{"id":8389,"date":"2025-01-31T09:00:00","date_gmt":"2025-01-31T09:00:00","guid":{"rendered":"https:\/\/www.price2spy.com\/blog\/?p=8389"},"modified":"2025-02-28T15:35:18","modified_gmt":"2025-02-28T15:35:18","slug":"loss-leader-pricing-strategy-all-you-need-to-know","status":"publish","type":"post","link":"https:\/\/www.price2spy.com\/blog\/loss-leader-pricing-strategy-all-you-need-to-know\/","title":{"rendered":"Loss Leader Pricing Strategy – All You Need to Know"},"content":{"rendered":"\n

Retailers nowadays resort to numerous different techniques in order to attract customers. Some of them seem logical and some counterintuitive, even. To many of you, loss leader pricing may be just one of such technique.
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But, it is actually a well-established approach in both theory and practice. It\u2019s a viable pricing strategy<\/a> that has its own logic and purpose. In this article, we\u2019ll explain what loss leader pricing is, when should a retailer apply it, provide you with some examples, and list out the benefits and drawbacks of implementing this pricing strategy.<\/p>\n\n\n\n

Finally, we will give an example of how Price2Spy can be used to detect one such case. Keep reading if you want to learn more about it!
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\"Loss<\/figure>\n<\/div>\n\n\n

What is Loss Leader Pricing?<\/h2>\n\n\n\n

Loss leader pricing is a pricing strategy that at its core means selling one of your products (the loss leader) below the price at which you bought it in order to attract customers to your other products. The loss leader does not generate profit\u2014on the contrary, it\u2019s a product that is in most cases unprofitable. Sounds pretty counterintuitive, so what\u2019s the fuss about?
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Here comes the main idea behind this pricing strategy\u2014retailers who rely on loss leader pricing expect customers to buy other products (that do generate profit) while they\u2019re in the store (or on your website). It\u2019s much more convenient for customers to purchase products at the same place than to go around different stores, spending additional time looking for the best deals.
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You are now perhaps thinking – \u201cConvenience and saving time – sound good enough for brick and mortar stores, but what about online shops?\u201d Well, you may be surprised to find out that even the largest eCommerce platforms, like Amazon, are using loss leader pricing strategy! But, more on this later, when we get to the examples of how this pricing strategy is used in practice.
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Also, loss leader pricing may be used when a retailer wants to attract more customers. This can happen when retailers are trying to expand their current market share or when arriving at a new market. When you put things this way, you can look at loss leader pricing as a form of penetration pricing<\/a> strategy.
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Use Cases of Loss Leader Pricing<\/h2>\n\n\n\n

Let\u2019s now take a look at some common cases when retailers might resort to a loss leader pricing strategy.<\/p>\n\n\n\n

Complementary products<\/h3>\n\n\n\n

Complementary products are products that are in most cases bought together with another product, without which their utility<\/a> significantly diminishes. Usually, you have 1 main product and the rest are complementary. For example, printers and cartridges, cars and gas (or maybe even a different type of renewable energy resource), or even a phone and a SIM card\u2014these are all combinations of products that go \u201chand in hand\u201d, and are difficult (if not impossible) to use one without the other. <\/p>\n\n\n\n

Products with a short shelf-life\/expiration date<\/h3>\n\n\n\n

Milk, yogurt, eggs\u2014these are all products that people tend to buy very frequently. This means these products are what keeps the customers coming back to the store in the most reliable way. It\u2019s hard, however, not to notice how there\u2019s always some brand of milk at a discount. You also may have noticed how you always have to walk around the shelves, probably to the furthest point in the store from the entrance, just to get to that milk. There is a reason for that.
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Namely, in that case, the discounted milk acts as a loss leader, and its deliberate placement at the back of the store has a purpose. It\u2019s placed there so that, while you\u2019re going towards the shelf with milk, you can take a look at other attractive (and, most importantly, profitable) articles and add them to your cart as well. <\/p>\n\n\n\n

Increasing Market Share<\/h3>\n\n\n\n

We briefly touched upon this – loss leader pricing is an aggressive pricing strategy that can kickstart your market expansion. And it is no secret that (a large majority of) businesses are looking to grow and expand their market share and attract new customers. It\u2019s a part of everyday business life. <\/p>\n\n\n\n

Seasonal Occasions<\/h3>\n\n\n\n

On holidays such as Black Friday<\/a>, steep discounts are the name of the game. That large TV at 80% discount is hard to miss, to say the least, at the end of the store. It\u2019s made sure to be prominently displayed and in a way it resembles a trophy towards which consumers race, literally in some cases. 
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After they\u2019ve got their hands on the TV (or any other heavily discounted product), customers will most likely feel a sense of relief, and they\u2019ll start browsing other shelves. That\u2019s when they might stumble upon another product, which could be potentially profitable.
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Also, even in the case that the TVs get grabbed and sold out before some customers reach them, this pricing strategy still did what it was supposed to do. It\u2019s just that now instead of feeling relieved, customers may start browsing shelves out of frustration looking for the next best deal. <\/p>\n\n\n\n

Examples of Loss Leader Pricing Implementation<\/h2>\n\n\n\n

Gillette<\/h3>\n\n\n\n

Gillette\u2019s use of loss leader pricing strategy is now a well-known thing. They may not be the ones who invented it, but there are few other companies that can say they\u2019ve achieved similar results with it. So, what did Gillette do?
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They started selling their razors at a drastic discount, sometimes even with some razor blades included in the package. Afterward, they sold razor blades replacements separately, earning a significant profit on them. Also, this introduced customers to other Gillette products, such as deodorants, shaving gels, etc.<\/p>\n\n\n\n

MINI<\/h3>\n\n\n\n

MINI\u2019s attempt to use the loss leader pricing strategy is also famous, but not for its success (at least not completely). According to Wikipedia<\/a> British Motor Corporation was in 1959 selling Mini\u2019s basic model at a \u00a330 loss per unit. Three things were important for them:<\/p>\n\n\n\n

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  1. Undercut Ford – their main competitor at that time<\/li>\n\n\n\n
  2. Get the price under \u00a3500 so psychological pricing<\/a> would be in effect<\/li>\n\n\n\n
  3. Most importantly – attract customers to their other, more profitable, models<\/li>\n<\/ol>\n\n\n\n

    Unfortunately, this didn\u2019t work out for BMC because that model of MINI kept being the bestseller (at a loss) for many upcoming years.<\/p>\n\n\n\n

    Printers<\/h3>\n\n\n\n

    Printers and cartridges are, as we have already mentioned, examples of complementary products. But, it\u2019s not the printers that make a profit. Usually, printers themselves are sold at a loss. It\u2019s the cartridges that bring in the profits, and their recurring sales. <\/p>\n\n\n\n

    Amazon<\/h3>\n\n\n\n

    We can find examples of loss leader pricing strategy usage by Amazon in at least two cases: Kindle and prime subscriptions. Kindle is an e-reader on which you can store and read electronic books. Kindle itself is often sold at a loss, but the eBooks are what brings in the profits.
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    \"Amazon<\/figure>\n<\/div>\n\n\n

    Amazon\u2019s Prime subscription is a monthly paid service that gives its users certain benefits unsubscribed users don\u2019t have access to. Even though it seems like a relatively straightforward program, its logic is rather complex. However, one of the expectations Amazon has is that Prime users will be more prone to purchasing additional products if they have access to benefits like free and quick delivery or special deals.<\/p>\n\n\n\n

    PlayStation & Xbox <\/h3>\n\n\n\n

    The cost of research and development, production, and marketing which is needed for making and promoting a new generation of gaming consoles (PlayStation and Xbox being the most popular ones) can hardly be covered solely by console sales. What covers these costs and brings in the profits are the games which are sold separately. Also, more recently, we have witnessed an introduction of different subscription models (eg. PlayStation plus) for these gaming platforms, that also lure in more customers. <\/p>\n\n\n\n

    Benefits and Drawbacks of Loss Leader Pricing<\/h2>\n\n\n\n

    Benefits<\/h3>\n\n\n\n