Unless I leave my wallet at home, I can never make a trip to Costco without spending $100. It's simply not possible. I may go there with a shopping list and be determined to stick to it, but every time I leave with more goods than I expected to buy.
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What pull does Costco (NADAQ:COST) have over my wallet, and how do wholesale warehouse clubs get shoppers to spend more than they've planned to?
Here are a few factors that make up the allure of wholesale pricing. Make yourself aware of them, and maybe you'll avoid buying more than you need.
Membership Fees and Low Prices Add Up
People shop in bulk to save money, but low prices aren't the only way wholesale or warehouse stores entice shoppers to spend. Costco makes most of its money from annual membership fees, which help it maintain its low prices. Those low prices in turn make customers feel like they're getting a good deal upon just walking in the door; but lots of low prices add up and customers end up buying just a little bit more than they immediately need, says psychotherapist Judy Belmont. "It's unbelievable how low some of those prices are," Belmont says. "So people do end up spending a lot more."
Shop at Your Own Pace
It probably hasn't occurred to many shoppers that there's no music playing in the background at many wholesale clubs. "They want you in that store forever," behavioral and marketing psychologist Elliott Jaffa says. "There's no fast music to make you shop faster or slow music to encourage you to meander through the store." It's as if time becomes suspended in the endless aisles.
Large Quantities and Sizes Can Disguise Unit Prices
If bigger is better, then buying more of something bigger comes at that much more of a savings, right? Unfortunately, this isn't always the case. The sizes and quantities of bulk products are not what people are used to, Jaffa says, so three pounds of cream cheese looks like a deal worth buying. Never mind that you may never use all of that cream cheese before it goes bad. You have to look at the unit prices — sometimes marked, sometimes not — and compare it to other stores' unit prices to figure out if you are truly getting a good deal. "I've got to believe [Costco] has some of the best psychologists in the country working for them," he says, "because it has the best suppliers and know how to price everything."
Product Placement Is Everything
Whether it's a warehouse club or a grocery store, product placement is key to getting shoppers to buy, says Rob Jager, a business and management consultant who has worked for numerous big-box retailers. Cameras, computers, and other electronics don't provide a large profit margin for stores. To compensate, they position these items at the front of the store so that they at least see a lot of turnover.
The ends of aisles, or "end caps" as they're known, are prominent spaces that suppliers often pay for. Signage may make you think end cap products are great deals, but check twice before loading them into your cart. "I think shoppers have been trained to believe [end caps are] where the deals are," he says. But it might just be that that's where the ad dollars are going.
Shopping at Costco Is Like Being on a Treasure Hunt
Since stores like Sam's Club, Costco, and BJ's Wholesale Club change out their merchandise often, you never know if what you see on sale today will be there tomorrow. Finding new things in a warehouse club is an on-going treasure hunt and gives shoppers a sense of intrigue when they walk in.
Marketing expert Harry Beckwith, who has Costco as a client, says that his best friend can't go to Costco without recounting the incredible deals he got there. This friend is wealthy but shops at Costco because it makes him feel clever and smart. It turns shopping — something he normally dislikes — into a game he loves.
Buying a Lot to Avoid Return Trips
Face it, walking through a huge store can be a hassle. The parking lot is usually packed, the store is full of people pushing huge carts that are difficult to maneuver, and checkout lines are sometimes endless. It's not an easy trip, so once there, many customers find it smart to make the best of it and buy as much as they need in order to avoid making another trip any time soon.
Cashing in on Customized Deals
Sam's Club, for one, gets members to buy more by tracking their prior purchasing patterns and offering customized deals, says Bruce D. Sanders, a consumer psychologist and retailing consultant. The Sam's Club program, which requires an extra annual fee, uses predictive analytics to determine what items are attractive to individual customers, and then offers discounts on those items. Consumers also receive discounts on items they've never bought before, but that which are logical future purchases based on a consumer's history. This "endowment effect" encourages shoppers to buy more because they've paid for the privilege to get rewards and are motivated to cash in on such programs, Sanders said.
If you're aware of the ways in which wholesale clubs tempt the everyday shopper, you may be able to save even more money. By sticking to a list, allotting yourself a set amount of time, and only carrying cash, you can avoid the temptations that these stores present.
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