Costco isn't just great at hunting down good deals, they're also great at getting you to
spend your cash.
From the second you step inside Costco, you grocery budget is in extreme peril, and it
happens faster than you think.
Here's how Costco tricks you into spending more money.
All you came for was toilet paper and energy drinks, but to get there, you're going to
have to walk past aisles upon aisles of other products.
There's a reason for that!
Costco's warehouse landscape can be a daunting thing to navigate, and there are booby traps
to catch your cash all over the place.
One way the store works to get more of your money is by strategically laying out items
in a way that encourages impulse spending.
It's similar to how grocery stores have candy bars and magazines in the check-out line,
but Costco takes it up a notch.
It's nearly impossible to get around the store without encountering a few pitfalls.
According to a 2018 survey by Slickdeals.net, the average shopper in the U.S. spends around
$5,400 per year on impulse buys.
Costco knows that, and their layout is designed to capitalize on those habits.
The store may place items that don't seemingly belong together in order to encourage impulse
buying.
"I didn't know we really carried these."
"These?
You guys got everything in here."
"Yeah, we sure do, I mean, is it working out for you?"
"It's working fine."
Regular Costco shoppers know that it's not uncommon to see products offered during one
trip that may not be available even a week later.
The store regularly rotates products in and out.
While this can be nice because you never know what great find may be awaiting you on each
trip, it also creates a sense of urgency that many buyers can't resist.
According to Fast Company, Costco is an expert at using this instinct against us.
They say that out of the 3,600 different items on Costco's shelves at any time, as many as
1,000 of them may be limited time offerings.
Sure, customers can score some great buys, but the "while supplies last" warning also
ensures they likely won't risk passing up a bargain.
After all, who knows when you may find another 40-gallon fish tank or trampoline at such
a low price.
Costco has a pretty sweet return policy and will take back almost any item, even months
from the time you purchased it.
Pretty swell of them, right?
In reality, this "risk-free 100 percent satisfaction guarantee" return policy isn't just their
way of showing customers extra special attention.
Billion dollar companies typically aren't in the habit of that, and it's actually an
incredibly smart way of marketing that gets you to spend more.
By removing any self-doubt that you might get stuck with an item you don't like, Costco
is betting that you'll be more likely to make a purchase.
Because, hey, if those blue jeans make you self-conscious after a month, you can always
return them.
What's especially weird is that psychologists and marketing experts have found the more
lenient a store's return policy, the less likely the customer is to return the item.
After all, without that strict deadline for returns, there's no rush to get it back to
the store.
And considering that 91 percent of consumers say a store's return policy factors into a
buying decision, a generous return policy is a smart move.
You can't argue that Costco offers some pretty lucrative deals on gift cards.
Just about every gift card under the sun is available, but the Costco Cash gift card is
the real money deal for the store.
The company knows that people are going to snag them up as easy gift items, and this
gift card strategy works several ways toward getting you and your loved ones to spend.
For starters, it gets old customers and even new customers into the store.
However, the big way that Costco capitalizes on those gift cards though is by using them
to pull a few extra dollars out of the gift card recipient's wallet.
That's because most of us have a habit of spending more than the amount that's on our
gift cards.
In fact, when you arrive at Costco with the intention of using that gift card, you're
likely to spend 20 percent over the value of your gift card.
Shoppers with gift cards are also more likely to buy products at full price, whereas they
might hesitate or wait for a sale without one.
If you're a regular shopper at Costco, then you've probably experienced the frustration
of grabbing something one week and then going back to the same aisle a few weeks later,
only to realize it's not there anymore.
This is known as the Costco "treasure hunt" and it's all part of their psychological game
to separate you from your hard-earned cash.
"We have a general layout that we want people to follow, we have what we would call the
horseshoe, and they're gonna go up and down the main aisles."
Many of the aisles also don't have signs.
According to CBS News, this makes you look even harder for that jumbo bottle of shampoo
that keeps getting moved from week to week.
When you consider the sheer size of a Costco store, looking for a single staple item that's
always on the move can turn into a real treasure hunt and a much fuller cart than you planned
on.
People like to feel like they're a part of something, and Costco is capitalizing on this
with a range of memberships to keep you feeling like a VIP.
The trick is, those memberships not only get you in the door, they keep you coming back,
too.
After all, you're paying for the membership, so you might as well use it, right?
Make no mistake about it, you can certainly find some really great deals by regularly
shopping at Costco.
Unfortunately, finding just a few great buys at Costco can lead to frivolous spending in
other parts of the store.
In retail, this is called the "loss leader" strategy.
How it works is that a retailer will price one item below its market value to persuade
consumers to make other purchases on products that have higher, more profitable prices.
After all, you saved a ton on that one item, so it doesn't hurt to spend a little more
on something else, right?
One of Costco's very well-documented loss leaders is its rotisserie chicken.
Costco loses as much as $40 million a year selling them at an incredibly low cost.
So why do they keep doing it?
The chickens encourage people to go to Costco, and in turn, people end up spending more than
they had planned.
Pricing something at 99 cents versus a dollar is an old retail trick.
Our brains place more emphasis on an item priced at $2.99 versus $3 than they do in
the price difference between $2.59 and $2.60.
So how's Costco work this to their advantage?
It's all about their price codes.
Their prices are all over the map, ranging from items ending with 99 cents, to 79 cents,
to 88 cents with an asterisk.
There are even items priced evenly on the dollar.
To the untrained eye it might seem like random pricing, but those prices reflect just how
good a discount an item really is.
Prices that end in something like .49, .79, or .89 indicate that Costco got a deal from
the supplier and a bargain is passed on to the consumer.
Items priced .97 indicate that management has marked these items as stock priced to
move.
Items priced .88, .00, or with an asterisk to the right of the price indicate the item
is either discontinued or damaged and will not be replaced.
These items tend to be especially discounted.
As for prices ending in 99 cents, these items are not marked with a discount price.
Because of the left-digit effect though, our brains see Costco items priced at $9.99 as
a much better deal than $10, when in fact, the difference is only a penny.
No trip to Costco is complete without a trip to the food court and one of their $1.50 hot
dogs, at least that's how Costco wants you to feel.
Costco's hot dog and soda combo has been the same $1.50 price since 1985.
"I mean, a dollar fifty for a quarter pound hot dog.
And a drink!
Tres bien, right?"
The company doesn't make any money on them and they're a total loss leader, similar to
the rotisserie chicken.
Costco co-founder Jim Sinegal told The Seattle Times:
The company isn't messing with its hot dog and soda combo either, because it draws people
into the food court, which in turn, keeps people in the store longer to potentially
spend more money.
Costco's chief financial officer Richard Galanti told CNN:
If you think you're safe eating your hot dog after you've already checked out, think about
this.
While you sit and devour your meal, you have plenty of time to watch the carts of everyone
else on their way out the door: how many of those carts do you think will contain something
that reminds you to pop back in for one more thing you forgot on your shopping list?
Some stores you walk into and the place just looks extravagantly expensive.
Costco is definitely not one of those stores.
The products are stacked on pallets, the floors are cement, and fluorescent lighting hangs
from exposed beams.
It all adds to a warehouse vibe that's meant to convey lower prices.
"You know, we may not be as big and fancy as some other stores, but what's so fancy
about high prices?"
Costco purposely tries not to make their stores look fancy, which probably makes you feel
like their merchandise must not be fancy, either.
However, if customers feel the store isn't spending a ton on decor, they're more inclined
to feel they're getting low prices and load up their cart.
You could make a meal out of walking around Costco and just eating free food samples.
Try that on an empty stomach and you just might wind up buying a ton of stuff that wasn't
on your shopping list.
People love free food and giving away a taste can really boost sales.
"I like the cool fiesta flavor."
"I don't like this.
But it's free, so I will continue to chew."
Free beer samples at national retailers have been shown to increase sales by as much as
71 percent, according to The Atlantic.
Meanwhile, free pizza samples are a tactic that increases pizza sales by 600 percent.
Not only does a free food sample translate to increased sales of the sample product being
offered at Costco, but it reportedly makes for more loyal customers.
There's no question that Costco crams a lot of different stuff under its enormous warehouse
roof.
What you probably won't find though is a huge variety of any one particular product.
Yes, you'll be able to find a huge bottle of mustard, but you're probably not going
to have as many different mustard varieties and brands to choose from as you might find
in the typical grocery store.
This is yet another example of Costco using some psychology to separate you from your
money.
Marketing consultant Pam Danziger told CNBC:
"There was a research study in marketing that if you offer people 24 different types of
jellies, you’re not going to sell as many as if you offer them six.
Making people decide, that causes confusion, and they ultimately decide to walk away.
At Costco, you don’t have to make those decisions."
By offering up an item in bulk with just one or two varieties to pick from, Costco ups
its chances of making the sale.
Even if the customer doesn't need a giant bottle of aspirin, they're still more likely
to buy it than if they had 12 different-sized bottles or brands to choose from.
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