Explaining the 'Costco effect'

CostCo's low-cost hot dogs: The strategy of 'loss leaders'

Wholesale food distributors like Sam's Club, BJ's, and CostCo place a premium on cutting costs for their consumers to cultivate brand loyalty. Enter CostCo's enduring $1.50 hot dog and soda combo. It's a classic example of a so-called "loss leader," a product a company loses money on but which keeps customers coming back for more. Learn the history of wholesalers and how selling over 200 million hot dogs in a year builds CostCo's brand.

Dollar stores often place staple items at the back of the store so customers encounter other less-necessary items on their way there, leading to impulse buys.

Costco's bullion program offers an attractive option for retail investors, experts say

Although Costco's gold bars often sell out, experts caution that the Costco gold rush was more "mob mentality" than sound investment. The bullion program is one way for retail investors to get exposure to the commodities market.

Batteries, baby wipes, and other Costco buys that might not be worth it

Costco's private label Kirkland sells just about everything at a price many customers say can't be beat. While often a cost-efficient way to buy household goods in bulk, some shoppers not all Kirkland products are created equal and there are some items that aren't worth the cost savings.

Costco and Amazon have very similar pricing across everyday staples

This article compares the average prices of everyday staples at Amazon and Costco, like toilet paper ($1.12 at Costco, $1.14 on Amazon), to help consumers decide which discount retailer to purchase from.

The 'Gruen transfer' refers to the price psychology behind large shopping malls, where shoppers make spontaneous purchases due to the overwhelming exposure to a variety of stores.

What Costco does with its unsold baked items

Ever wonder what Costco does with its seemingly endless supply of muffins and other baked goods? Rather than mark down the items or toss them in the trash, the big-box retailer donates the perishable food to Feeding America, a network of food banks and other programs that help feed those in need.

Expanding supermarket chains began offering coupons to attract customers in the 1940s

This was partially a customer acquisition strategy devised to lure customers into chains and away from their local independent grocers.

The doorway effect is when people forget their task when entering a new space

The "why did I come in here?" feeling after walking into a room comes from the brain creating event boundaries to organize memories. Mentally revisiting a previous room can help recall tasks and reverse memory loss. (Some readers may experience a paywall.)

The 'Lindy effect' is a theory that says the longer things that don't physically wear out (like ideas, brands, or institutions) have been around, the more likely they are to exist for longer.

Amazon operates a 'flywheel' business model

Central to any understanding of the multifaceted nature of Amazon's business today is the concept of the "flywheel" at the heart of the company. Put simply, it's an idea that refers to a self-reinforcing cycle that drives the continuous growth of Amazon's various businesses, including its retail arm, its Prime subscription service, and more.

The 'dupe' economy is fueled by the youthful thrill of thrift

Historically, you don't want people to know you have a knock-off luxury item. But today's younger generations are embracing the "dupe" economy, an open celebration of luxury knock-off items where consumers are proud to pay less for something roughly equivalent to premium brand offerings.

From 2011 to 2012, a show about 'Extreme Couponing' aired on TLC

The television show gave viewers an inside look at the lives of Americans who treated couponing like an extreme sport. These people would often stockpile hundreds of products they acquired via deals found on coupons in their homes.

Amazon's success is attributable, in large part, to founder Jeff Bezos’ vision

Bezos parlayed a career on Wall Street into founding an online bookstore that would evolve into the largest online retailer in the world. Bezos’ story is characterized by his relentless focus on innovation and on the customer experience at Amazon.

'Deinfluencing' explained

You’ve probably heard of influencers, but have you heard of “de-influencers?” Basically, the de-influencing trend started when creators began making videos about products you shouldn’t buy, rather than sponsored content promoting things you should purchase. Comedian Taylor Tomlinson recently cracked some jokes about the trend, and its companion “under consumption-core.”

Why grocery stores play music while you shop

Grocery stores don't play music just for the good vibes. Store soundtracks have been proven to increase spending and improve customer experiences, especially if the music is upbeat. If the tunes are nostalgic for the stores' key demographics, it can help develop a store’s desired brand identity. This article from Reader's Digest details the many reasons behind this strategy.

Regular coupon users pay less attention to the actual price of what they’re buying

The psychology of coupon users can feel counterintuitive: Research suggests regular coupon users actually prioritize coupon availability over actual price comparisons.

Dollar stores procure their merchandise in bulk to help cut costs

In order to keep prices cheap, dollar stores source this merchandise from a variety of places, including liquidation sales (an event that happens when retailers need to sell off inventory quickly), directly from distributors, foreign markets, and more.

All-you-can-eat buffets are a practical demonstration of economic ideas

Economists have noticed some restaurant goers prefer a flat pricing model despite it usually being more expensive than per-dish costs. The strategy behind endless servings includes concepts such as economy of scale, cross-subsidization, diminishing returns (of enjoyment of excess food), and more.

The 'overview effect' heightens one's sense of unity and connectedness

Coined by space philosopher Frank White in 1987, the term refers to the paradigm-shifting experience a person undergoes upon viewing Earth from space. Commercial spaceflights aim to bring this perspective to a broader audience, inspiring changes in behavior and worldview among participants.

How big brands keep your loyalty

We perceive ourselves as rational decision-makers—but research about our consumption habits suggest we are easily played by clever marketing. Here's how big brands design their branding to keep you coming back.

'Buying the dip' refers to purchasing stocks or ETFs after a price decline in anticipation of a rebound

Some investors see it as getting a discount before the market recovers and the temporary declines turn into gains.

The surprising economics of sushi

How exactly does a patron of a sushi restaurant in Omaha, Nebraska, get to eat fresh fish caught off the coast of Japan? This episode of the Freakonomics podcast answers this question and explains the impressive feat. Listen to learn about the tricky economics and time-sensitive process behind importing fresh catches to sushi-lovers across America.

Network effects are the economic term for a good or service's popularity

When goods or services become especially popular, firms that provide that good or service become dominant in the market—which can ultimately lead to a monopoly.

The economics of Chick-fil-A

Chick-fil-A has dominated national customer satisfaction surveys while growing conservatively for decades. This video goes into the economics the company deploys to be successful.

The science of optical illusions

The human brain has developed cognitive shortcuts to help us navigate in a world where our visual senses are constantly bombarded of information. But these shortcuts can also be exploited, tricking the brain into telling us something is happening when it really isn't. This short video unpacks the neuroscience behind some of the most common (but perplexing) optical illusions.

Consumer spending accounts for 70% of America's gross domestic product.

What something costs is reflective of a balance in the market determined by the amount of demand relative to the supply of goods and services

Because economies are complex systems, a wide variety of issues influence this balance—including some things generally considered to be positive, like rising wages.

Marketers often use psychological tactics to sway consumer action

From making someone feel as though a resource is scarce (“only one item left in stock!”) to invoking a sense of authority (“top dentists recommend this toothpaste”), marketers use a variety of psychological tactics to elicit a desired response from their target audience.

Amazon founder Jeff Bezos emphasizes worrying about customers rather than competition

In a 1999 shareholder letter, Bezos wrote, "I constantly remind our employees to be afraid, to wake up every morning terrified. Our customers have made our business what it is, and we consider them to be loyal to us – right up until the second that someone else offers them a better service." Motivated by fear, the entrepreneur advocates consistent innovation, experimentation, and improvement to create a better customer experience.

In 1994, Amazon was founded as an online bookseller

Books were just the start, as founder Jeff Bezos' ultimate goal was to create an "everything store," using the internet to transcend the physical limitations of brick-and-mortar retail. The Seattle-based Amazon gradually added CDs and consumer electronics, becoming a dominant e-commerce player in the late 1990s, and one of the few dot-com companies to make it through the bust.

One of the most important pieces of Amazon’s corporate empire? Its Prime subscription business

Prime drives customer loyalty and boosts Amazon’s revenue through its monthly and yearly fees. The key components included with a Prime subscription include free two-day shipping on eligible items, as well as access to services like Amazon Music and Prime Video.

American Express runs on a 'spend-centric' model, using perks and merchant fees to drive profit

American Express cardholders tend to spend more money per transaction than other credit card users, which makes the interchange fees merchants have to pay to accept American Express cards worth it while incentivizing other companies to pay the interchange fee as well.

The psychological aspect of deflation makes it difficult for policymakers to stabilize the economy

That psychological aspect is referred to as "the deflationary spiral." When prices start decreasing, people tend to hold on to their money to pay the lowest prices. But as prices start stabilizing, people resist increasing prices. (Some users may experience a paywall.)

The products sold at dollar stores tend to be smaller in size

Recent reports suggest that dollar stores regularly practice 'shrinkflation,' the practice of making products smaller while keeping the price the same or even raising it.

A short squeeze happens when short sellers increase stock prices by buying shares back quickly

When short sellers realize their positions may be incorrect—usually triggered by increasing share prices—they often try to quickly buy back their shares in order to minimize their total losses. When this happens on a large scale, that buying activity can drastically increase to represent the seemingly high demand for that stock. The result is called a "short squeeze," which refers to short sellers literally being squeezed out of their positions by rising prices.

The economics of all-you-can-eat buffets

Is it possible to out-eat the price you pay for a buffet? How do these places make money? We looked at the dollars and cents behind the meat and potatoes.

There’s a psychological explanation for ‘FOMO,’ or the fear of missing out

This video breaks down FOMO—what it is, how it works, and why it happens—showing how social comparison and uncertainty trigger anxiety that pushes people toward risk-taking and constant checking behaviors.

11,000 new US dollar stores opened between 2007 and 2017

Dollar store retailers experienced significant fiscal gains during the 2010s, which were then accelerated by the COVID-19 pandemic. But in recent years, dollar stores have been closing in large numbers and suffering financial hardship. Experts point to Walmart's strategy of decreasing prices to cater to inflation-fatigued customers, and point out that when Walmart does well financially, dollar stores typically suffer.

How does the cocktail party effect work?

In the 1950s, British cognitive scientist Colin Cherry started to explore how we could focus our hearing on one single source, even in a noisy environment. This video animation explains the phenomenon known as the cocktail effect and how selective hearing works. Discover how our brain is on the lookout for important or personally relevant information, even as we are occupied in other discussions.

With the advent of charge cards, Estée Lauder fought to get her products in department stores to benefit from impulse purchases

Because Estée Lauder focused on personal relationships and demonstrations as one of her primary sales strategies, getting her product in front of enough people was an early struggle. Similarly, many customers wanted to buy her products, but didn't always have the cash on hand. One of her biggest accomplishments was earning a retail spot at Saks on 5th Ave in Manhattan, which paved the way for her brand to become a household name and gave customers more flexibility to make purchases on the spot.

Consumer spending accounts for 70% of US GDP, making Black Friday significant

Lizabeth Cohen, a history professor at Harvard and author of the book “A Consumer's Republic: The Politics Of Mass Consumption In Postwar America,” has argued that the US government has presented consumerism as a way out of economic crisis or decline since around World War II.

Trader Joe's breaks every rule of modern retail

The successful grocer doesn't do e-commerce, delivery, or coupons. And yet Americans are still obsessed with Trader Joe's.

Why there's a snack recession

Inflation and economic uncertainty have driven many Americans to make cuts to their snack budgets, according to reports from major food manufacturers like General Mills, JM Smucker, and Campbell's. Major retailers have also observed lower-income consumers cutting back on nonessentials due to the macroeconomic environment.

Bed Bath and Beyond’s 20% off coupon had a cult following

The home goods store’s most fervent fans loved these coupons so much that some bought them in batches on eBay. The FBI even reportedly found one of these big blue coupons in famous mobster Whitey Bulger’s junk drawer. (Some users may experience a paywall.)

'Buy one, get one free' is a clever way to get you to spend more money

One Burger King diner recently saw the price of her $2.16 sandwich rise to $3.19 per sandwich when she used a buy-one-get-one-free (or BOGO) coupon. Naturally, she became suspicious about how good a deal BOGO really is. This video explains why BOGO deals are a way for companies to get you to spend more money, rather than less.

Bezos has frequently cited a 1999 article titled Amazon.bomb to illustrate how dire the early predictions about Amazon got

Over the years, Amazon founder Jeff Bezos often recalls how wrong the predictions in the 1999 Barron’s cover story were. Among other things, that article declared Amazon’s entire business model to be unsustainable and destined to fail, noting its lack of profit and dependence on a massive amount of capital to fund its growth.

Hear how Advent calendars have become a pricy branding tool

Advent calendars have shifted into a high-margin branding vehicle, with retailers prioritizing elaborate design and reusable packaging. This episode questions whether premium calendars—despite their rising prices, environmental concerns, and flashy marketing—actually deliver products worth the cost.

Dollar stores can have negative impacts on local businesses

When a household name dollar store like Dollar General opens in a small town or local community, neighborhood businesses often lose out on key sales, driving revenue down and putting them at risk of closure. This has led some experts to argue that dollar store chains can cause economic stress, rather than relieve it.

'Buy one, get one free' is often a clever way to get you to spend more money

One Burger King diner recently saw the price of her $2.16 sandwich rise to $3.19 per sandwich when she used a buy-one-get-one-free (or BOGO) coupon. Naturally, she became suspicious about how good a deal BOGO really is. This video explains why BOGO deals are a way for companies to get you to spend more money, rather than less.