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Episode 31 Costco: Loyalty Cards, Ski Trips, and the Sunk Cost Effect

In this episode, we dive deep into motivations that drive the consumer when it comes to locking in their purchases. Be it the effect of loyalty programs or the theory of sunken costs, Costco has done this to great effect.

Episode Highlights

Sunk Cost Effect

The sunk cost fallacy is our tendency to continue with an endeavor we've invested money, effort, or time into—even if the current costs outweigh the benefits.

Ran Kivetz Study

Ran Kivetz did a study to test the theory of sunken costs and found that even if the same requirement was given, people that felt they would lose out more were less inclined to stop halfway. Even if both groups had to put the same effort in, the illusion of having already progressed in one made them feel compelled to finish.

Falk Study on Reciprocity

Armin Falk found that more people responded to a plea when they were already given something ahead of time, like a post card before asking for a donation. The principal of reciprocity is in essence doing something small, that makes the other party want to reciprocate. This is the principle used when it comes to giving food samples at leading stores - like Costco.