The Story of Costco | Mr.Beast, The Advertising Brainiac | First Episodes Of TV Shows As Gateway Drugs & More.

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The Story of Costco, An advertising case study about Jimmy Donaldson aka Mr.Beast, Free first episodes of tv shows from the marketing perspective and more.

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Marketing Storytime

The Story Of Costco?

You Have To Pay Us For Buying From Us?…?

There’s this famous joke from Warren Buffet about their obsessions with Costco which goes like this:?

Charlie and Warren were in a plane that got hijacked. And Hijackers came to them and granted one last wish before they shot them.?

They asked Charlie first. Charlie said I like to give once more of my speeches on the virtues of Costco.?

Then when they asked Warren, He said ‘shoot me first’.

And?…. This is the story of America’s beloved warehouse brand?…?

Costco Wholesale.

The Legendary Sol Price

The story of Costco goes all the way back to the legendary Sol Price, who is recognized for his huge retail capitalistic influence and the legacy he left for the world of business.

Sol was born on January 23, 1916, as the son of Samuel and Bella Price, who were Jewish immigrants to the United States from Belarus.?

Sol’s parents came to America with absolutely nothing. No English. No Higher Education. No money. Basically Nothing.?

So they had to work in garment factories in New York to make a living for them in the States.?

This is the early 1900s, and the garment factories that existed this time around operated under terrible work conditions.?

Not just terrible, It was extremely terrible.?

The factory owners used to lock factory doors to keep workers inside the buildings to prevent stealing.?

This time around, a fire broke out in a garment factory building killing hundreds of factory workers, mostly women and young girls.?

This distress caused the emergence of the American labor movement.?

Under all this distress little Sol grew up with a drive to excellence from his early high school years. A few years later, the Price family decided to move from New York to San Diego for a new life.?

The San Diego they moved to isn’t the San Diego we see today. Before the end of the war, It was unpopular and didn't have any technological development.?

But, It was one of the best things to happen to him.?

Why? You’ll about to know.

Choosing law and partnering with entrepreneurs

After graduating from college, Sol chose law as his career path.?

His timing could not be any better. After the war, San Diego was about to transform into the San Diego that we know today by becoming a major hub for defense manufacturing & technology.?

The entrepreneurial spirit was about to rise in the area.?

Receiving this opportunity well, Sol started consulting entrepreneurs who came to the area with new transformational ideas.?

He helped his clients with real estate deals, bankruptcies, contracts, and partnerships. And by doing so he learned a hell lotta things about the business world.?

But something happened when he was consulting a client.?

A client who wanted to start a jewelry business talked with Sol about a business model of an emerging retail club in LA called, Fedco.?

Fedco was a non-profit membership store that served federal employees mainly postal workers.?

And they wanted to bring Fedco into San Diego.

But, After getting rejected two times trying to partner up with Fedco, Sol with his jewelry guys chose to do it their own by forming a brand new company.

The Revolutionary FedMart

Sol got a good location for the store, a place his mother-in-law previously bought as an investment property. And they set things up quickly and started FedMart in 1954.?

?The core business concept of FedMart was simple.?

Charge a membership fee from the customers and sell products at a thin margin. The gold wasn’t really in the product they sell, but in the membership fee they charge.?

Unlike Fedco, FedMart was a for-profit company that charged a recurring monthly fee from its members.?

That was the key difference between the FedCo And FedMart.?

But, Sol’s genius comes in here.?

At the time, Discounting stores weren’t a thing. One reason for that is because, at that time, It was illegal to sell products to the public below the manufacturer’s minimum price.?

But, the thing is FedMart wasn’t open to the general public. They served only for their members. And that advantage helped Sol break the rules and give birth to an entire industry.?

The discounting warehouse stores that are known today, KMart, Walmart, and Target, Sam’s Club all born after Fedmart.?

Even Sam Walton, the legendary American everyman famously said,?

I stole more ideas from Sol Price than anyone?else.?

This marks the unofficial beginning of the Costco.?

Price Club And Jim?Sinegal?

After years and years of massive success, In 1974, Sol and his co-founders decided to sell the company to a German businessperson for 22 Million dollars (About $125M Inflation adjusted)

However, the new owners who overtook the leadership failed to move the business forward causing the company to close down all their stores in 1982. ?

Then Sol sold his stocks in the company and went for his new venture ‘The Price Company’ in 1975 and opened ‘Price Club’.?

The business model was the same as his previous venture. Charge a fee for the membership and selling products for the lowest possible price.?

Unsurprisingly for Sol, He stayed aligned with his business principles.

Low Expenses. High Quality Goods. Well-paid Employees etc.?

This time around, A person who joined Fedmart as a grocery bagger called Jim Sinegal partnered with Jeff Brotman, an American retail entrepreneur to start Costco Wholesale Club.?

The first co-founder Jim Sinegal joined Fedco in 1954 as an 18-year-old and since then he worked closely with Sol learning almost everything about business from him.?

Sol was Sinegal’s ultimate business guide.?

In a call with a media reporter, Jim was asked if he learned about business a lot from Sol and his response was,

No that’s inaccurate. I learned everything, everything I know.?—?Jim Sinegal

Becoming Costco

In 1990’s the big merger happened between the mentor and mentee.?

In 1993, Costco and Price Club merged to form the new Price Costco, which later became just ‘Costco’.

This merger is the best thing that happened to the retail wholesale industry.?

Since then, Sol’s principles mixed with Jim’s operations created this legendary company that we know today.?

With this incredible leadership, Costco has sustainably grown to the position they hold today being at the top of their industry.?

All this happened because of its roots.

Secrets Behind The?Success

Costco’s success doesn’t depend upon one factor.?

Many excellent business principles that come way before Costco’s birth are responsible for their decades-long success.?

But, for the sake of our understanding, We can break ’em down into 3 key factors.?

1. Strong Company Culture

The roots of Costco’s strong company culture go way back to Sol Price, From the very beginning Sol created a culture inside his companies that put people before profit.?

Both Fedmart & PriceClub were known for their ethical business practices. Then Jim Sinegal simply applied them to Costco.?

All Costco employees from the ground level to the executive level are paid significantly higher salaries than the industry standards.?

Plus, Everyone including part-time employees receives healthcare insurance which is so beneficial.?

This helped create a strong company culture making Costco stronger and better than everyone else.?

Proof? Their employee turnover rate is incredibly low keeping it at 17% while the industry average is 60%.?

Plus, Over 60% of U.S. Costco employees have five or more years with Costco, and over one-third of them have more than 10 years.?

With things like this, It’s not a surprise that Costco’s shopping experience is way better than the industry standards.

2. Brilliant Business Model

The business model Sol created is brilliant. All three companies that applied this model, FedMart, PriceCulb, and Costco succeeded.?

There were some differences. However, the business model remained consistent. Because it worked every time.?

For the customers, Costco offers 3 membership options, Gold star, Business & Executive membership charging $60, $60 & 120 per year respectively.

What this does is it creates the loss aversion effect. This explains that humans feel the pain of loss more than the pleasure of gain.?

?So, People tend to buy more in the membership stores to avoid losing the membership value.

Think about it for a moment.?

If you’re a Costco customer, do you ever think about going to another store to do your shopping??

It’s the dumbest thing that a member can do.?

The smartest thing a member can do is to keep up their membership, do almost all the groceries at Costco, and spend more in the stores to get the most out of the membership.

And here’s something interesting.?

If your goal is to avoid losing the monetary value you hold, you need to buy fewer products (Buy less) and buy products with discounted prices (Buy less).?

But, Costco’s model changes the argument here.?

If your goal is to avoid losing money, You need to buy products for discounted prices (Buy more), and buy all the necessary products there (Buy more) so you can save your membership value.?

This creates a totally different buying behavior in membership stores relative to other stores.?

So, The Costco membership works as a customer and sales magnet for the brand, and at the same time it makes money for them.?

How brilliant is that!

3. Member Happiness | Loyalty

Costco is focused on creating a memorable shopping experience for its members.?

With the membership, you gain access to an entire area full of high-quality goods and services for discounted prices.

From the moment you get in, It’s real deals everywhere.?

Cuz, Costco has a principle that they don’t markup their prices over 15% as opposed to 25–50% markups in most other stores.

Costco has its house brand called Kirkland Signature which has an astonishing range of products all the way from baby diapers, to wine bottles.?

Kirkland goods aren’t just cheaper versions of branded products.?

The goods are known for their quality even some people prefer Kirkland products over more expensive products made by other brands.?

Proof? Kirkland Signature does more revenue than all of Nike. Woh!

There are free product samples, food courts with low-cost items like $1.50 hot dogs, and gas stations with low-priced gasoline.?

Plus, Costco staff is known for their supportive behavior. There’s a huge difference between shopping in a supportive environment vs in a place where staff don’t actually care about customers.

So, All of these combined offer people an enjoyable shopping experience which creates a level of member loyalty that is hard to be shaken by the outside competition.?

Their numbers carry proof of this. With a 90% worldwide membership renewal rate, Which means 9 out of 10 Costco members renew their membership every year.?

That’s impressive.

How They’re doing?now

Today, Costco is a big organization with a market capitalization of 330 Billion dollars.?

They currently own more than 870 warehouses worldwide spreading its market supremacy to the world.

The stock price is up more than a whopping 7000% from its IPO market price showing proof of its successful business principles & practices.

And that’s it.?

I want to finish this story with a quote from Jim Sinegal which I found valuable.?

“You destroy the initiative of the working people if they don’t feel they have a fighting chance to be a part of the American?Dream.”

Marketing Case?Study

Mr. Beast, The Advertising Brainiac

Mr. Beast is one of the best advertising minds I’ve seen. And Here’s why?…

What comes to your mind when you think of watching advertisements online??

Something like this, right??

Most of the time, It’s not something you like. It’s not something you want to watch. And It’s not something you pay any attention to.?

Because you don’t really care.?

You watch them because you’re forced to. So, you ignore them.?

It’s not just the product you don’t care about but also how the messages are being presented. Most of the time, you’ve found ’em uninteresting or seen ’em lots of times before.?

It feels like the advertisers throwing messages at your face and as a natural reaction, you resist them all.?

But, the biggest creator on YouTube, The beloved Jimmy Donaldson aka Mr. Beast somehow solved this puzzle.?

Running a business on social as a content creator is not easy.?

On one side, you need to bring value to your audience consistently to keep them coming while on the other side, you also need to bring value to your sponsors.?

It’s easier said than done.?

I’ve seen so many creators mess things up struggling to find the right balance.?

Is balance the right word for it? idk.

But, What Mr. Beast is doing is simple and interesting.?

What he does is charge his sponsors a large sum of money by showing his viewership and subscriber base.?

Then, use most of them to produce jaw-dropping next-level stories.?

By doing so he grow the fan base more and more. So he can charge even more from the next sponsors.?

This continuous cycle creates perfect win-win scenarios for both the audience and the brands that sponsor him.

His strategy is to make content that evokes elevated emotions like surprise, excitement, and amazement.?

With each piece of content, he creates he sets a level of expectations inside the viewer’s mind, and then with each and every video he creates he continues to break that level of expectation and delight the audience.?

This is so freaking hard to do. I mean literally.?

If you think about the business world, At the beginning of a company at the startup level, It creates that delightment by taking good risks.?

But what happens is when the company scales to a corporation level, it starts to play it safe and the delightment fades away.?

The corporation exists. But the magic is gone.?

But somehow, Mr. Beast is still doing it for years and years now.?

I don't know how that freaking human being continues to delight the audience with each of his creations.?

That’s amazing.?

Let’s see that from the advertising perspective.?

If I am a brand and want to partner with Mr. Beast, I have little to no tension about whether or not the next content is gonna blow up.?

I can just bank the money.?

Because I can clearly see his continuation of the ‘expectation and delight cycle’ which creates predictable growth of the attention he gains and the trust he builds.?

And that’s all that we need, attention and trust.?

The more attention he gains, the more people gonna receive the brand messages, and the more trust he builds, the more people gonna trust the brand he recommends, which is our brand.?

That’s all that we need from an ambassador.?

But still, the question remains, How does he keep the balance between sponsorships and viewership??

By simply ingraining the brand messaging into the nature of his content.?

Let me enlighten you.?

Mr Beasts' content style is unique to himself.?

He took the typical giveaways, challenges, and gameplays to an entirely different level that almost no one is able to copy.?

So, when he shares brand messages, rather than putting the brand messages as something separate from the content itself, he ingrains them into the content.?

He doesn’t try to present adds as fast as he can at a speed that is uncomfortable to hear. He doesn’t try to interrupt the audience with clickbaity lines and animations which is uncomfortable to watch.?

Instead, he Ingrain the adds to his own content style.?

For example, in one video he made, He literally put himself in a cage in the sea surrounded by sharks. He presented the brand message to the end by being inside the cage.?

And for the audience, it feels it’s part of the content.?

Just like all the content he makes, the audience gets all these questions in their mind like ‘Whether or not he’ll be able to complete the presentation?’, ‘Will a shark attack the cage or not?’, or ‘Can he survive?’ kinda questions.?

In many other content pieces, he presents the adds in the most extreme moments of the content that people can’t miss.?

By doing so, he keeps the attention and focus of his audience at the time of the add and viewers can’t skip it. and most importantly, they don’t want to.?

Cuz, it’s not something annoying or dull.?

Every single time, it’s something interesting.

Because of things like this, the level of success he reached isn’t a surprise to me.?

That’s it.?

Lastly, I wanna finish this off with a quote from Howard Luck Gossage.

“Nobody reads ads. People read what interests them, and sometimes it’s an?ad”

Marketing Q&A

Why First Episodes Of Your Favourite Shows Are Free??

Question?— How do you feel about streaming services releasing the first episode of a series for free, such as The Last of Us on HBO?

?Asked By Kirk Fuller

...

Thank you for your question buddy.

I think it works as a gateway drug.?

The decision to watch a series is associated with lots of risks—money, time, and energy.

It’s basically an investment people make. But, The thing is most People are afraid of taking risks.

So, with this marketing approach, they eliminate the monetary risk for the first content piece.

Which allows people to experience the first episode with little to no risk.

On the other side, it’s the opportunity for the brand to build trust in the ground.

If that episode makes them happy enough to continue, then people choose to pay for the series with little to no friction.

So, these purchases ( without any advertising cost ) happen because they made the first episode free.?

I also see this approach in book publishing.

Authors set the first book free for seasons like ‘Stuff your Kindle Day’.

With the first book, they leave those new people wanting more.

Which helps the sales of its sequels.

Most importantly, they get more people to tell their friends and family about it, creating more opportunities for spreading their ideaviruses.

Which can explode the book's popularity.

It is all possible because the thing they have amazing products?

— Product Led Growth.

This is both profitable for the creators and better for the consumers.

A win-win. Which means it’s a sustainable marketing practice.?

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