What is a Loss Leader?
A loss leader is a pricing strategy used by retailers to attract customers by offering products at a lower price than they would normally sell for. The goal of this strategy is to increase sales of other higher-margin items by enticing customers to come into the store and purchase them.
How Does a Loss Leader Work?
Loss leaders are typically items that are widely popular, or items that have a low cost of production. The retailer hopes that by offering the item at a lower price, customers will be attracted to the store and purchase other items. The retailer will usually sell the item at a price slightly lower than the cost of production, or even at a loss, in order to attract customers. This loss is offset by the increase in sales of other items. By offering the loss leader, the retailer hopes to make a profit from the overall increase in sales.
Examples of Loss Leaders
Some examples of common loss leaders used by retailers include:
- Grocery stores offering discounted prices on items such as milk, eggs, and bread
- Clothing stores offering discounts on popular items
- Electronics stores offering discounts on TVs and other electronics
Conclusion
Loss leaders are a common pricing strategy used by retailers to attract customers and increase sales of other items. By offering popular items at a lower price, retailers hope to bring customers into their stores and make a profit from the overall increase in sales. For more information on loss leaders, please see the following resources: