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July 20, 2009


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Frankly I don't know why these stores have memberships in the first place.

But given that they do, the idea of letting a membership expire and to gain some time on the "gap" is in fact a trick where you are getting a little free money out of them that they don't need to give you. I would encourage you to think aobut it this way. If you have a boat and you insure it why don't you ask your insurance agent if you can insure it just for the summer months? (atleast for liability if you are worried about it burning up in your garage over the winter). They will tell you no way. The cost to insure it is for the entire usable season and if you try to insure it just for 6 months and think your insurance will be half what you are paying it won't work that way.

I would consider the membership trick to be the same thing.

In addition there are real costs to them to take a cancelled membership and renew it in admistrative costs. Someone has to actually go in and reactivate the account, perhaps gather some new information. Its a labor cost. Its much cheaper to just get you to send in your renewal dollars.

So if I was them I would solve that in a real simple fashion. Just charge a reactivation fee of 20 bucks or something like that if you renew within a year.

If you have a cell phone and use it only 20 days/30 days you will pay for the whole month. Samething for the TV services, samething for all services. Samething for the gym that you have to pay a bunch of money for "administrative purpose" when you open an account. Why Costo would be different? You tried to play Costco with their rules, they adjusted it to be fair to everybody. I do not see anything wrong with Costco policy about the membership.

BJ's does the same thing, or at least htey did.

We just renew each year, though, because we get gas there and that pretty much covers the membership fee anyway.

Blaine - you're right, BJ's does the same thing. I also found the same issue with a professional society subscription as well though I never renewed either membership much more than a month after they expired.

I haven't been a Costco member in years so I can't vouch for this, but I had read in another blog posting on this topic that if you request that they date the membership term as of the day you are actually renewing they will do it, even if it is within the 2 month period. Of course, most people wouldn't know to do this or even that Costco backdates in the first place.

I agree--Costco is trying to rip you off. Most people would a membership would shop there 2-3X per month for groceries & gas. It's not like you go only once or twice per year!

It's totally different than insurance where you are paying in case something happens that you have no control over. A Costco member pays exactly so something CAN happen that they have control over--shopping at the store! And cell phone contracts are notoriously unfair and may yet be outlawed.

Some magazine subscriptions also rip you off this way--you subscribe for a year in June, and they send you 6 old issues and only 6 new issues. Rotten! Who wants to pay for old issues of a periodical?

Since we use our Costco card every month (either for a discount or shopping), it's not too much of a big deal for us. I also was told by a friend that if you talk to customer service about the lapse period, they'll adjust for the day you actually renew.

In other words, a bunch of people tried to game the system, Costco saw through it and changed their rules.

Seriously, it's a $50 membership fee. If we're really going to get all hung up on $8.33 (the cost of 2 months of membership), we should just all quit and go home now.

Or why not take this to its logical extreme? Join today, do your shopping, cancel tomorrow. When you need to go back in two months, repeat the cycle. Assuming you go six times per year then your membership only costs $0.82!

There's frugal, and there's cheap. This is cheap.

Interesting. I still like Costco.

Apex --that is exactly how boat insurance is sold. For example, my premium (liability, theft, etc) is based on a layup period of Nov 1 thru March 1st. If I want to use my boat during the winter I have to upgrade to a 12month policy.

John, I believe your analogy is flawed. The OP was not expecting to be credited for unused membership. If you signed a 1yr cell phone contract, let it expire, then 6 months later decided you wanted a cell phone again would you expect to pay for the 6 months you did not have one? I wouldn't, I would expect my new 1yr contract to actually go for one year. Anything less would be a rip and this is exactly what Costco used to do, and as we see still does to a lesser extent.

This is strange, you'd think Costco would just automatically renew you at the end of the year and bill you. Many companies with annual memberships do this because it does greatly reduce the cancellation/renewing hassle (only the people who took the initiative to actually cancel the membership at the end of the year would do this, and I'd think that would probably be just the few of us that read/write on these blogs...).

Apex -- I have insured both a car and a motorcycle during the summer months, leaving them only liability during the winter. My insurance company not only told me "ok", but said that it is quite common.

Back dating is theft no matter what anyone says. If you let your subscription expire for 2 months that is 2 months that you didn't buy anything from them and if you haven't been in the store how can anyone with a brain justify charging for something you did not use? And you can get any type of Insurance coverage you want any time you want provided what you are insuring is paid for. Who still buys memberships to gyms anyway?

Costco automatically renews me at the end of each year and adds it to my statement.
The $50 membership fee is a great deal considering the money we save.
I feel that unless you live alone Costco is a great deal.
The biggest complaint I hear is that you have to buy larger quantities of each product than you normally would in a supermarket - but for me that's not a problem. Some of the items are sold in quantities more suitable for restaurants but those aren't the ones I go there for. I don't need a 25lb bag of rice, 2 gallons of ketchup or 5 gallons of vegetable oil for example, but I will buy 24 toilet rolls because of the cost saving.

Dan, I totally agree. It sounds like someone is trying to game the system, got caught and is mad about it. From my understanding most of Costco's revenue is from the membership fee. This is how they keep the costs low.

@Greg and @df:

Perhaps I misunderstood how boat insurance was priced because I asked about only insuring it while I used it and they said I can't just insure it for 6 months that the policy assume you only use it for 6 months given I live in MN. So I suppose its like df said that the 1 year policy is already only charging me for use during the 6 months that I could use it. Comprehensive would still cover me for the whole year however. So in that sense perhaps my example was not the best.

I agree with most others here though that this is trying to game the system and the person trying to do the ripping off here is the one trying to cancel for 2 months and then renew during the time they normally would be in "gap"

A better example might be dental insurance. So you have a checkup every 6 months. How about signing up for dental insurance, in January, getting an immediate checkup, getting a follow up in July and then cancel and renew again in January. Would you expect to pay for only 7 months of insurance? I mean you don't need it for those 5 months while you are waiting for your next scheduled check up.

Thats what this is. Apparently FMF times his costco purchases every 2 months (or atleast can do so if desired). Presumably costco considers the membership to be something that pays for yearly access understanding that its a bulk store and the idea is not to shop there twice a week. So given this people could clearly stock up and then not need to come back for a few months but this defeats their membership purpose.

I still would say the easiest thing to do would be to just charge an administrative re-activation fee for anyone who had a previous membership in the last year. You can't argue that is back-dating, its just a fee they charge for cancellation and renewal.

I am definately on Costco's side on this. It's nickel a diming to try these kinds of things to save a few pennies. And in the end, no one is going to retire 1 day sooner from things such as this.

"A better example might be dental insurance. So you have a checkup every 6 months. How about signing up for dental insurance, in January, getting an immediate checkup, getting a follow up in July and then cancel and renew again in January. Would you expect to pay for only 7 months of insurance? I mean you don't need it for those 5 months while you are waiting for your next scheduled check up."

Except you CAN do that with dental insurance, depending on your insurer. People don't have insurance for short stretches of time for various reasons. When you decide you want dental insurance again, they don't charge you for the time you didn't have insurance. That makes perfect sense because when you don't have dental insurance, they are not going to pay if you accidentally chip your tooth or get a cavity in the "gap" period.

To me this is more like scuba diving insurance. I don't keep renewing my diving insurance every year because I don't go diving that often. I wait until I'm going on a dive trip and get the insurance (which generally lasts for a year).

Jordan, this brings up a good discussion point (completely off topic by the way but it does have some relevence) that is at the front of the headlines - US government health care. Your points remind me of the issue the state of Mass is facing. They offer health insurance. What has happened is that the cost is significantly higher than expected. The reason is that people buy the health insurance then use the heck out of it for a few months then drop it. The result being a person spends way more than they pay essentially cheating those who continuously pay as well as the state. The whole thought behind insurance is that everyone pays a lower amount so the high costs are shared but to less cost to the insured. I don't know the business model of Costco but my understanding is that the membership fee is the source of significant revenues such that products can be sold at or near cost. If this is the case then those members "gapping" membership are cheating those members who pay on time.

By the way to FMF, medical insurance would be an interesting topic to discuss if any good subjects come up. I pay a lot of money each month and this would be a great area to reduce cost.


Thats a great point and was my point with the dental insurance.

I don't know what dental insurance providers let you do (most are through work anyway so it wouldn't matter from a personal perspective). But I do know that if everyone was getting their own insurance and using it twice a year for 7 months and then dropping it for the last 5 and then renewing (yes you wouldn't get coverage for a chipped tooth in those 5 months) but its a mathematical certainty that if everyone did this eventually the costs for insurance for the 7 months would almost equal the old cost for 12 months (excepting the chipped tooths that they didn't have to pay for in the 5 months).

That is the point. If a fee is charged that is supposed to provide on going coverage over a fixed period of time but users of that service realize there are gaps between their regular uses under which they could let that fee lapse because they receive 99% of their benefits during the non-gap periods then they have received nearly all the benefits without paying the typical full costs associated with those benefits. When this happens those costs must be passed on to everyone else.

The free-loader debate is also quite interesting. Are the people who only shop once every month or two the ones freeloading by trying to not pay for one of their off-periods. Or are the people who shop at Costco a lot (once a week or two) the ones freeloading off of those who do not shop there as much. Perhaps the fee should be based on usage - this "gap" idea is a very blunt instrument to try to get closer to such a system.

This is not illegal at all. It depends upon how the membership is structured.

If it is structured such that, if you want the priviledges of being a member during the one-year period after your initial membership period is up, you must pay the membership fee, then Costco is exactly correct (granted it's not that customer-friendly).

If this is spelled out in the fine print such as their TOU or Terms of Service, then I don't think there's any valid legal recourse.

Bad Brad --

Maybe not illegal, but certainly deceptive. Not something I've come to expect from a company I generally admire. Seems out of character to me.

I went out to a nightclub last week. I was so mad that the band went on break for almost half an hour every two hours! I paid for that entertainment, not to sit there while they are on break. Should I have to pay for the time I wasn't "using" them? Shouldn't I have to pay only 75% of the fees, since I wasn't using the band for that time on break?

Just talk to the membership desk, they are more then willing to make you a happy member, the only way costco makes money is by the memberships, just ask the CEO Jim Singal how much he makes a year and you will be shocked! The reason why everyone is so willing to give you great member service is because the employees are taken very well care of! So stop the bitching and go buy you 50 gallons of ranch!

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