What does poor loss leader strategy mean?

A poor loss leader "pricing" strategy is when a company failed to entice buyers into purchasing its product(s) or service(s) in spite of its "attractive" discounted items.

It is important to note that for businesses who use the loss leader "pricing" strategy, the greatest risk that customers may only take advantage of the loss leader pricing and not use any of the business' other products and services.


Definition of loss leader strategy

A loss leader strategy is when a product or service is offered at a price that is not profitable, but it is sold to attract new customers or to sell additional products and services to those customers.

Loss leading is a common practice when a business first enters a market.

Essentially, a loss leader introduces new customers to a service or product in the hope of building a customer base and securing future recurring revenue.

Key takeaways:

  • a loss leader strategy prices a product lower than its production cost
  • considered a controversial strategy, loss leading is banned in 50% of US states and some European countries
  • some companies use the strategy when penetrating new markets to gain market share
  • large companies can afford to price a product with no margin because they have other products they can sell profitably to make up for the loss

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Last edited on 15 April 2020.