Marketing

Loss Leader Strategy

What it is

Selling a product below cost to attract customers who will then purchase profitable items.

How it works

Retailers deliberately take a loss on a high-demand item to drive foot traffic or site visits. Once customers are engaged, they purchase additional full-price items. The loss on the leader is recovered through the margin on everything else in the basket.

Real-world examples

•Grocery stores selling milk or bread below cost to get shoppers into the store.
•Gaming consoles sold at a loss with profits made on game sales and subscriptions.
•Amazon selling Kindle devices near cost to lock users into the ebook ecosystem.

Ethical guidelines

●Loss leaders should not be used to establish monopolies by driving competitors out of business.
●Bait-and-switch — advertising the leader but pushing customers to a different product — is deceptive.
●The practice becomes predatory when used by large firms to eliminate smaller competitors who cannot absorb losses.

How to defend against it

►Buy only what you came for — recognize that the loss leader is designed to get you browsing.
►Compare the total basket cost, not just the deal item.
►Ask yourself if you would have bought the additional items without the initial deal drawing you in.

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