Dollar stores make billions. In 2018, Dollar Tree made $22 billion in revenue, and Dollar General’s stock was worth $36.5 billion as of July 2019.
The stores are designed to get customers to spend more money, from keeping product sizes small to stocking private-label goods.
Dollar stores also tempt customers who like the feeling of finding a good deal.
On average, a new dollar store opens in the US every six hours.
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Following is a transcript of the video.
Narrator: Dollar stores might seem like a great way to save money.
Just look at this battery pack for a dollar! And this toothpaste, also a dollar!
But before you rush to the checkout, take a closer look at the brands and sizes. They’re different from what you’d see at a local CVS or a Walmart.
And it turns out, those are just some of the sneaky ways that dollar stores get you to spend more.
Priya Raghubir: I would definitely say a dollar store is like treasure hunting. Because you are looking for that rare gem, you know, maybe it’s picture frame that would normally cost you $4.99 and you get it for $1.99.
Narrator: And this treasure hunt intentionally happens in a small space. Overall, dollar stores tend to be smaller in size. A typical Dollar Tree, for example, is just 8,000 to 12,000 square feet. That’s roughly one-eighteenth of the size of the average Walmart.
This makes for an easy shopping experience where you can quickly go through the entire store, increasing your chance of seeing something else that might strike your fancy.
Their inventory setup is also strategic: Seasonal products are placed in the front, so you’re tempted by the newest products right away, most of which are single-use items like holiday-related party supplies, while the most popular items are placed in the back, so you have to walk through the entire store to get to them.
Family Dollar, for example, puts all the food and toys in the back.
And these tactics are all part of a dollar store’s strategy to get you to buy more while you’re there. In marketing, this has a term. It’s called the momentum effect.
Raghubir: It’s a super interesting effect which essentially shows that if you buy something which is really cheap, then, after that, the likelihood of your buying something else that is more expensive increase. So, shopping creates a momentum.
Narrator: So, the more things you see as you pass by, the more you’ll likely purchase. Small impulse buys, like candy and ChapStick, are also available at the registers to tempt you during checkout.
But getting you to buy more per visit isn’t the only tactic. It’s also the frequency of visits you make.
Take that $1 tube of toothpaste. Here’s a Colgate toothpaste we bought at CVS compared to the same one from Dollar Tree. These smaller products keep prices low but also mean you’ll need to replace them more often, which means more visits and even more spending.
Plus, it’s ultimately cheaper to …read more
Source:: Business Insider