Why Costco Beats Amazon: The Secrets Behind Its Low Prices

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Costco is a membership-based warehouse retailer founded in the United States. Its stores are massive warehouses filled with bulk items, from groceries to electronics, all offered at discounted prices. Unlike traditional stores, Costco requires customers to purchase an annual membership to shop there.

An incredible 75% of Costco’s profits come from these membership fees. And once you’ve paid for that membership, the sunk cost fallacy kicks in. You feel obligated to use it, ensuring you keep returning for those deals.

Step inside a Costco, and you won’t find elaborate displays or sleek interiors. Instead, you’ll see pallets stacked high in a warehouse setting. This minimalist approach saves money on decor, letting Costco focus on what matters: low prices. Even the forklifts putting pallets directly onto shelves are part of the strategy—it’s all about efficiency.

Costco has a hard rule: no product can be marked up by more than 15%. For comparison, most retailers have markups of 30–50%. This means Costco isn’t just keeping prices low—it’s keeping them fair. And if suppliers don’t meet Costco’s standards for quality or price? They’ll introduce their own Kirkland Signature brand, known for its competitive pricing and high quality.

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Costco’s simplicity extends to its logistics. By focusing on bulk items and fewer choices, it reduces overhead and supply chain complexity. This benefits the customer directly: you get high-quality goods at unbeatable prices because Costco refuses to waste money where it doesn’t need to.

The beauty of Costco’s model is that its goals are aligned with its customers’. It doesn’t just want you to spend more—it wants you to come back. Keeping prices low and quality high ensures that members renew their memberships year after year, creating a cycle of trust and value.

While Amazon relies heavily on its Prime service to lock in customers, Costco flips the script. Membership fees keep the lights on, so they can focus entirely on offering low prices and high-quality goods. This is why their business model works so well—it’s built for long-term customer satisfaction.

One of Costco’s greatest strengths is its private label, Kirkland Signature. From olive oil to batteries, Kirkland products often match or beat name brands in quality—and they’re almost always cheaper. By controlling production, Costco eliminates middlemen, passing the savings directly to you.

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