Is the freeloading era finally coming to a close?
That’s what some are asking in light of the news that Costco COST, +0.46% is implementing policies that will make it harder for nonmembers to shop using someone else’s membership card. That follows efforts by streaming platforms such as Netflix NFLX, +1.04% to clamp down on password sharing, to say nothing of the establishment of rigid paywalls on various news and content websites.
In effect, it’s a sea change in the consumer world, say experts in finance and marketing. What used to be free — even if via less than fully legitimate methods — now often carries a price.
And while consumers may carp about the changes, many are ultimately willing to accept them — and finally pony up.
“The freeloaders get it,” said Mark Boidman, head of global media for Solomon Partners, a financial-advisory firm.
Certainly that reflects what has happened with Netflix. The streaming giant announced last May that it was prohibiting subscribers from sharing their account with those outside their household. Instead, it gave them the option to add on such users for $ 7.99 a month or have them create and pay for their own accounts.
The change had some immediately crying foul — “I’m not paying eight more dollars, I’m just not,” one Netflix user told the Washington Post — but in the end, Netflix profited from the move. The company picked up 10 million subscribers last year, bringing the total to 247 million.
It’s too early to tell how the situation with Costco will play out. The membership-based warehouse chain is testing a membership-card scanning system at entrances of select stores instead of just letting shoppers flash the card to an employee standing guard. It’s also now requiring those who opt for self-checkout to show proof of membership at the time of purchase.
The efforts are being put in place for a variety of reasons, Costco executive Richard Galanti told MarketWatch. But a key one is indeed to curb the problem of people avoiding paying membership fees by using another member’s card — something that became a particular issue when Costco initially rolled out its self-checkout option without requiring proof of membership at the register.
“Membership accounts for $ 4.6 billion in revenue for Costco, or 72% of the company’s profits.”
Costco’s policy has always allowed members to provide a card to a second person in their household, but it did not let members freely give out a card to anyone at any point. Galanti said the retailer was essentially willing to relax its rules during the height of the COVID-19 pandemic, when many members asked friends or family to shop on their behalf. But now Costco wants to end the practice of people piggybacking on someone else’s membership.
As Galanti explained, there aren’t that many people taking advantage of the system, but it’s enough to cause concern. “Even small percentages are meaningful,” he said.
Which sheds light on why the whole freeloading era may be ending, experts note. Companies need to boost revenue — and membership and subscription fees are too important a source to ignore. In the case of Costco, membership accounts for $ 4.6 billion in revenue, or 72% of the company’s profits, according to a Motley Fool report.
As for the streaming services, subscriber growth often occurred naturally during the height of the COVID-19 pandemic because people were confined to their homes and looking for entertainment options, Boidman noted. But that situation has changed now that we’re well past the lockdown era, he explained, so it should come as no surprise if services see curtailing of account sharing as a new way to boost subscription numbers.
Craig Agranoff, a Florida-based marketing professional, said that giving people a free ride, at least for a while, can be a form of marketing unto itself, albeit a somewhat sly one. It’s a way for a company to introduce people to a product, with the idea being that they’ll become so hooked that they’ll pay if they’re eventually required to do so.
“It’s one of those dark and hidden marketing tactics,” Agranoff said.