A loss-leader is a product or service sold at a price significantly below its cost, or at a loss, to attract customers into a store or onto a website. The intention is that while the business loses money on the loss-leader item, customers will also purchase other, more profitable items, thereby increasing overall sales and profit. This strategy aims to boost foot traffic, generate brand awareness, and potentially gain market share by offering a compelling initial value proposition. It's a common tactic in retail, especially during promotional periods.
Loss-leader meaning with examples
- The electronics store advertised a new gaming console as a loss-leader, selling it at a price below its cost. Their hope was that customers, drawn in by the deal, would purchase games, controllers, and other accessories, ultimately resulting in a net profit from those additional sales. This aggressive strategy aimed to capture market share in a competitive landscape.
- A supermarket chain often uses specific grocery items, like milk or eggs, as loss-leaders. They price these staples very low to lure customers into the store. Once inside, shoppers are likely to buy other groceries at regular prices, creating a profitable shopping trip. The strategy is particularly effective for attracting price-sensitive consumers.
- To compete with online retailers, a bookstore implemented a loss-leader strategy with best-selling books, offering them at a discounted rate. While making a loss on those individual books, they anticipated customers would browse and buy other items, such as stationery or gifts. The approach was used to drive traffic and boost in-store sales.
- The car dealership advertised a popular SUV model at a steeply discounted price, effectively a loss-leader. The aim wasn't to make money on the SUV itself but to encourage customers to visit the showroom. Salespeople then would upsell the car with add-ons, extended warranties, or persuade buyers to choose more expensive trim levels.