Loss leaders are items or services that are priced near, at or even below the actual cost of the goods and services to lead people to buy. The intent is that once a relationship is formed, the customer will move beyond price alone and purchase from the company for reasons such as quality, convenience or familiarity.
If you open the Sunday paper and take a good look at the advertising mailers, you’ll come across quite a few products being sold at or below cost in order to get you into the store. Their hope is that once you get there you’ll end up buying other higher priced items. And you probably will.
Some industries require that you have loss leaders to stay competitive. Other retail mass merchandisers have used items such as gallons of milk or generic prescription drugs to attract customers so they will purchase additional items once they are in a store.
Loss leaders however can lead to the perception that an actual price point for an item is significantly lower than the actual price of goods and services.
You may not have to carry the weight of lowering your margins alone. Major distributors and wholesalers often give incentives to do so.
An example: The two major soft drink bottlers ask that mass merchandisers and grocery stores sign 28 week agreements to feature their products in return for promotion assistance and price concessions.
You may often see employees from the bottler in a store stacking cases in displays and rotating inventory. Next week, this employee will be down the street at another chain while his counterpart from the other brand will be here.
Budget: $1,000 - 5,000 Monthly