Costco sells rotisserie chickens for $4.99. They sold 100 million chickens in 2021 and they make almost nothing from selling them. In fact, they almost certainly lose money on them.
So, why don’t they raise prices?
It’s easy to ask that, right? Raising the price just $1 would add over $100 million to their bottom line. MANY MANY businesses would consider that a no-brainer.
But Costco isn’t just any business, and we can learn a lot from them on this.
WHY do they do this?
The rotisserie chicken is a “martyr product” for Costco.
It gets people into the store and the optics (ie: brand reputation) of it actually help them sell memberships. Yes, really. They sell those chickens for a reason, and they purposely sell them at a loss (or close to) – also for a reason.
Understanding Buyer Behavior
To understand this, you have to look at buyer behavior – and that is an intuitive process that you can apply to your business.
Start with this question… What purpose does a $4.99 rotisserie chicken serve for their customers?
Most of their base are families. A sub-$5 pre-cooked chicken is a quick, economical, and easy way for people to get dinner on the table on a busy night. So, it solves a very specific problem that their customers deal with DAILY.
But, most of those folks aren’t going to serve only a rotisserie chicken, so they are going to pick up other things to go with it. Bagged salad, maybe a bag of rolls. They are going to add these higher margin items to their cart on their way to the checkout, because it just makes sense, right?
Product Placement
It’s important to mention that Costco puts these chickens in the BACK of the store.
This means our imaginary ideal client not only grabs the chicken, the salad ($8.99), and the rolls ($7.99), but they are going to pass that 20-count of Chobani ($16.99), the 300-count paper plates ($17.49), those cute sweatshirts ($17.99), a box of Oreo single-packs ($10.99), some fresh flowers ($25), and (because now they are hungry) a box of protein bars ($21.99) conveniently located right before checkout.
Just in this analysis, Costco has already turned a $4.99 money-losing product into a $130+ purchase.
Business Model
So far, it might seem like they make a killing on the products themselves, but actually they don’t. They sell most of their products at far lower margins than other stores.
Costco brought in about $200 billion in revenue in 2021, but it isn’t because of the products.
Costco isn’t truly in the business of selling products. They sell memberships. They sell the opportunity to purchase groceries at wholesale prices.
And here is another lesson… Know what you truly sell!
Because when you do know that, you can serve people even more.
Before somebody says Costco is taking people for a ride, not serving them, remember that Chobani 20-pack for $16.99 that I mentioned a few paragraphs up? When was the last time you saw a Chobani yogurt for $0.85 in your local grocery store? Never.
Brand Reputation
The martyr product also serves as free word-of-mouth marketing for the warehouse store. People tell their friends and share on social media frequently. Not just about the chicken. There is an entire #Costcodoesitagain hashtag out there.
They’ve done something truly remarkable in their niche of warehouse grocery products.
In Sum
Costco has built a $200B a year business with millions of loyal customers and word-of-mouth marketing by using “martyr products.” These are similar to what we call “tripwire” products in the online world.
However, they have elevated the use of this to literal mastery by 1) deeply understanding their buyer needs and behavior, 2) understanding smart product placement, and 3) monetizing what they truly sell and allowing “acceptable” losses that genuinely serve their customer base.
Your Takeaways
Here’s how to apply this to your business:
- Are there any products in your offer suite that could serve as a “martyr product?” Something that is a total no-brainer for people and allows them to enter your world as a customer (thus, making them more likely to purchase in future)?
- What is a clear problem that your ideal client is struggling with DAILY or pretty frequently that you can solve with a no-brainer solution?
- What is that customer’s exact journey through your business?
- How can you support them more fully in that journey?
- What do you really sell? Are you selling it?
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ARTICLES OF REFERENCE:
- https://www.rd.com/list/costco-rotisserie-chicken/
- https://www.thestreet.com/investing/will-costco-raise-prices-for-rotisserie-chicken-or-memberships
- https://www.eatthis.com/costco-sold-more-rotisserie-chickens-in-2021-as-grocery-prices-hit-record-highs/
https://www.macrotrends.net/stocks/charts/COST/costco/revenue
