The loss leader pricing strategy is an aggressive technique where the retail outlets intentionally sell the products below the market rates to attract the customers. It helps in increased sales and acquisition of new customers. In this strategy the products are being sold at near to loss prices for increasing the profit.
What is the basic theory?
The basic idea behind the loss leader pricing is to gain from the additional purchases which the customers will be attracted due to the lower prices. The loss can easily be covered due to the increased price at heavily discounted rates. Through this smart strategy, the customers will also feel good that they are obtaining a good bargain and the losses can also be covered.
Benefits of Loss Leader Pricing
The loss leader pricing can be helpful in the following ways:
- Increased Sales: This is the first and foremost advantage that can be observed in the loss leader pricing. When the buyers are buying additional items, the sellers can gain large amount of profits.
- Elimination of Merchandise: The process can particularly be used for eliminating the older merchandises from the stores, so that the new stock can be replaced with them.
- New Stores: This pricing strategy can attract the customers in new locations. The customers may not buy from the stores in a particular location but the low pricing deals may attract them. Thus a wide customer base can also be developed through this pricing strategy.
- Marketing Benefits: The loss leader pricing strategy can be considered as a marketing tool of the business. Here, the sustained losses can be covered through the increased purchasing efforts of the buyers.