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?
Increasing a hot dog’s price can induce multiple reactions, but what impact it will have critically depends on several variables, e.g., starting price, the market demand and an image of the hot dog in the customer’s mind. Here are some potential outcomes:Here are some potential outcomes:
Decreased Sales: Since the price increase could be perceived as a change that led to selling fewer hot dogs overall, especially if customers feel the price is too steep. The likely scenario is that people who would have been buying the hot dog anyway, will be the ones still willing to pay for it even if the cost increases slightly above what they were willing to pay for.
Increased Profit Margin: If the hot dog production cost remains steady and the price is upped per unit sold, then this could result in a regarded profit margin for the food stand. While this scenario implies that the rise in price is not considerable than the decrease in sales, the latter might be very significant to push the overall loss.
Perceived Quality: For some of your customers, the higher price may be tied to highest quality products. If the hot dog is given the premium or gourmet status then the price is up. The perceived value of the product is amplified.
Consumer Perception: Brand or business image can be affected by simple matter of increasing prices. If, customers understand that justification behind the price increase is a result of improvements in product quality, service delivery, or any other factor, then its impact might be viewed positively.
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 of price elasticity of demand illustrates the extent to which the amount demanded has an impact with respect to change in price. You should expect that if the demand for hot dogs are relatively inelastic (do not react to price changes), a price increase will trigger a unit elastic (reaction that is proportional to the change in price).
Even if it seems as if the changes to the prices should be made without a doubt it is in the best interests of the beverages company to delve into the factors and also conduct the market research before making the decisions. Consumer insight, understanding the competitors and your product value proposition is very important in balancing price and demand which have impact on the sales generation.
Conclusion
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.
