system
Given the following post, respond as if you're commenting on Reddit:
human
How does Costco measure if their $5 chickens are an effective loss leader?

I know what a loss leader strategy is. There are plenty of articles explaining what it is but none that explain how a corporation determines when loss leaders are worth it.

They probably know an opportunity cost exists for not offering their loss leaders but how do they calculate what it is?  Can they test two locations with and without the loss leader (but how do they control for numerous other factors)? Can they compare YoY numbers (but what if those organically increases YoY)? 

Public companies are especially interesting because they are legally obligated to maximize profits so how can any policies besides cost cutting and increasing margins be enacted much less kept around?

Thanks for your insight.
gpt
You basically answered the question yourself. There are a bunch of ways to measure if a loss leader is worth the cost, none of which are perfect. If we introduce $5 chickens in this store, does that increase overall sales in this particular store? To know if the increase is because of the loss leader or just because of natural sales growth, you compare that store with other similar stores where you did't introduce the loss leader (A/B Testing). Yes, you have to control for numerous factors, but that's always true in empirical research. 

If you're a company like Costco, you've got a ton of stores, so it's pretty easy. Pick a representative sample of a bunch of stores and put them in group "A." That's the control. Pick another, similarly representative sample of stores, and introduce the treatment condition (the loss leader). That's group "B." Compare the sales from Group A with the sales from Group B and, if you did a good job picking similar stores for each group, you've got your conclusion. 

Companies are generally trying to maximize profits, but that doesn't mean they can't experiment. Otherwise, how would they know if it's a good idea to introduce a new product, raise prices, etc.?