Everyone loves a loss leader

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Do you know what a loss leader is?  Let me assume you are shaking your head “no” right now.  To put it simply it is a product sold at a loss to encourage sales of higher margin items.

One of the best examples of loss leaders are the bread and milk at your local supermarket.  They are high selling items often offered at a discounted price.   If your supermarket loved you as much as their marketing suggests they do they would position the bread and milk at the entrance to the store.  This would make that 5 pm “Oh crap, we have no milk or bread” dash to the supermarket much easier for you wouldn’t it?  Yes, it would.

Have you noticed that bread and milk are rarely positioned in close proximately to each other?  They aren’t on opposite sides of the store as that would just piss you off and you would go elsewhere.  They are however strategically placed to entice you to go deep into the supermarket and pick up random non-neccesites along the way.  The supermarket knows that if they place milk at the back of the store there is a good chance you will fill your arms with high margin goodies on the way back to the till.

I have zero data to back up my wild claim that printers are a big fat loss leader but here I go anyway.  I remember a few years ago being truly baffled by the cost of replacement ink in comparison to the cost of the entire printer.  How could the ink cost almost as much?  Simple, the printer itself is the loss leader.  Canon, Brother, Hewlett Packard or whoever is selling the printer would be well aware that if you choose their printer you will no doubt have it for at least a few  years.  A few years of happy printing equates to multiple refills of ink. Multiple refills of ink equates to big profits (how can something that should be cheap cost so much money?, its ink not powdered gold).

Before you go slashing the prices of your top selling items to cash in on the loss leader strategy you will need to do some serious maths.  Big companies that use loss leaders have invested big bucks into researching and calculating the best ways to use them.  As a small business you may not have the knowledge about your customers buying habits to use loss leaders correctly.  Advertising a loss leader could result in bargain hunters (urrgghhhh) buying up your cheap widgets but nothing else.  In that case you don’t have a loss leader, you just have a loss and that makes me sad.

Melanie