I was talking with a colleague today about the magic of Trader’s. Here’s how they make billions:

1.    they target a consumer that cares a great deal about what they buy at the supermarket. As a result, their customers are more loyal, and more important, are willing to drive farther to get there. This means they can have smaller, lower-rent locations (and fewer of them) which drives up sales per square foot and profits.

2.    These customers are big mouths. They sneeze. When they serve something from Trader’s they brag about, they tell the story of the store. This drives down advertising costs.

3.    Most of what they sell is private label. Now that they have scale, they are able to negotiate great prices from their suppliers, and more important, encourage/force their suppliers to make unique items, or organic foods, or foods of higher quality for the money. All of this is a virtuous cycle. The key mantra is that Trader’s finds foods for its customers, NOT customers for its foods.

I think these three steps are viable for a wide range of businesses and sectors. One example to stretch your thinking: the TED conference. It’s in a remote location, one that’s probably a bit cheaper than some. People who care are happy to shlep. And they love to talk about it. And because the audience is so focused, the speakers come for free, further enhancing the cycle. If it works for supermarkets and high-end business conferences, where else does it work?