Loss Leader

Introduction

A loss leader is a pricing strategy where a business intentionally sells certain products at a loss or below their market value to attract customers to their establishment or website. The primary aim of this strategy is to encourage customers to make additional purchases of other full-priced items, thereby offsetting the losses incurred on the loss leader.

Selling at a Loss

With a loss leader strategy, a business deliberately prices certain products below their cost of acquisition or production, resulting in a financial loss on those items.

Customer Attraction

The primary goal of using loss leaders is to entice customers to visit the business or its online platform. The attractive low prices on these select items encourage potential buyers to enter the establishment or browse the website.

Cross-Selling and Upselling

Once customers are inside the store or on the website, the business aims to persuade them to purchase other items that are priced at or above their normal profit margin. This may include complementary products or more expensive alternatives.

Increased Sales and Loyalty

By using loss leaders effectively, businesses can increase their customer base, boost sales of other items, and potentially foster customer loyalty if shoppers have a positive experience.

Market Share Gain

In highly competitive markets, businesses may employ loss leaders to gain market share by attracting customers from competitors. This strategy can help establish a foothold in the market.

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Loss leader

Example

In summary, a loss leader is a pricing strategy where businesses intentionally sell certain items at a loss or below market value to attract customers. The goal is to leverage the customer traffic generated by these enticing offers to sell other full-priced items, thereby compensating for the initial losses and potentially increasing overall profitability and market share.