How Costco Primes Us To Spend More Money…

by heather

costco-tvsYou don’t need me to tell you that it’s really hard to save money at Costco. And, I’m not talking about saving money on the price-per-pound for ground beef, or the cheaper price-per-ounce of Jiffy Peanut Butter.

On those things yes, you’re saving money compared to buying at the grocery store.

What I’m talking about is the Ralph Lauren swimsuits. The super massaging leather easy chair and ottoman. The flat screen tvs. The Gucci handbags, and the expansive DVD section.

There is a big reason why Costco stocks these things instead of just food. And, it’s because we buy them. Big time.

I recently finished reading the book, How We Decide, by Jonah Lehrer. And, it’s an incredibly fascinating look at how, exactly, we go about making decisions.

This post isn’t a review of that book (which was amazing). It’s a post inspired by one section of the book, on how stores prime our brains to spend more money.

All research for this post comes from author Jonah Lehrer, and is fully credited to him.

A Quick Look At Our Decision-Making Process

Think about your last trip to the grocery store. Specifically, the cereal aisle.

If you were alone, with time to choose the cereal you wanted, your thoughts might have gone something like this:

“Wow, that Bare Naked Granola cereal looks really good and healthy. Oh, but it’s $5. Too expensive. But that box of Frosted Flakes would be tasty. Oh, but that’s got way too much sugar. I need to eat more fiber anyway. Maybe Raison Bran? Oh, but that cereal’s gross. Maybe Fiber One. It’s $4? Crikey. Maybe there is a store brand that’s tasty…”

And on and on.

All these thoughts probably took no more than two seconds. Walking down the cereal aisle is just like having one long arguement with yourself.

What Lehrer points out, and what we don’t realize, is that all of these arguments trigger a specific set of emotions and associations (page 199).

Sure, we want those Frosted Flakes. That wanting is a very strong emotion. But, we know we need to eat more fiber because it’s good for us. This thought has less wanting, but more obligation, so it triggers a weaker emotion. But coupled with a lower price, and our desire for saving money (which is still a weaker emotion than our wanting of the Frosted Flakes), we might end up buying the fiber cereal.

Most of the time our decisions are not based on logic, even though we think they are. They’re based on emotion.

Our Brain’s Reaction To Shopping

Now, think about how you feel when you find something fabulous in the store. You get excited, right? Your breathing may quicken, your heart starts to pound, and you reach out to just touch it.

When we see something we want to buy, our brain is instantly activated. Know what it does?

Our nucleus accumbens (NAcc), which is the pleasure center of the brain, releases the hormone dopamine, which is the precursor of adrenaline. Dopamine is very, very powerful. Scientists James Olds and Peter Milner discovered that when rats are overstimulated with dopamine release, they’ll literally die of pleasure (pg. 35).

So, the stronger we want something the stronger our NAcc activation, and the more dopamine is released.

Knowing this, scientists can literally tell if we’re going to buy an item before we even know it. It happens that fast.

How Stores Prime Us To Spend More

Let’s go back to Costco. You know what you see when you walk through the door of every Costco store?

You see all those huge, gleaming flat screen tvs. Who wouldn’t love a big flat screen? We see these things and guess what happens? Our NAcc kicks in, and dopamine is released.

But, we may not have $1,200 to drop on a new Sony. So we walk on.

Then, we pass the jewelry counter. And the designer handbags. And the DeWalt tools. And the leather easy chairs.

With each look, our NAcc is being prodded, and the dopamine is flowing good. We want that. And that. And that. We get into a state of wanting.

All this is doing is conditioning us to crave a reward.

What’s key to understand about all this is that we may not buy a $1,200 flat screen that day. Or that $800 easy chair. Or that $300 hand bag.

But our brains have been incredibly stimulated by now to want a reward. So, we’ll probably buy that $12 box of cookies. And maybe that beautiful $20 hyacinth bush for the front porch. And, what the heck, that $30 jacket.

After all, we think, $62 is way less than those other things, right? And besides, we deserve a treat.

And the House Wins…

By strategically placing those tvs and handbags and diamond rings in high-traffic areas, Costco just got an extra $62 out of us. Just by stimulating our dopamine production.

Yowza.

Knowledge Is Power…

So, what do we do with this information?

Well, I’m one of those “knowledge is power” kind of girls. I really think that knowing what is going on in our brains can help us take a step back and analyze what we’re doing.

Walking into Costco, or any retail store, is always going to be fraught with dopamine production, which means our wallets are threatened. But knowing that stores are deliberately priming you to buy a reward for yourself, even if it’s just a little one, can help you stick to your list and walk away with a bit more money in your pocket.

My Thanks…

My thanks go out to Jonah Lehrer for writing How We Decide. It’s an incredible book, and if you’re at all interested in learning how your brain works, how you make decisions, and how you can start making better ones, then pick this book up. Lehrer’s writing style is interesting and fast-paced, and you won’t want to put the book down once you start it.

And, his picture on the back dust jacket is completely worth the price of the book.

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{ 25 comments… read them below or add one }

me in millions July 1, 2009 at 10:39 am

That’s facinating. Thanks for making me think.

Health Insurance Quotes Guy July 1, 2009 at 3:12 pm

I think it’s easy to say, “Hey I’m not at this big box store very often so I better stock up.” And of course spend more. We all do – I think we actually look for things to buy even if we don’t exactly need them.

Jari Chevalier July 1, 2009 at 4:10 pm

I also appreciate Lehrer’s research and the great examples he uses to make his points, which give us greater awareness and, thereby, powers of more conscious choice. I think you might really appreciate the audio interview I did with him, just published this morning. Find it here:
http://jari.podbean.com/2009/07/01/interview-with-jonah-lehrer
Would love to hear from listeners. Best wishes, Jari

heather July 1, 2009 at 4:13 pm

Jari,

Thanks so much for posting that! That’s so cool you got to talk with him.

I’ll definitely give it a listen.

Mrs. Money July 1, 2009 at 4:19 pm

Awesome post! I know that seeing those tvs every time at Costco has made me want a new tv! My hubby wants a HDTV desperately, but if we get one, we’ll have to get a new tv cabinet too. I don’t think so! πŸ˜‰

heather July 1, 2009 at 4:28 pm

Mrs. Money,

Thanks so much!

I know what you mean; a purchase like that often opens up a rabbit hole of other things, which cost even MORE money…

Hmmm….maybe that should be its own post! πŸ™‚

Mike Pastore July 2, 2009 at 9:07 am

Very true. When you see a store that usually sells food but suddenly displays interesting items like flat screen tvs and Gucci handbags, it’s merely to attract your attention and make you want to buy one. But because it’s not in your plan and budget, you opt to buy smaller items in order to fill the frustration for not being able to buy the flat screen tv that you die for. The bottom line? You spent more than you’re supposed to.

For tips on personal finance, visit http://www.mikesmillions.com/blog.

Jennifer July 2, 2009 at 9:41 am

Interesting! (And this is why I always make a shopping list.)

Logan July 2, 2009 at 4:03 pm

Hi Heather,

Thanks for the great article! Since you liked Jonah Lehrer’s book you may also like Laurence Gonzales’ book “Deep Survival” that discusses similar thinking patterns in documented emergency survival scenarios. I read a sample of “How we decide” on Amazon and find that it is very interesting in both these books that the writers narrate so well that it feels like you are in these scenarios and you actually catch your own physiology reacting with faster breathing and heart rate. πŸ™‚ Thanks for sharing.

Cheers,
Logan.

Marc July 10, 2009 at 12:31 pm

I shop at Costco every other week and never knew they had guicci hand bags or diamond rings. I have seen the TVs, but I don’t have cable and have toyed with idea of getting rid of my old tv anyway. I have looked at the clothes and bought socks and underwear (which were a good price). I guess my comment to this would be, the placement works if you want the item(s), and if you want the items Costco is providing you a convenient way to waste your money.

gerard pawling July 11, 2009 at 9:31 am

for some of us less fortunate members of society, we also get the same emotional charge while walking through our local dollar tree store – just look what $0.99 can buy!

Katie July 14, 2009 at 1:17 pm

Great post, but what happens to all that dopamine if it isn’t rewarded? Can you get a window shopping high that lasts?

heather July 14, 2009 at 4:08 pm

Wow, thanks for everyone for chiming in about this! I love it when a post sparks a great discussion.

@Logan, I’m so sorry I’m just now getting back with you on your great suggestion! Sometimes comments fall through the cracks. I’m definitely going to look into that book. I love the psychology behind survival situations. Years ago National Geographic Adventure Magazine published a stunning feature on what really happens to us when we’re thrust into a survival situation. After reading it, I was hooked! So fascinating. Thanks for the tip on the book!

@Katie, that’s funny to think of all of us on a dopamine high! πŸ™‚ I would imagine it being more like an addict who doesn’t get their “fix”, though. You know, unsatisfied, mildly frustrated…not good.

Jim September 17, 2009 at 9:48 pm

Funny. I can go into Costco with a list, and walk out with nothing more than what was on my list. It’s not Costco’s fault you’re weak-willed.

JanScholl September 17, 2009 at 10:02 pm

I shop at Costco about once a month. I only buy the things I know are a good deal. I also use the coupon booklets they send in the mail and plan some purchases like granola bars, oatmeal, other food items, pet food etc around them. I do not buy the dvds. Target has better prices. Books, Amazon is better. I do not buy the designer anything-twelve dollar jeans fit my butt just as well as 200 dollar jeans. (I told a woman recently that the purse she was buying was my mortgage payment-she didn’t laugh, maybe because I don’t buy more house than what I need either). I buy some electronics at Costco because with my credit card, I get one to two years of added warranty. Recently our 14 year old tv died. I researched the models Costco had with shopping bots online. I narrowed it to the two best deals. Costco beat both prices and I got a three year warranty. When it died at three weeks of age-yes, three weeks-I took it back and got another, no questions asked. I always buy in bulk other than perishables-I have a pantry of black beans and peanut butter-vegetarian items are hard to find at good prices, so I stock up big time. I charge to my credit card, pay that in full and never look back. Common sense-if I think I really absolutely want something, I walk around the store getting what I really really need then go back to the item….usually by then, I don’t want it anymore. Don’t buy what you can’t afford to pay for on the spot. I only use cc’s for the points or warranty. And that nice new tv (we have only had three tvs in 37 years) sits on an old coffee table just fine. Now I can see my sports just fine without the blue ghosts. I hope this one lasts as long as the last. πŸ™‚ Costco has it’s place as does Target, the farmer’s markets, etc. Common sense.

Bob Smith September 17, 2009 at 11:38 pm

There actually is another reason why those items are in the front of the store. It’s nothing to do with what the author has stated. The reason why those items are in the front is because they have one of the highest profit margins for retailers, plain and simple. Plus, everyone gets exposed to them as everyone must walk passed them! It’s a well-known fact that expensive items like jewelry (which has a profit margin between 40-50%) and electronics (which has a profit margin of about 20%) provide higher margins that food items (which has a profit margin less than 3%).

This is why Walmart is expanding their electronics section. Walmart wants to make higher margins on the more items.

William September 18, 2009 at 9:54 am

What is up with the font on this webpage? Tops of letters are cut off, and this is happening in Firefox and Internet Explorer…

Jeff Yablon September 18, 2009 at 10:56 am

GREAT piece, seriously.

And yes, that really is how (all) shopping works. Some of us are just better at maintaining rationality than others.

I hate GeekSquad more than anyone does, but honestly it’s a great price for the convenience. I know that as geeks we forget that, but think about the time you save here.

Jeff Yablon
President & CEO
Answer Guy and Virtual VIP Computer Care, Business Coaching and Virtual Assistant Services

Mike Santoro September 18, 2009 at 12:30 pm

Awesome post. One of my favorite books is The Psychology of Persuasion by Robert Cialdini. It’s similar to this and analyzes why people make the decisions they do based on a bunch of famous psychological studies. Fascinating stuff. I’m definetely adding this book recommendation to Amazon Wish list. Great post!

Peter September 18, 2009 at 1:00 pm

Does this also explain why everyone in the parking lot at Costco drives like a total d-bag?

Heather September 18, 2009 at 4:17 pm

I found your post through consumerist.com- great article! I actually saw that book and almost bought it, but have been thinking about it for a while now. Oh, and guess where it was that I *almost* got it? Costco, of course- haha!!

Nicole September 19, 2009 at 11:52 am

I’m arriving a little late to the party, but this commentary on Costco simply wouldn’t be complete without mention of the various other ways our emotions are triggered in this store. A couple here…

I shop at Costco about twice a month. It is a rare occasion that I forget about the food samples en route to the store. Free food and “trying it before you buy it” have triggered purchases I might not have anticipated making. While the quality has never failed me, I am sometimes leery about unfamiliar brands. Costco addresses this with their samples and (sometimes) knowledgeable sample givers.

Friendly, unobtrusive, and accessible staff make my shopping experience painless. For a store that sells such a wide variety of products, I’m always impressed by my ability to find an associate nearby who can answer my question. While restocking items, their palettes are never blocking the flow of customer traffic and the manner in which they carry on, alone and with one another, suggests a sense of pride and enjoyment. I feel like Costco cares about my experience and has taken noticeable measures to ensure my return. Long cash register lines are sometimes irritating, however considering the bulkiness of many products, the lines move relatively quick.

Once I’ve spent my 1-2 hours in the $200 store, as we affectionately refer to it in my house, we wait in line to have our cart and receipt looked over. Ever notice the wall of additional services provided to members on your right-hand side? Travel, auto purchase, tires, flooring, window treatments. I’m probably missing a couple. If Costco has done right by you while shopping in the store, you’re sure to infer that the quality and value stretches beyond the confines of the big box store. I, myself, have perused a brochure or two!

Great post, Heather!

JJ September 21, 2009 at 10:21 pm

Very interesting, definitely worrisome but absolutely and utterly fascinating. Thank you for this fine post!

Travis Nielsen March 30, 2010 at 2:36 pm

Dopamine is not a hormone it is a catecholamine neurotransmitter.

NurseJoc April 1, 2010 at 11:53 pm

Guilty… I am unfortunately guilty of being a true account of this entire article.

As a matter of fact, I nearly bought an $800 treadmill on impulse D:

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