You probably know that people feel VERY passionately about Costco and its many treasures, including its famous food court. And while we love their pizza, churros, and chicken bakes, nothing gets people more hyped up than its hot dogs. But if you wondered why they’ve been able to stay so cheap over the years. Apparently it’s the result of some hard work and well…a threat. Once he told “if you raise the price of the hot dog, I will kill you”.
This week, a Mental Floss article from 2018 made the rounds on Twitter because people were shocked by a particular threat surrounding the price of hot dogs from Costco’s co-founder. During a 2018 luncheon, Costco’s current CEO W. Craig Jelinek told the story of when he was COO. He apparently told co-founder and then-CEO Jim Sinegal that they needed to raise the price of hot dogs because they were losing money by selling the iconic $1.50 hot dog and soda combo.
For reference, the price has not been raised on the combo since 1985, and it sounds like Sinegal was not in favor of a change: “I came to (Jim Sinegal) once and I said, ‘Jim, we can not sell this hot dog for a buck fifty,” Jelineck recalled, according to a post by 425 Business. “We are losing our hindmost ends.’ And he said, ‘If you raise the price of hot dog, I will kill you. Figure it out.’ That’s all I really needed.”
And though Jelinek said that he doesn’t think people would really care if they raised the price by a quarter or so, it was the principle of the thing. In the end, Costco ended up constructing its own hot dog manufacturing plant in Los Angeles to make Kirkland Signature hot dogs and keep the values lower. They even later opened one up in Chicago! I’m telling you…people are passionate about these dogs. So the next time you snap into one, you know who to thank for its low price.
Why the Price of hotdog Didn’t Increase?
Raising the price of a hot dog can have various effects, and the impact may depend on several factors, including the initial price, the market demand, and the perceived value of the hot dog. Here are some potential outcomes:
Decreased Sales: A higher price could lead to a decrease in the number of hot dogs sold, especially if customers find the new price too expensive. This might be particularly true if the hot dog was already at the upper limit of what customers were willing to pay.
Increased Profit Margin: If the cost of producing the hot dog remains relatively stable and the price is increased, it could lead to an increased profit margin per unit sold. However, this assumes that the decrease in sales is not significant enough to offset the higher price.
Perceived Quality: Some customers may associate a higher price with higher quality. If the hot dog is positioned as a premium or gourmet product, a price increase might enhance its perceived value.
Consumer Perception: Raising prices could affect the overall perception of the brand or business. If customers feel that the price increase is justified by improvements in quality, service, or other factors, it may have a positive impact.
Competitive Positioning: If competitors offer similar hot dogs at lower prices. A price increase could make your hot dog less competitive. However, if the hot dog has unique qualities that justify the higher price. It might still attract a specific market segment.
Elasticity of Demand: The value elasticity of demand measures how much the amount demanded changes in response to a change in price. If the demand for hot dogs is relatively inelastic (insensitive to price changes), a price increase may result in a proportionally smaller decrease in quantity demanded.
It’s essential to carefully consider these factors and conduct market research before making decisions about pricing changes. Understanding your target market, competitors, and the value proposition of your product is crucial to finding the right balance between price and demand.
In conclusion, raising the price of a hot dog can have diverse effects. And the outcome depends on various features such as market demand, perceived value, and competition. While a higher price may lead to increased profit margins per unit sold. It could also result in decreased sales if customers find the new price unappealing. The perceived quality of the hot dog, consumer perception, and the elasticity of demand all play crucial people in determining the success of a price increase.
Careful consideration and market research are essential before implementing any pricing changes. Understanding the dynamics of your target market, evaluating competitors. And ensuring that the perceived value justifies the price increase are key factors in making informed decisions about pricing strategies. Ultimately, the goal is to attack a balance that aligns with customer expectations. Maintains competitiveness, and supports the overall success of the product in the market.