Loss Leader Pricing

Posted in Marketing and Strategy Terms, Total Reads: 541
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Definition: Loss Leader Pricing

Loss leader pricing is a pricing strategy were the company offers its products at a loss in the hope that the low price will lure more customers to buy the product and hence make a profit because of the high volume of sales. This sort of pricing is a type of promotional pricing used to entice customers into trying the product, especially when a company is trying to enter a new market.

Loss leader pricing is similar to the concept of buying market share where the company tries to increase its market share by offering the products at a really low price. This is a risky strategy as if the only differentiation you offer is your price, then the customers will shift to competitors’ price once you increase the price.

This pricing strategy is also used to sell complementary products. You sell a product at a really low price making customer want to buy the product. Once they buy the product then they are forced to buy the complementary product at a really high price.

Example: Kodak’s strategy with cameras and rolls was that, the actual equipment was given at a really low price so that customers are willing to buy the product. But once they bought the product they are forced to buy rolls of film for the camera which was priced at a premium. Kodak followed loss leader pricing strategy for the cameras.

 

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