35 years and father of an adult son, said his background in real-estate development and running shopping centers taught him the value of creating relationships with customers based on trust without having to rely on a big media budget. At Costco, his focus has always been on protecting the special relationship the retailer has with its 36 million cardholders-not winning creative awards or creating a clever TV spot.

"There's an understanding by our members that they are in a special relationship," he said.

Just Asking

Joel Benoliel


You're a lawyer. How did you end up in marketing? I'm the accidental marketing person, but I love it.

Before Costco, how much exposure did you have to marketing? I was in real estate development, and I ran shopping centers.
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