Costco · Strategy · Mid · 45 to 60 minutes

How should Costco verify members at entry?

Costco is a membership based warehouse retailer that sells a limited assortment of goods at low prices through large physical clubs and online. Answer this product management case and get it graded line by line against a weighted rubric.

Strategic thinking
Trade off analysis
Customer empathy
Metrics design
Competitive reasoning

The situation

Costco's club experience and membership leaders have asked you for a recommendation on whether Costco should change how it verifies memberships at the warehouse entrance. Costco earns much of its profit from annual membership fees, so making sure only valid members access the club matters to the business. But the door is also the first moment of the shopping experience, and any extra check can make loyal members feel delayed, questioned, or frustrated. The issue has become more urgent because leadership wants to protect the value of paid membership while shoppers can easily compare Costco with retailers like Walmart and Target, where entering the store is simpler. You need to advise on the strategy for entry verification across physical clubs. The tension is clear, stronger enforcement could improve compliance and support membership economics, but it could also add friction, slow lines, and damage the experience the membership is supposed to protect.

What to produce

Write a 1 to 2 page strategy memo.

Your answer must

Define the core problem, including why entry verification matters to Costco's business model and where customer friction shows up.
Present 2 to 3 strategic options, including keeping the current approach, and compare their benefits, downsides, and likely effects on members and store operations.
Recommend one approach and explain why it best balances membership protection with ease of entry.
Include 3 to 5 success metrics, with at least one business metric, one customer experience metric, and one operational guardrail.
Outline a pilot or rollout plan, including key risks, assumptions, and how you would learn before scaling.
Use Walmart and Target only as comparison points to sharpen the analysis of Costco's model, not as direct copies.

Constraints

Do not propose removing the paid membership model or turning Costco into a general access retailer.
Focus on entry verification in physical clubs, not a broader pricing, assortment, or ecommerce strategy.
Your recommendation should be feasible within existing club operations and should not depend on a major store redesign.
Stay conservative, the source material only supports the facts that membership fees are central to profit and that enforcement can create customer friction.

Format

Use sections for problem, options, recommendation, metrics, and rollout.

How Costco actually played it

Looks at Costco's membership-fee model, where fee income makes up much of profit, and how membership verification at the door creates friction for customers. It compares the model with Walmart and Target.

Two-part pricing makes membership a profit engine
Enforcement can damage the experience it protects
Compare models across competitors

Built from Making the Dark Side of Two-Part Pricing a Little Brighter? The Case of Costco's Entrance Scanners by The Pricing Conundrum.