How Costco Uses $5 Rotisserie Chickens And Free Samples To Turn Customers Into Fanatics

"Every item has to hold its own," says Nelson. "Part of our secret sauce is our buyers are good at going out there and pre-selecting the best items."

Another factor is price. For example, two 48-ounce jars of Skippy creamy peanut butter bought from Costco online cost $11.49, or $0.12 per ounce). Meanwhile, one 16.3-ounce jar bought on Amazon Fresh and delivered in New York City costs $3.19, or $0.20 per ounce. And an October 2017 price comparison by J.P. Morgan found Costco prices to be 58% cheaper than Whole Foods prices.

Products that are manifestations of Costco's value ethos have become cult favorites people return for, like its $4.99 rotisserie chicken and $29.99 sheet cake that serves 48 people (the value and quality of which was even hat-tipped by gourmet food magazine Bon Appetit).

"Are there things that we could raise the price on potentially and sell just as many items? Maybe," says Nelson. "If we took a widget or something and changed the price from $10.99 to $13.99 could we sell just as many of them...? Possibly. ... But our DNA is figuring out what is the lowest price that we think we can sell it to you at and make a fair return."

James Sinegal, the founder of Costco and its CEO until he retired in 2011, spoke at a Massachusetts Institute of Technology course in May 2018 about selling Calvin Klein men's jeans for $29.99 a pair. The pants were selling faster than Costco could stock them, and when he bought another shipment for $22.99 per pair, it was ultra-tempting to charge more.

"We pass the savings on to the customer, every time," Sinegal told MIT students. "Do you know how tempting it is to make another $7 on a pair? But once you do it, it's like taking heroin. You can't stop."

Of course, some say its value at a low cost comes at price: Costco's popular Kirkland Signature brand, for example, is meant to be inexpensive while also high quality, but certain of the line's products, like its paper goods, have been criticized for their poor sustainability.

And though selling in bulk means less packaging in many cases, according to the company, it also means things like apples that are often not packaged, are packaged in plastic.

Costco has made efforts to be more sustainable in many areas like its seafood, however, and according to Costco's website, the brand "will continue to adapt" alongside its efforts to "remain a low-cost and efficient business operator."

As for service, Costco aims to make the user experience seamless. Take, for example, its generous return policy: Item five years old? No receipt? No problem. There are some restrictions, like electronics have to be returned within 90 days from the date that the member received the merchandise, but otherwise it's mostly a no-questions-asked return policy.

In fact, according to one California Costco shopper, the woman on line in front of him successfully returned a Christmas tree "because it's dead" on Jan. 4.

Source : https://www.cnbc.com/2019/05/22/hooked-how-costco-turns-customers-into-fanatics.html

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