How Much Money Is Costco Losing On Free Samples?

About this video

• Video Title: How Much Money Is Costco Losing On Free Samples?
• Channel: Weird History Food
• Speakers: (No speakers identified in the transcript)
• Duration: 00:10:07

Overview

This video explores the marketing strategy behind Costco's free samples, explaining why they are offered, how they influence purchasing decisions, and who actually bears the cost. It delves into the history of free sampling, the psychological principles at play, and the operational aspects, including the role of third-party companies and specific store policies.

Key takeaways

• Historical Context: The practice of offering free samples in retail dates back to the mid-1800s, with Benjamin T. Babbitt using free soap samples to promote his product. This strategy became more widespread in the early 20th century and exploded with the rise of supermarkets and big box stores.
• Psychological Drivers: Free samples leverage psychological biases like reciprocity (feeling obligated to give back) and ownership bias (feeling like you own the product after tasting it). They also appeal to impulse buying by overriding logic when a product tastes good in the moment. The enticing smell of samples also plays a significant role.
• Cost and Benefit Analysis: While Costco samples are free to consumers, the costs (staffing, preparation, food) are largely covered by the product manufacturers or a third-party company called Club Demonstration Services (CDS), not Costco directly. The benefit for Costco lies in significantly increased sales (reported as high as 300-400% during sampling periods), higher cart values, and customer loyalty.
• Sampling Strategy: Costco selects products for sampling based on factors such as being new or seasonal, having a strong flavor or smell, and being from partner brands willing to invest in promotion. Most samples are from external brands, not Costco's own Kirkland Signature line.
• Operational Details: Sample distributors often work for third-party companies like CDS, not directly for Costco. There are unwritten rules for consumers, such as one sample per person per lap, and while there's no obligation to buy, the samples are designed to encourage future purchases. A recent policy change requires children to be accompanied by an adult for samples due to allergy concerns.