How to Run Loss Leader Sales

The Loss leader sales strategy is used generally by retailers. It’s a marketing technique where they price some of their products at cost or below cost. They advertise heavily about this low pricing to attract new customers to their stores. The assumption is that when buyers come into the shop, they’ll most likely purchase more than that one product that attracted them to the store in the first place. By building powerful online marketing plans, the loss leader sale strategy has helped many online business owners make good profit from their stores.

For instance, it’s a hot summer day and you need to run out to your closest grocery store to get ice cream and fresh strawberries for dessert. You assess the local newspaper in the morning prior to your shopping – you’re shopping by cost comparisons (most retailers advertise their seasonal fresh produce). You see the shop somewhat further down the road has strawberries for sale at $1.99 per pound; compared to the regular cost of $3.39 per pound. You concluded that the drive down to the store is worth it, and while you are at the store, you spend a total of $63.98.

Of course you ended up buying not only strawberries, but maybe ice cream too. Incidentally, the ice cream, which you purchased with the low-cost strawberries was a higher cost in relation to the ice cream at your regular supermarket.

A lot of online retail stores make use of this strategy in their online marketing during seasonal periods. It is the ‘hook’; consumers wish to purchase at that low cost, but while they are at the store, the psychology of the strategy is the fact that they are in the shop so that they will typically buy more and spend more than what ‘hooked’ them into the shop to begin with.

So, when and how do you run the loss leader sales strategy as a business owner?

If you own an online retail store, you can run the loss leader sale online marketing strategy at any time of the year, and not only during seasonal periods. Let’s say, you’re selling construction tools, you can decide to price one of the tools at cost or below cost in a weekend sales special. The idea is that when contractors visit your online retail store to buy that particular tool, they might end of purchasing other construction tools as well.

When it comes to selling involving business-to-business, think about using a loss leader pricing strategy for services or products in falling phase of their product life cycle or the mature phase. By pricing these products or services, which have low demand, at, or below, cost, you’re going to start seeing increase in sales, even if it’s for a brief period.

Never use this marketing strategy for products within their opening or developmental phases. Most sellers believe that selling a product below the normal price during the launch phase is a good way of introducing the product into the market. However, this often backfires, as most consumers would come to see that particular price as the real price of the product and would refuse paying higher for it when you attempt increasing the price. If you’re launching a new product and you want to ramp up sales, try using another sales strategy, instead of the loss-leader sales strategy.

That’s just about the basics on how and when to run the loss leader sale. If you think that this strategy is what you need to bring your retail store back to life, then go for it!

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Written by: Jophiel Silvestrone

Jophiel Silvestrone has written 326 posts in the Tech Blog.

Jophiel grew up on a ranch in Paradise Valley, Montana near Chico Hot Springs. Working on the ranch instilled work ethic and self motivation. Filled with this drive, Jophiel started mowing the local school's yards twice a month throughout the summers, at the age of 12. He moved to Billings in 2004, where he has been deeply involved in the local business community ever since. A serial entrepreneur, Jophiel has ran multiple businesses in our local community. The first business, a janitorial and carpet cleaning company, founded in 2005, has employed over 50 locals. Moving on to the media industry, Jophiel and several partners founded Green Directory Montana in the spring of 2007. Green Directory's sustainability ranking software awarded points based on sustainable or "green" actions. These points counted towards a business's total "Green Score," which in turn ranked them against other businesses in their category and throughout the entire site. It also featured a limited edition print version distributed annually. A business acquisition allowed Jophiel to focus on new projects, and a few close business colleagues and Jophiel started Rocky Mountain Mr. & Ms. Magazine, a lifestyle publication for men and women in the Magic City. After a year and a half at the helm of RM3 Magazine, the business was purchased. He now runs a web development company SkyPoint Studios and fathers his son Jaoquin, who plays football, basketball, soccer, and is learning snowboarding from his dad. Recently, has expanded to locations in Havasu, Arizona & Vegas. SkyPoint Studios is a market leader in both Billings & Havasu and Jophiel is working on building that same level of market dominance in Vegas. Specialties: Extensive experience in online and offline business. Especially savvy at WordPress, and operate several sites, one example is the blog: skypointwebdesignbillingsmontana.com/tech-blog. Check out skypointwebdesignbillingsmontana.com for the latest projects from SkyPoint Studios.

2 replies
  1. BHicks
    BHicks says:

    The loss leader concept, I would hope, would be something that buyers would be smart enough to understand. I try to ONLY buy the stuff on sale — not the stuff to compliment it. But, hey, if the ice cream isn’t on sale, I’m getting it anyway. You can’t turn down strawberries and ice cream. 🙂

    Reply
  2. Mark
    Mark says:

    It’s a smart strategy. Bottom line: If you can find a way to get people in the door, then you’re doing something good. Sometimes a small loss may mean a greater gain.

    Reply

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