Part 6/8:
Costco's approach of offering a loss leader food item, priced deliberately low to attract customers, exemplifies smart business strategy known as "loss-leading." This tactic encourages patrons to enter the store for the inexpensive meal while, ideally, they will leave with larger, higher-margin items. The philosophy functions similarly to restaurants giving away free bread or water to enhance customer experiences and promote larger meal purchases.
Costco successfully employs loss leaders beyond the hot dog, with other notable examples including their $5 rotisserie chickens and competitively priced gasoline offerings.