The history of Costco, or Costco Wholesale Corporation in full, can be traced back to 1976. That’s when, under the name of Price Club, the first store was opened in a converted airplane hangar located on Morena Boulevard in San Diego. Originally, it only served small businesses; however, the company soon realized it made sense to serve a certain number of non-business members as well.
By 1983, the first Costco warehouse was up and running in Seattle and in ten years time, Costco and Price Club merged to become Price/Costco that was in charge of 206 stores generating $16 billion in annual sales.
A large number of situations in these Tweets are likely familiar to anyone who has ever stepped foot into a Costco. The huge maze of aisles filled with piles of all sorts of products provides a spectacular shopping experience for someone who enjoys buying in bulk.
However, in order to be allowed to go crazy at such a store, one has to become a Costco member for a certain yearly fee. According to Zippia’s 2023 data, over 68 million households globally own such a membership, adding up to roughly 123 million people in total.
Investopedia revealed that membership dues comprise the majority of Costco’s profits. The clients are interested in taking full advantage of their memberships, costing them $60 or $120 dollars per year (Gold Star and Executive memberships respectively), which leads to high retention rates and nearly no money spent on advertising.
Investopedia pointed out that traditional advertising that encourages customers to return to the store doesn’t make sense for Costco, as memberships bought once a year bring most of the profit rather than people coming back to shop repeatedly. Moreover, having invested in the membership, customers are inclined to come back themselves.
Saving on advertising is likely one of the reasons Costco can pay its employees a rather competitive hourly wage, which, according to Investopedia, leads to a highly motivated workforce. The latter in turn provides a good shopping experience for the customer, who is then more likely to renew their membership.
Author and behavior change strategist, Jennifer Clinehens, uncovered Costco’s surprising psychological strategies that allow the company to reach rather impressive numbers in the industry, despite their seemingly counterintuitive business model (it makes its customers pay for the opportunity to shop, the store itself doesn’t present much decor wise, and quite a lot of products are sold in absurdly large quantities—a point that has been made in quite a few of these amusing Tweets).
Jennifer Clinehens believes there are five strategies at play when it comes to Costco’s success: scarcity, ‘Sunk Cost Fallacy”, reciprocity, ‘Peak-end Rule’, and salience. The author refers to the first one as the psychological principle that powers the store. According to her, Costco memberships create a feeling of scarcity and a fear of missing out, which leads to people wanting to be included in the group that receives special treatment, or special offers in this case.
Second on Clinehens’s list, the principle of ‘Sunk Cost Fallacy’ describes the phenomenon of people tending to stick with something they’ve already invested time and money in—an annual membership, for instance. The third strategy relates to the abundance of free sample booths—another feature lots of Twitter users seem to enjoy—scattered all over the store. Known as reciprocity, it is a persuasion technique based on the social norm of responding to positive actions with positive actions.