Costco is inspiring tech CEOs like Jeff Bezos and Mark Zuckerberg in one key way

Broadbandito/Flickr

Costco perfected a strategy that tech CEOs are now trying to imitate.

• Facebook CEO Mark Zuckerberg's notes for testifying in front of Congress quote a line from Amazon CEO Jeff Bezos about companies that "work hard to charge you less."
• Amazon's strategy of working hard to charge less was reportedly inspired by a 2001 meeting between Bezos and Costco's co-founder.
• While tech CEOs have adopted the strategy (and the "Jeffism"), few companies cut prices with greater efficiency than Costco.

Mark Zuckerberg took a note straight out of Costco's playbook while testifying in front of Congress this week.

When photographers managed to capture a photo of the Facebook CEO and founder's private notes on Tuesday, viewers with particularly sharp eyes may have caught a reference to Costco - by way of Amazon CEO Jeff Bezos.

"Bezos: 'Companies that work hard to charge you more and companies that work hard to charge you less,'" one of Zuckerberg's bullets reads.

AP Photo

A close-up of Zuckerberg's notes during his testimony.

"At FB, we try hard to charge you less," the following bullet reads. "In fact, we're free."

The note appears to reference a well-known line from an Amazon earnings call in 2001, first spotted by The Puget Sound Business Journal.

The full quote is: "There are two kinds of retailers: there are those folks who work to figure how to charge more, and there are companies that work to figure out how to charge less, and we are going to be the second, full-stop."

Bezos' line of thinking was apparently inspired by a meeting with Costco co-founder Jim Sinegal in 2001. According to Brad Stone's "The Everything Store," Bezos' meeting with Sinegal inspired the CEO to change Amazon's "incoherent" pricing strategy to match retailers like Walmart and Costco's prices - all the time.

In July, reportedly as a result of the meeting, Amazon announced it would cut prices of books, music, and videos by 20 to 30%. In the earnings call announcing the change, Bezos dropped his "two kinds of retailers" line - a "new Jeffism," Stone writes, "to be repeated over and over ad nauseam for years."

Zuckerberg has become one of the many Bezos devotees repeating the "Jeffism."

Reuters

Mark Zuckerberg testifies to Congress.

"I thought Jeff Bezos had an excellent saying on this in one of his Kindle launches a number of years back," Zuckerberg said in an interview with Vox's Ezra Klein earlier in April.

"He said, 'There are companies that work hard to charge you more, and there are companies that work hard to charge you less,'" Zuckerberg continued. "And at Facebook, we are squarely in the camp of the companies that work hard to charge you less and provide a free service that everyone can use."

While tech CEOs have adopted the strategy, few companies "figure out how to charge less" with greater dedication than Costco. The bulk retailer has some of the lowest markups in the business. Fortune reports that Costco's average markup - essentially the profit it makes on each item - is 11%, compared to Walmart's nearly 24%, most supermarkets' 30%, and Home Depot's 35%.

Costco has a long list of ways to keep prices extremely low.

Unlike most rivals, the retailer doesn't advertise. It provides many types of products, but only a limited selection of each one - 3,700 products in a warehouse, compared with 140,000 at a Walmart superstore, according to Fortune. And, its membership model helps offset costs and keeps loyal customers returning to warehouses for everything they need.