If a customer can purchase items on a full price, it is likely that the customer can be persuaded other items in a loss leading strategy. Click here as I explain to you how loss leaders strategy in business works.
What is a loss leader strategy?
A loss leader strategy involves selling a product at a price that is not profitable, but is sold to attract new customers or sell other products. Loss leader pricing is a marketing strategy that involves selecting one or more retail products to be sold below cost in order to get customers in the door.
Does loss leading strategy really work?
Example: My Las Vegas Trip with My Friends
In these Vegas hotels, they are incredibly cheap. They’re trying to get you to stay in their hotel over one of the other ones. They don’t really care whether they make money on the rooms. Most people that stay in their casino will spend a fortune on gambling.
As they say “the house always wins”. They want to give the best rooms out there at affordable price. It’s a no brainer for you to stay there. I’d imagine that they’re not making a loss of profit on the rooms. And they’ll be fine with that.
Vegas wants to get you to spend money on shows, food, drink, and obviously gambling. Gambling is where they’re going to make most of their profits.
You can learn from that for your business. That’s going to give you the chance to buy as many customers trying your products and services.
How should a business use a loss leader?
The company has to make certain that they can afford to use loss leaders. Most businesses shouldn’t have an issue with this, especially if the products picked are limited in quantity. In addition, the company should investigate why customers come to the store and which products are likely to be popular enough to draw people in at a loss-leading price.
Customer demand is likely to surge dramatically if the loss-leading product has a high price elasticity of demand, so the business must ensure it has enough of the chosen product in stock. If there is a risk of stockpiling, the company may establish limits on the amount that can be bought.
Why would a company use a loss leader?
The use of loss leaders is an effective promotional strategy. A loss leader is a product that is offered below cost to entice customers into a store or online store. Making a product a loss leader has the goal of encouraging people to buy more profitable items while they’re in the store. Is this, however, a viable strategy?
New customers may be attracted, and existing customers may become more loyal, if a company undercuts its competitors on price. As a result, using a loss leader can aid in customer loyalty.
HOWEVER, loss leaders are an effective approach to attract clients, but they are not without criticism. Another disadvantage of using a loss leader is that customers may use it to “bulk-buy.” It makes sense for buyers to buy as much as they can if the price discount is suitably large (assuming the product is not perishable).
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And that’s how you can get fast results and make big profits in business. If you find this useful, I have tons of content in my YouTube channel and my blog page where I talk about business growth tips, marketing strategies and business funding advice.