Let's Steal Costco's Strategies

Business brain, episode 450 for Friday, May 19, 2023. Greetings, folks and welcome to Business Brain, the show where we take our business brains and apply them as a filter, like a filter to all manner of things throughout our lives and see if we can get a different perspective, a more valuable perspective and enhance our lives. Keep living that charmed life together. Sponsors for this episode include found.com brain, which is business breaking that business breaking. Easy for me to say something new. Business banking that tracks your expenses. It helps you find write offs. It's very cool. And then thinkific.com business brain, where you're going to go to get one month of Thinkific plus for free. We'll talk more in depth about both of those in a little bit here. For now, here in Durham, New Hampshire, on Casual Friday, I'm Dave Hamilton.

Happy Friday. It's Shannon Jean from Lafayette, California. How are you, man?

I'm, I'm good, you know, crazy week as always, which is good. I, you know, I've, I've successfully removed the word busy from my vocabulary. Yeah, no, I am, I am either productive or not productive. And regardless of whether or not I am busy. So. Yeah, that's, yeah, that's good.

People always ask, are you busy? Can I call, give you a call? And I use your trick. I say, well, I like to call it productive, but I'm certainly available if you want to call me.

Yes, yes. I'm always working at being productive. Yeah, that's right. Or not. Like, if I'm taking down time, then I'm not. Yeah, that's fine.

Use your business brain for that, too.

Exactly. Exactly.

If it's okay with you. I, I tell you, there's a company that I really love that I done a lot of business with over the years that I find myself at their stores.

Yep.

All the time that I buy their, my gas, my car in there. And that's Costco.

Oh, yeah.

And yeah. Yeah, they're just a really great group to deal with from a consumer standpoint, but also from a business standpoint that I could tell stories in about that.

No, they, they definitely in here. Yeah. They have done a good job at marketing an interesting business model to the masses. Right. And I mean, I've heard their CEO talk about how he likes it to be a treasure hunt when you go to Costco. Right. If you don't know what you're gonna find. And I think that's one of those things. Like it's built to be a treasure hunt. Like things are intentionally built that way. It's fascinating.

And when you find it, you never know how long it's going to be there.

Yes. You will buy it then.

Yeah.

And lots of it. That's right.

That's right. So one of the first ones that, that now this is from a tweet that I. From a guy on Twitter, Joe Portsmouth.

Okay.

And we'll put it, put a link in the show notes to Joe's Twitter feed, which I really like this. But the first one, which I think is so powerful, and we've talked about it a ton on the show over the years, is reciprocity. You know, doing something of value first before you're requiring someone to pay you or anything like that. And it's no secret that, you know, Costco's big reciprocity is their free samples right where you're walking down the aisle. And thank goodness, after Covid ended, they finally brought those back. And I would feel bad for the free sample, like in the vitamin aisle or the, you know, or the giving out something that you can't, you can't.

Just that you immediately taste or. Yeah, yeah.

Experience, not the eating, because there are, they do some weird ones. You're like, huh, okay, well, that's kind of. You got stuck with the wrong cart today.

Yeah, right. Yeah.

But the food ones are, are awesome.

You know that, that's where the, the band, the samples got their name.

Oh, is that right?

Yeah, they were like broke college students or whatever. I don't know if they were college students. They were, they were broke musicians. And they would go to the local warehouse store. I don't know if it was Costco or BJ's. I, I, I forget. But, but, you know, they would like that they would live as much as they could off of eating the samples. And so that's.

Yeah. And I always, I do, yeah. And I, and I do feel obligated to, to go, well, hey, where. Oh, yeah, maybe we should get these. If I like it.

Yes.

And.

Well, because you're, you're there with another human, right. And they've given you a thing, right. And you taste it and they see your reaction while you're talking. Like, even if you're just there alone, they, you're talking to them saying, well, that's pretty good. Or, no, I don't like that. But, you know, especially if you're there with, you know, your, your partner or your kids or whatever. Is it friend, whatever, and you say to them, wow, that's pretty good. That person knows you just said that. And you know that that Person knows it. So now you feel like, well, I guess if I, if I. They gave it to me and I liked it, I really should buy it. Like, there's definitely that guilt game being played. I think it's really smart. Yeah.

The thing I like, I would ask our listeners is how could you implement some sort of reciprocity in your business? If you do, please, you know, feedback at BusinessBrain show and let us know so we can share it here. But I was thinking about this the other day. You know, let's say you were an H VAC company. Can you, you know, I don't know, give away free filters once a year to customers? Would you're. You know, because that seems like those are. They're very inexpensive, I'm sure. At least even more so to the company that buys them in bulk.

Yep.

But that, what a great way to get into somebody's house or to get into a commercial building is say, hey, I'm. I'm just stopping by, we're changing filters for free. You get in there, get to meet someone, you have any problems, anything, everything. You know, I noticed this one thing.

Yeah.

We're not here to sell anything today, but let me give you this information. This is what we would suggest. You have someone come take a look at.

Yeah.

You know, that, that's, that's cool. I think it'd be. It would get my attention.

I like it. I like it.

Me, too.

Number two. Yeah. Oh, yeah. No, I was going to say number two is commitment and consistency. And the idea is if you can get someone to make a small commitment to you, they're more likely to do larger commitments down the road. And for Costco, that's the membership model. And I love the membership model. Right. It's, you know, it's almost inconsequential. People say, gosh, I. Why don't they just give it away for free? Well, because if they did, you wouldn't value it, you wouldn't use it. You wouldn't go there to justify the fact that you spent money for the membership. Right. Even though it's 25 bucks. I mean, they give it away some, like, not. They don't ever give it away, but they'll cut the price in half. They don't care about that. They just care that you've given them something. So.

That's right. I recently took my mom over to get new hearing aids and she needed to get a new membership because we'd maxed out our cars. Long story. But anyway, so they said, hey, if you're here for hearing aids. You should get the, you know, merchant or whatever the level of membership. That was like 120 bucks. But because I said you will get all your money back. And if you don't, here's the clincher. Just come up to the front and we'll refund you the money and give you the other card. Yeah, I thought that was great. And you know, they get, you get this card, you do all that kind of stuff. So it's, it's a brilliant. And if you look at the Costco earnings, amazingly, their profit is often based on their membership revenue. Those numbers are very close when they announce their earnings. It's pretty interesting.

Oh, really interesting. Yeah. Huh.

Fascinating.

Fascinating.

Yes.

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Yeah. I would say in the parking lot's the same way. You know, it, it's always packed and you, no matter what time you get there, it's, you're, you're always fighting for a parking spot and sometimes it keeps, wants to, you know, keeps you from going over there. But it is, you're like, oh, everybody's here to save money, right?

Yeah, yeah, yeah, yeah.

And number four is authority. You know, people tend to follow the advice or instructions of those they perceive as experts or authority figures. Well, Costco, you just, you believe they're experts at getting the best deal because you know, they're, they're buying power so huge. I, most of the time you look at something go, I know it's going to be a good price here I don't have to pull out my phone and, and you know, versus some other places I may wind up to see if it's a good price. Now I may have to buy, you know, 10 pounds of it that I Didn't want. But you think you'd go. But if you look, every cart is packed to the brim, right?

Yeah.

People.

I mean, you get four things, your cart's packed to the brim at cost. Yeah. Like, you know, that's how it works. Yeah. Are you. As an aside, are you. I know you're. You know, you and I are in similar spots in our lives. We're kind of, you know, sort of empty nesters, you know, as. As the days progress. Are you finding that you're shopping at Costco as much as you used to?

I. Well, we have one pretty close to us. Yeah. I.

Same.

We. When I say we, I mean primarily my wife. She's much better at this department that I am, but. Yeah, we're probably there once a week.

Oh, wow. Why are. Why do you like, like, because. Because strategic.

Strategic.

Right. Okay. So you're buying certain things there and then other things, like. Yeah, yeah. Okay. All right. Yeah.

So we have, like, vacation rentals that we visit frequently, and they all have to be stocked with things like paper towels and toilet paper.

And that makes sense.

All this stuff, we buy meat there because I like to smoke, you know, brisket and yada, yada, yada. And it's great price and great quality. And so there's a few things like that.

That makes sense. That makes sense. Yeah, yeah, yeah.

And I'll tell you this quick story.

Yeah, go ahead.

So I, you know, Costco sells a ton of clothes, right. Whether it's dress, pants, shirts, whatever it is. And I was up in Kirkland or actually in Issaquah, where their. Their headquarters are, and I was meeting with a bunch of Costco people. I was sitting around a table, and I was trying to get this deal and negotiate with them, and I was just trying to break the ice, you know, And I said, look, I just want to say I feel like I'm uniquely qualified to do this deal because basically everything I'm wearing came from Costco, with the exception of maybe my shoes, but my socks, my underwear, my pants, my shirt.

Yeah.

And so everybody laughed. And then we went around. I'm, well, how about you? And we went around the table, and there wasn't a single person there that didn't have something from Costco that they were wearing.

Yeah.

And it really broke the ice. And, you know, Costco used to be.

Where I get all my clothes. Now it's moved to Amazon because. Because I'm like. It means I don't even have to leave the house, so I can. But the Amazon Essentials brand is like the same as the Kirkland brand. It's like fine stuff. It's, you know, you're not going to turn the heads of any fashionistas, but that's fine. Like, you know, I'm a podcaster, so it's all good.

Sure, exactly. So anyway, I thought that was kind of interesting.

So number, number five is what he calls liking. And, and that is that people are more likely to be persuaded by someone they like or find attractive. And this is where one of my favorite principles comes in. Because every business is the customer service business. Costco is known for its friendly and helpful employees. And then that makes it a more pleasant shopping experience. Makes us as customers feel valued. We trust the brand, we trust the store, we trust the people. And that's how they notch up the persuasion. Everybody's real friendly there. Yeah, it's great. Yeah, yeah.

And of course, the next one, which we kind of mentioned in the intro. Scarcity. Yeah, yeah, it's, you know, the perception of scarcity can increase the value of an item. And if, if you're looking at something and you think you might want it, you need to get it at Costco because the inventory moves, they clear stuff out quickly. One little tip. If the price has a, the ending has a 7 in it, that product is going away. That's their clearance code. So if you see that something has A, you know, 29, 37, it's probably not going to be there in the next week or two, and you definitely need to snap it up.

That's a good little tip, folks. There you go. That's the, that's the.

You find that under all podcasts.

That's the business brain tip of the week right there. I like that. That's good, man. There it is. All right. Oh, the last one is unity. You know, we, the, the really, the tribe mentality, right. People are more likely to be persuaded by someone that they perceive as being similar, you know, or part of your social group. And Costco's in store experience, their warehouse style stores, it's a unique experience and going there is an event. And so, you know, you're there with other people who are there for the same event and people will tell you, oh, yeah, you know, I saw this over there, I saw this here. I'm excited to be here like this. And it creates that group think, that tribe mentality that really kind of, you know, you feel like you are part of a club. Like you've all paid your membership fee. You know, it's, you could say it's the Costco cult. I don't know. But you know, okay, like whatever.

Yeah. These are great tips and I would encourage you to think about them as they related to your business. But I think Joe did miss something very important.

All right.

And that is the $50 hot dog and soda. That, that has never changed. That they, you know, that people come in there just to get lunch. I see all these construction guys, you know, rolling up in the door and it's at buck 50. You might argue that the $5 wrote, you know, rotisserie chicken is a second runner up. But that's in the back of the store. So they suck you all the way in.

Yeah.

And you know, we could jump into what a five dollar chicken, what it takes to get it there. But right, not the, not the point.

Yeah, right, right.

But a great store. You know, if you have used some of these things in your business, these persuasion techniques, feedback at Business Brain, we would love to hear from you.

Absolutely. Again, that's feedbackusinessbrain show. And as always, if your email is featured in an episode, you're entered in to win a MacBook Air here. It's something we're doing for 2023. Make sure to check out our sponsors, thinkific.com businessbrain and found.com brain. Keep living that charmed life and we'll see you next week.