Does Shopping at Costco Save Money?

While I'm out on vacation this week, we're re-posting some of our favorite stories from the past. This story was originally posted on Dec. 28, 2007.

If you find yourself drawn to membership-based stores such as Sam's Club or Costco, which charge customers a fee for the ability to shop there, because you believe they save you money, you are not alone. But you also may be wrong, at least some of the time.

According to new research from Harvard Business School, paying a fee to shop leads people to think they are saving money even when they aren't. The researchers acknowledge that membership stores do often sell products at a discount. By their calculation, one New England Costco was 9.5 percent cheaper than a nearby Wal-Mart.

But they suggest that shoppers are likely to buy more than they would otherwise (including massive amounts of pasta or toilet paper) when shopping at stores that charge a membership fee because they believe they are saving money. Not only might shoppers end up with more macaroni than they could ever eat, but in some cases, the authors point out, products may be no cheaper than at a local discount store, where you can shop for free.

"Over and above actual savings, consumers have a general belief that they will save on all products, inferences which are likely erroneous at times," the researchers, Harvard's Michael Norton and Leonard Lee of Columbia Business School, write. It's difficult for people to calculate their savings and correct their savings perceptions, because products are usually sold in bulk at the membership stores, making price comparisons complicated.

Their conclusion is that consumers—who have made warehouse clubs a $120 billion industry—seem to behave irrationally in response to membership fees.

• What do you think? Do you prefer to pay a fee to shop at discount stores or do you think fees can trick you into spending more than you would otherwise?

Twitter: @alphaconsumer

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