30 years ago, this decision helped make Costco the second largest retailer in the world

One business strategy Jeff Bezos used to build Amazon was to focus on things that don’t change. Low prices. Quick delivery.

And a large selection: the more choices, the better.

Costco took the opposite approach. Costco’s strategy for items offered in warehouses? The fewer choices, the better.

From a retailer’s perspective, this approach makes sense. In a rather famous experiment from 2001, researchers found that people bought more jelly when fewer options were available. Although the offer of 24 types of jam attracted more customers, only 3 percent of them actually bought. Compare that to what happened when people only had 6 choices. 30 percent of them made a purchase.

And felt greater satisfaction with their selection when their options were more limited.

That’s why you’ll only see, say, a few different cereals on display. Or a few types of nutrition bars. Costco tends to stock only a few types of a particular item; if you are looking for socks, choose between these.

But that also extends to Kirkland, Costco’s house brand. Early on, Costco offered dozens of private label brands. You can buy Coke, or Costco’s house brand, Simply Soda. You can buy Charmin, or Costco’s Chelsea toilet paper.

Then Costco co-founder Jim Sinegal spotted an opportunity. As Sinegal said, “We found that there was a resurgence of private label products, and it was driven very much by the fact that the prices of branded products were growing so quickly. The result was an ‘umbrella’ that Costco could use to develop its own brands Sinegal said in a lecture at Georgetown University in 2019. Rising prices for big brands resulted in an “umbrella” for Costco to develop and offer its own brands, at prices about 20 percent lower than big brand alternatives.

“Conventional wisdom said you had to have a different name for each product class,” Sinegal said. Like Sears, which had Kenmore appliances, DieHard batteries, Craftsman tools…

“We looked at it and we said, you know, we’re in so many countries and we have such a wide range of products that we want a room full of lawyers doing nothing but trying to clear these names.”

And Kirkland Signature was born, replacing all the various private labels. Create one brand identity for customers to remember. Create one logo, one uniform packaging style that can be used on current and new products… and fewer choices for customers.

Do you want toilet paper? You can buy Charmin, or pay a little less for Kirkland Signature. Instead of choosing between ten or fifteen brands of toilet paper, choose between two.

And are much more likely to be satisfied with your purchase, because the options are limited – and the potential for regret is greatly reduced.

Sure it works: Kirkland Signature makes up over 30 percent of all Costco sales, and is experiencing growth at a higher rate than total Costco sales.

Still, most retailers haven’t jumped on the one-size-fits-all private label branding bandwagon. Walmart has at least ten private labels. The target has dozens. According to at least one analysis, Amazon distributes over 400 different house brands.

And that strategy might not work for you either.

But you should at least consider it, especially if you’re launching a startup. More choices for customers means more products to stock, marketing materials to create, inventory to stock (and pay for)… when you’re resource-constrained, complexity is your enemy.

And according to research, it can create choice overload for your customers.

Which can lead to them not making a choice – and buying – at all.

The opinions expressed here by Inc.com columnists are their own, not Inc.com’s.

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