A loss leader is a product or service that a business sells at an unprofitable price to attract new customers or upsell existing customers.
To create a profitable business, brands and retailers need to mark up all their product prices, right? Not always. A loss leader strategy is when a business prices a product lower than its production cost to encourage customers to purchase other related products. This is an especially smart strategy for businesses with a range of products.
Using the loss leader strategy, the business would take a hit on the loss leader, but market that product alongside other, more expensive, and highly profitable products. When the customer purchases the initial loss leader, they’re also likely to buy accompanying items that afford the business a higher profit.
Another benefit of the loss leader strategy is that it often builds longer-term customer loyalty — though it does risk losing customers after the initial loss leader purchase. When customers feel they’re receiving discounts, they’re more likely to shop that brand again.