Wouldn't Costco's "Executive Membership" with it's 2% cash-back reward be a problem for their business model?
As I understand Costco's business model, it's essentially to try to be "break even" on their main product categories, because as a member you're essentially expecting to pay wholesale "warehouse" price, plus a reasonable markup that just covers the cost of doing business. Then, your membership fees are intended to be the main "profit generator" for the company.
The standard membership is $65/year, flat fee, gets you in the door and the ability to purchase. However, if you opt for the $130 executive membership, you get a cash back reward of 2% of your annual purchases.
The problem as I see it is this: the only reason to spring for the executive membership is if that 2% reward exceeds $65/year--the difference between the two membership levels. And then you have people like me, where my annual reward check is often in the $250+ range, which means that taking out the $130 executive membership fee, Costco is essentially paying me >$100 a year to shop there. (Yes, if you do the math, that means I spend an absurd amount at Costco every year.)
How does that not break the business model? Your biggest customers are potentially either shopping for free or being paid to shop there!
Make it make sense.
