Why do we get addicted to Costco? | The Press

There has been talk since yesterday of slowing down, but at Costco, that never happens. Stores are emptied and restocked at full speed, every day. At the checkouts, customers involuntarily participate in a perpetual race against time. All this seems very chaotic when on the contrary, if the pool of addicts and the profits are so large, it is thanks to a recipe executed with military precision.

The ingredients of this recipe that turns members into fans are quite well known. But the American magazine Fortune^⁠1 still manages to teach us many things, notably about the extent of the management team’s knowledge in psychology.

Costco’s success has always been based on a clever mix of deals on everyday products and treasures, those unexpected products that provide an exhilarating adrenaline rush. One example among many: jars of La Mer facial cream at US$600 each, a brand associated with luxury stores. Fortune says that Costco had cleverly placed the precious ointment between Irish Spring soap and Aveeno lotion, in a small number of branches.

The retailer had also purchased few. Deliberately. “The idea was to give a handful of members the triumphant feeling of having found something truly special,” says retail journalist Phil Wahba. The idea was not so much to save customers money. Rather, we wanted to impress them, build their loyalty, give them a story to tell, which is what many members do on social networks, in fact.

The story of La Mer cream strategically placed between two ordinary products represents a rather extreme example, but the principle of the treasure hunt is used extensively. Often at the end of the aisles, sometimes right in the middle. Adidas running shoes, inflatable spa, giant poinsettia, electric bike… If you’ve ever hopped on the big tub of pistachio spread imported from Italy, you understand the feeling.

With its prestige items, Costco also wants to send the message to the rich that its no-frills warehouses are made for them. In Canada, you can buy gold bars^⁠2 at $3,330, a soccer jersey autographed by Cristiano Ronaldo at $999, a white gold necklace with diamonds at $35,000. On the American site, I found a set of six Château Petrus bottles for $35,000 US ($47,800 CAN) on presale.

Even Billie Eilish and Lana Del Rey have already publicly shown their love for Costco. The kind of free publicity every business dreams of.

The absence of posters to identify the departments is intentional. This encourages customers to do all the rows in the hope of stumbling upon a “wow” product. Scavenger hunting generates about 15% of Costco’s sales, but contributes much more significantly to customer loyalty.

It’s also no coincidence that high-end televisions are just steps from the entrance. Costco wants to remind us that it is possible to make your membership card profitable with a single purchase.

The famous fence is just opposite. Each product there is carefully chosen to impress customers from their first step. In fact, everything must be chosen wisely, because the paradox of the range within huge stores is at the heart of the strategy. Each “warehouse” offers fewer than 4,000 products, which compares to 25,000 in certain supermarkets in Quebec and 120,000 in American Walmarts.

The advantages of this formula are multiple. First, it allows Costco to order very large quantities of each product and thus become a priority customer for its suppliers. This can be seen in the seasonality: the holidays and summer always start earlier at Costco than at other stores.

Then, the limited choice, generally two brands per type of product, saves customers from headaches. The phenomenon is known to psychologists and documented.

Customers become paralyzed when there are too many options, fear making the wrong choice and end up buying nothing. The third advantage is the feeling of confidence it provides. Customers know that Costco has done its homework before offering a product and that they can buy it with their eyes closed. At worst, everything is refundable, you might say…

The Kirkland house brand also reassures customers with its infallible quality-price ratio, in the collective imagination. With its 550 products, Kirkland generates 23% of revenues, or 56 billion US per year (77 billion CAN). This is not much less than Loblaw (Maxi, Pharmaprix) and Metro/Jean Coutu combined (80 billion).

It’s impossible not to talk about the most famous duo at Costco: the $1.50 hot dog and drink since 1985. The fact of never raising the price reinforces the idea that the retailer works hard to keep its prices as low as possible. low as possible, that it is impervious to inflation. It’s not written anywhere, but everyone is convinced of it. It’s not magic. It’s thoughtful.

Fortune recalls that Costco’s first president jokingly told his successor that he would kill him if he ever raised the price of hot dogs^⁠3.

“Find a solution,” Jim Sinegal told Craig Jelinek, who ended up opening a sausage factory.

But it is not the most important product for the retailer with 878 branches. The one on which its profitability rests is in your hand: the membership card. No fewer than 128 million people own one. In some years, Costco would make no annual profit if not for its card revenue.

“Everything we do is to support this transaction,” says Costco President Ron Vachris.

Some customers will recall that this obsession went too far in 2022 when Costco used an unpleasant subterfuge to boost renewals^⁠4. An unfortunate episode, quickly erased by the passionate attraction for its proven recipe.

1. Consult the article by Fortune (in English, subscription required)

2. Check out André Dubuc’s article on gold sales at Costco

3. Read an article about the price of hot dogs and the “death threat”

4. Check out a column on Costco’s subterfuge