Contributed by Richa Kapoor
Loss leaders is a time honored pricing strategy adopted by retailers worldwide to attract consumers to the stores. The intent of this pricing strategy is to not only have the customer buy the (loss leader) sale item, but other products that are not discounted. The rate of success of this strategy has been enormous worldwide which is being replicated in the Indian Market too but with the Indian Retail market opening up, retailers introducing newer product categories and many retailers entering the market.
It has become crucial for retailers to adopt strategies like loss leaders. But, to be able to understand the concept thoroughly.
What is a loss leader?
A loss leader is a pricing strategy which involves selling a product at a low price (at cost or below cost) to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. This is a commonly used technique to attract customers via bargain on necessities and sell to them products which they don't require; this will help in generation of profits.
Some Common Strategies:
Usually retailers place the loss leader at the end of a store, so that purchasers walk past racks of other displayed goods which have higher profit margins.
As loss leader item is a product that customers purchases frequently—thus the retailer ensures that the offered price is a bargain.
Retailers offer limited items as loss leaders, which discourages stockpiling by customers, which compels consumers to make repeated visits.
The retailer sets limitations on the quantity that one purchaser can make (e.g., " Buy One Get 20% off on second").
When and Why a Loss Leader Strategy is used?
