The bulk sized Costco fallacy
I’ve never done any social experiments like Dan Ariely or measured it in any way. I also have a sample size of 2 when it comes to this…
I’ve never done any social experiments like Dan Ariely or measured it in any way. I also have a sample size of 2 when it comes to this fallacy, yet I am convinced that it is applicable to about 95% of you and I am going to attempt to convince you of this truth as well.
Let’s first start with what Costco is all about for those that are not familiar. Costco is a giant retail store where you can buy things in bulk. The idea is that by pre paying for items, you can save in the long run. For that privilege you get to pay an annual membership of $60 or so.
Now here’s what I’m claiming. You are just fooling yourself into thinking that this is a great deal. We are really great at fooling ourselves. We will justify almost anything that we do as the right rational thing. Their marketing is top notch and they create an illusion of savings when in reality you are wasting more money then ever before. Wow, those are serious claims!
So why am I saying this? Well, the truth is that it all comes down to one thing. Over-consumption. Simple as that. Now, before you dismiss this as it does not apply to you, let me elaborate on the four distinct ways over-consumption manifests itself and see how many of them ring true.
Subconscious over consumption. This is the hardest one to identify. It’s the one where you buy a huge box of razors but then switch out your razors just a few shaves sooner. It isn’t on purpose but it’s totally natural. After all, we value scarcity. Shopping in bulk is the exact opposite. If you swear that you get exactly the same number of shaves from the blades then how about paper towels? You probably grab just a few more because you got a ton more in the cupboard. I’m not going to count how you use them but you get the idea.
Product upgrades. A lot of people tend to over consume through product upgrades. Costco, in all honesty, does tend to be cheaper for some products. However, very frequently, they don’t have your exact brand or product. They could have similar or competing products. For example, take detergent. I use the powder. It’s cheap and works reasonably well. However, my brand of choice also has these little pillows that you just throw in to the wash. If the labour of measuring the powder is too much for your liking, the pillows are a great substitute. Naturally, they are the more premium product and for that convenience and premium feel, you have to pay up. Costco chooses to sell the premium product. The price per wash turns out to be roughly the same as if you went to your local grocery store and bought the powder. So by shopping at Costco you get to use the more premium product for the same price. When it comes time to account for all the savings though, the mind will play it out differently. Now we will compare the price of the same detergent in Costco to our grocery store. In that case, Costco definitely comes out on top. What we didn’t realize though is how we attributed savings to Costco that don’t really exist while inflating our lifestyle that didn’t really need inflating.
Next, there’s a more obvious way that we over consume. It is plain and simple waste. I’m thinking about all the times you bought that big tub of salsa that went bad or the big box of spinach that didn’t make it. I’m sure we’re all guilty of that. You were trying to do the right thing but depending on the number of units in your family, it could just be impractical.
There’s one other way that Costco gets you. In my opinion this is the biggest sink of money. It is also somewhat controversial because people will swear they don’t do it and it’s hard to prove otherwise. But, unless you have a will of steel like my internet hero Mr. Money Mustache, you’re probably buying shit you normally wouldn’t. I’m talking about the extra pair of jeans that was on a great sale or that set of cookies that they let you sample for “free”. If it didn’t work, they wouldn’t do it right?
So in the end, Costco membership doesn’t come down to just a simple question of does it justify the annual membership or not. It doesn’t. But it doesn’t for none of the reasons that most people are considering. The $60 a year annual membership is probably the least of your worries.
One caveat is that I don’t think that there is no place for Costco in the world. There are certain situation where it could be great. For example, for large families. For them, what we may think of as bulk is just regular. In that case, you could probably save a lot of money. Also, if you’re some hyper rational human who never shops emotionally, go ahead and shop there. For the rest of us, stick to clipping coupons.