Posted in Marketing and Strategy Terms, Total Reads: 1301
Definition: Loss Leader
Loss leader is a pricing strategy where in the seller, who is the market leader sells a particular product at or below the market cost, to stimulate demand from consumers, and to achieve more profitable sales in the long run.
The intent of the loss leader is to stimulate so much demand that volume takes over the profit higher than the per unit profit. Loss leader pricing is not necessary that its price be kept below the cost, even lower prices something above the cost can also be a loss leader price. The seller or the firm maintains records of the loss leader and other accounts, so as to monitor how the scheme is working in the market and whether or not it is profitable to continue the strategy.
Characteristics of Loss leader:
Loss leader should be placed appropriately in the stores, so that consumers walk past the products which are more costly.
Loss leader products are usually purchased frequently by consumers
Loss leader are often rare, to prevent stockpiling.
Retailers can limit how much consumers can purchase
Example, Gillette was promoted as a loss leader initially to stimulate demand when it was sold.