Loss leader pricing is a strategy where big box retailers price and advertise an item at or well below cost in order to attract buyers into their store. Big box technology stores are using this strategy now. The store breaks even or takes a loss on one item, in order to try and increase traffic in the store.
The idea is that customers will purchase regular priced items at the same time. The other items are at regular price, or maybe even at a price that is higher than customers would pay somewhere else. The customer would think “yes, I could get this cheaper at that other store, but I’m here already and I saved so much on the loss leader pricing of X, so I might as well just get it here.”
Consumers are always looking for the lowest priced products, but they are also used to convenience. Going from store to store to get the lowest price on each item they want to buy is not only inconvenient, it wastes expensive gas. This makes the loss leader item as the “hook” that gets them in your big box technology store. Yes, there is lost profit, but the sales of other items will make up for it. It is a risk, and there are always those who will go the extra mile and purchase everything they need at the lowest price.
That means that you will lose on some sales. That’s where the risk comes in. There are negatives to using a loss leader pricing strategy in a big box technology store. First, if your business really can’t afford to take a loss on any product, then don’t risk it. Another is, just like Apple, some consumers may think that if you are willing to lower your prices that much on your products they may just not be worth the money. The decision is yours.
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