Loss leading and the Costco $4.99 rotisserie chicken

In my ECONS101 class, when we cover pricing strategy, we talk about firms making strategic pricing decisions where they may not be profit maximising on one product, but that enables them to maximise profits from other products they sell. The obvious example of this is loss-leading, which is a relatively common practice at supermarkets. Supermarkets sell some of their products at a loss, in order to encourage more shoppers into the store, with the goal of getting those shoppers to buy other products that the supermarket can profit from. In this recent article from The Hustle, we find out that (unsurprisingly) Costco does the same:

Costco debuted its popular, 3-lb. rotisserie chickens around 2000, pricing them at $4.99.

More than two decades later, they're still $4.99.

Despite record-high inflation, supply chain woes, and the rising production costs of poultry, the retailer has refused to raise the price of these prepped birds.

Adjusted for inflation, Costco should be selling its chickens for $8.31.

The Hustle notes the benefits of loss-leading as not simply limited to profiting from other products:

But [John Longo, a professor at Rutgers University] says these chickens serve other important purposes for Costco that go beyond immediate profit:

Value signaling: They reinforce the idea that the Costco brand is a good deal, potentially leading to more membership sign-ups ($60-$120/yr).

Good press: The company's refusal to raise the $4.99 price during inflation makes it look benevolent in the public eye.

I recently wrote about the two-part pricing model of Costco here. Loss leading is an important strategy for Costco, and not just limited to rotisserie chickens. I loved this example (which I have also read elsewhere):

Costco's ex-CEO, Jim Sinegel, was so impassioned about the $1.50 hot dog combo that he once famously told a colleague: "If you raise [the price of the] effing hot dog, I will kill you."

That important. It's highly likely that Costco is doing something similar at its store in New Zealand. I haven't been there. Is it rotisserie chickens? Hot dog combos? Or something else? Certainly, they will be loss leading on something at their West Auckland store.

[HT: Marginal Revolution]