Loss leaders, items sold at a huge discount to increase traffic into your retail store, work to drive regular sales. Here’s how.
Loss leader pricing:
Loss leader pricing is a strategy used in retail stores where they price and advertise an item at or well below cost in order to attract buyers into their store. This is done in the hopes of increasing traffic and that customers will purchase regular priced items at the same time. Increased impulse buys are always a good thing.
Think about it this way, you see an ad for a Bluetooth headset you need at a retail store where you usually don’t shop, and the price is amazingly low. So you go and while you’re there, you realize you need ink for your printer and an SD card for your camera. The ink and SD card are at a price that is higher than you’d pay where you usually shop but you think “well I’m here already” or “with what I saved on the Bluetooth it’s worth it” and buy it there instead of waiting.
Loss leader is the “hook”:
Consumers are always looking for the lowest priced products, but they also are so used to convenience, that store hopping to get the lowest price on everything they buy is inconvenient, or with the price of gas cost prohibitive. So the loss leader item is the “hook” that gets them in your store. The loss in profit on that item is made up for by the regular or higher price items they buy when in the retail store along with the discounted item. It’s also a good strategy to use on relationship business sales.
If your business depends on continued business, or the products you sell are not consumables that need to be replaced with regularity, consider that even if you take a loss on the first sale, establishing the relationship with the customer at the time of the first sale will bring them back and then you can make up the difference on future sales.
Some product manufacturers will not allow you to use loss leader pricing, and in some states it’s illegal to sell below cost. If you are unsure, consult with a local attorney or your state’s business division. Also, when advertising, be sure to add “while supplies last” to avoid being held to the price past the advertisement or having to give rain checks.