Loss leading is a marketing strategy where a product is sold at a loss to attract customers who will make repeat purchases at a higher profit. It requires capital savings and can attract opportunistic customers. It is similar to free marketing, where a free product is offered to promote the sale of profitable accessories. Other pricing strategies include value-based, psychological, and skimmed pricing.
Loss leading is a strategy used in marketing. It is the practice of selling a product at a loss in profits in order to make more profits from related purchases. If a new market offers deep discounts to attract customers when they first open, they are adopting a loss-leading business strategy. Other strategies include selling cheap printers and expensive ink cartridges or undercutting razor handles that require an expensive replacement cartridge. Using the loss leader strategy, a business takes a temporary loss to encourage the development of a customer base that will make repeat purchases at a higher profit.
Leading leak marketing grabs the attention of consumers and can often yield positive results. Offering a competitive price promotes awareness of a company through word of mouth and promotes awareness of the company brand. Selling a product or service at a significantly low price takes customers outside of the existing market for the product or service, which can encourage return purchases from happy converts.
On the flip side, this type of marketing requires the business to have capital savings to help them weather the temporary loss. Underfunded businesses are poor candidates for success using loss leading marketing. Offering a product at too low a price can attract opportunistic customers who don’t want to make repeat purchases. When your product or service is eventually brought up to a profitable price point, predicting whether customers will continue to buy after the discount disappears can be difficult.
Marketing strategies that focus on using the price of the product to make a profit are called pricing strategies. Other pricing strategies include value-based pricing, psychological pricing, and skimmed pricing. How a marketing strategy works depends on the demand for the product, the purchasing market and the product delivery times.
Loss leader marketing is a strategy similar to free marketing, where the company offers a free product in order to promote the sale of profitable accessories to that product. Both types of marketing strategies are used in sales promotions and are designed to sell a high profit ancillary product by luring the customer into the market with a low cost or free entry product. Free marketing was famously practiced as early as 1910 by King Camp Gillette, the inventor of the disposable razor. Gillette has decided to give away the razor handles to introduce people to the budding product and promote the sale of disposable blades as an accessory.
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