Loss leader marketing involves selling a product at a loss to attract customers and encourage repeat purchases at a higher profit. It requires backup capital and may attract opportunistic customers. Other pricing strategies include value-based and psychological pricing. Free marketing is similar and involves giving away a product to promote the sale of profitable accessories.
The loss leader is a strategy used in marketing. It is the practice of selling a product at a loss in profits in order to gain greater profits from related purchases. If a new market offers deep discounts to attract customers when they first open, they are employing a loss-leading business strategy. Other strategies include selling printers cheaply and making ink cartridges expensive or reducing the price of razor handles that require an expensive replacement cartridge. Using the loss leader strategy, a company suffers a temporary loss to encourage the development of a customer base that will make repeat purchases at an eventual higher profit.
Loss leader marketing captures the attention of consumers and can often yield beneficial results. Offering a competitive price promotes the spread of a company by word of mouth and promotes awareness of the company’s brand. Selling a product or service at a remarkably low price attracts customers outside the existing market for the product or service, which can encourage return purchases from happy, converted customers.
On the other hand, this type of marketing requires the company to have backup capital savings to help them cope with the temporary loss. Underfunded companies are poor candidates for success using loss leader marketing. Offering a product at a very low price can attract opportunistic customers who do not intend to make repeat purchases. When the product or service is eventually elevated to a lucrative price, it can be difficult to predict whether customers will continue to buy after the discount wears off.
Marketing strategies that focus on using product pricing to make a profit are called pricing strategies. Other pricing strategies include value-based pricing, psychological pricing, and low pricing. Whether a marketing strategy will work depends on the demand for the product, the buying market, and the timing of the product’s delivery.
Loss-leading marketing is a similar strategy to free marketing where the company gives away a free product to promote the sale of profitable accessories for that product. Both types of marketing strategies are used in sales promotions and are designed to sell a high-profit accessory product by luring the customer into the market with a low-cost or no-cost entry-level product. Gift marketing was famously practiced in 1910 by King Camp Gillette, the inventor of the disposable razor. Gillette decided to donate the razor handles to introduce people to the product under development and to promote the sale of the disposable blades as an accessory.
Asset Smart.
Protect your devices with Threat Protection by NordVPN
