Labor discipline came with rigid rules too. Wages rose with tenure. The longer you stayed, the harder it was to be fired: After one year, termination required a general manager’s approval; after 10 years, a vice president’s sign-off. The message was clear: Loyalty went both ways.
Pricing discipline was equally rigid: No branded product could be marked up more than 14%; no Kirkland Signature product more than 15%. No exceptions, even when customers would never notice a higher price.
To demonstrate, Sinegal often gives the example of Costco selling Calvin Klein jeans for $29.99 when competitors were pricing them at $50 or more.
When buyers secured a shipment at an even lower cost, Costco cut the price to $22.99. Sinegal told my students on multiple class visits, “Do you know how tempting that is—if you’ve got 100,000 pairs of jeans and you know you can make seven bucks a pair on them? Once you do, that’s like taking heroin. You can’t stop. It becomes addictive, and then you’ve changed your business plan totally.”
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