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Do You Save or Spend at Costco?

Nancy Trejos

In your effort to save money, you’ve probably gone out and signed up for a membership at a warehouse store such as Costco or Sam’s Club.

True, such stores do have great bargains. But have you ever found yourself at the checkout line with one too many boxes of pasta or a book you didn’t really need or a cell phone accessory you could have done without?

If you have, you’re not the only one. Many researchers have studied this phenomenon, and found that discounts often drive people to buy more.

A couple of them — Michael Norton, an assistant professor of Business Administration at Harvard Business School, and Leonard Lee, an assistant professor at Columbia Business School — co-authored a study on the impact of warehouse stores on consumer behavior.

The professors created their own “membership clubs” and observed how the members spent their money. What they found was that the fees made the consumers believe that the club offered better deals for items you could find elsewhere. They then ended up buying more than they had planned to. Furthermore, the professors discovered, the consumers preferred the warehouse stores over regular stores even when they offered the same goods for the same prices.

The fact that the stores charge fees makes consumers believe that the prices are better, which often they are, Norton said. (A Gold Star Membership at Costco is $50 while an Advantage Membership at Sam’s Club is $40). “The stores signal something to you when they make you join and charge you a fee,” he said. “You make this inference that is not necessarily incorrect, but it can lead you to do things that you wouldn’t have done, once you’re inside ..... That 50-pack of Cocoa Pebbles looks fantastic, but I don’t need 50 boxes of Cocoa Pebbles.”

So how can you avoid walking out with too many loaves of bread?

Make a shopping list. It’s as simple as that, Norton said. Go in there knowing exactly what you need and buy only that. Walk away from the book aisle. “This is the absolute key,” Norton said.

By Nancy Trejos  |  July 6, 2009; 7:00 AM ET
Categories:  Bargains , Nancy Trejos  
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Comments

Costco for me is dangerous. I joke that you can't leave the store without spending less than $200. If you haven't met the minimum they send you back.

I gave up my membership when I lived in a 1 bedroom condo with little storage. I haven't rejoined even though I've moved because I just don't need to go there that often. I have enough family and friends with memberships and I just bum a visit with them - and then since I have someone else watching what I'm spending (especially my mother) I do a much better job of watching what I buy.

Posted by: archers44 | July 6, 2009 3:55 PM | Report abuse

See the fee for what it is: a barrier to entry for people who live at the margins.

When Costco drops this ugly practice, then maybe I'll take a look. But not until.

Posted by: mattintx | July 6, 2009 4:53 PM | Report abuse

I too live in a small space--no room for 50 boxes of cereal. Never mind, what exactly does one couple need that much cereal for anyways? I never got the appeal of Costco-style shopping. I'm willing to pay a little bit more to shop locally, buy the smaller quantities I need, and not have to drive considerable distances.

Something about these shoppers' clubs always rubbed me the wrong way. I just don't get the appeal.

Posted by: RedBirdie | July 7, 2009 12:41 PM | Report abuse

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