The Real Reason Costco Doesn't Advertise
In this day and age, there's no doubt advertising is everywhere, from billboards marketing the latest hard seltzer to TikTok ads for DoorDash. Let's not forget emails for "great deals you don't want to miss!" and over-the-top commercials on your TV. Some days, it might seem like you'll never escape advertisements.
As it turns out, U.S. advertising is a costly business — all media advertising in 2021 alone cost about $262.4 billion, says Statistica. For individual businesses, experts do recommend spending at least 5% of revenue on advertising. For larger companies, however, the amount of money spent on advertising can be astounding. To put that in perspective, in 2018, this was about $6.1 billion for Comcast, $4.5 billion for Amazon, and $3.1 billion for Disney (per Business Insider). And believe it or not, those costs have only gone up in the last few years.
However, not all businesses spend big bucks on advertising. Costco, for example, doesn't even bother with commercials or billboards, or any ads at all for that matter. But why not? Doesn't Costco need to market itself in order to compete with other stores? Well, no, not really.
Costco doesn't need to pay for advertising
When you really think about it, you'll realize that you've probably never seen a Costco ad in print or on TV, but you've definitely heard about Costco from others. This word-of-mouth advertising is the best kind — completely free. And if you ask Costco it's just as effective as spending big bucks for a radio spot or other high traffic appearance.
Another benefit of Costco choosing not to advertise is the savings, which is about 2% a year, according to The New York Times. This 2% helps Costco keep lower prices for shoppers (per Business Insider). During an interview in 2013, Jim Sinegal, one of the Costco co-founders, said Costco was built on the idea that advertising is "evil ... because it costs money; anything that is going to raise our price on merchandise is bad" (via The Motley Fool).
Low prices attract people like moths to a flame and we can't blame them. Thanks to this strategy, Costco can send promotional mail out to members only and prompts Costco celebrity super fans, like Kris Jenner, spread the word.