The Loss Leader refers to a strategy used within marketing, which involves the practice of selling a certain product with a loss of profits, in order to achieve higher profits through related purchases.
Thus, when a new market provides deep discounts in order to attract customers when they first open their doors, they are using the Loss Leader marketing strategy.
Other similar strategies include selling, for example, printers at a reduced price and ink cartridges for a higher price, as well as offering razor handles for less than the necessary replacement cartridges.
In this way, and when implementing the Loss Leader strategy in marketing, companies experience a temporary loss in order to promote the creation of a customer base that will make frequent purchases and offer a greater eventual profit.
What is Loss Leader really about in marketing?
A Loss Leader (loss leader), consists of a common strategy that is usually used within numerous aspects of both marketing and advertising.
In other words, loss leaders are about services or products that are usually sold at a wholesale price not only to companies but also to suppliers; and in many cases, below it, all with the purpose of stimulating future sales.
In this way, it can be said then that through marketing strategy, a Loss Leader can be all kinds of popular item that is sold at a normal price.
Now, there are different classes of loss leaders, which vary according to the article, its location, use and many other factors, so that several of them are associated with a fairly specific product and purpose, while others stand out for being more general as a way of provoking sales within a store.
It should be said that Loss Leader marketing manages to capture the attention of the public and, in general, manages to offer quite beneficial results, and is that providing competitive prices helps to promote the diffusion of the companies through word of mouth, at the same time that it promotes recognition of their brands.
This is because the marketing of any service or product for a considerably low price, allows attracting consumers outside the existing market, something that helps to encourage return purchases from satisfied consumers.
Likewise, it should be noted that this kind of strategy requires that the company that implements it has backup capital savings that allow it to face the temporary loss so that businesses that have insufficient funds are not suitable candidates to Use this marketing strategy successfully.
And it is that selling products for extremely low prices could end up attracting opportunistic consumers who do not really have the intention of making repeated purchases, so that at the moment that these products are finally increased at a profitable price, it could be difficult to predict whether consumers will continue to buy as they cannot take advantage of the discount.
What advantages and disadvantages does the Loss Leader offer?
It is also appropriate to note that the Loss Leader in marketing has not only advantages but can also represent certain disadvantages for companies, including the following:
By implementing the Loss Leader properly, this marketing strategy not only attracts new customers but also helps bring in old customers. Also, although a small loss is initially recorded, it could lead to significant gains on the back-end.
Thus, the greatest advantage that the implementation of the Loss Leader in marketing within a company can offer, undoubtedly, consists of being able to offer the business the opportunity to beat its competition by having the opportunity to achieve a considerable market share through sales earned.
However, Loss Leader’s marketing strategy can also generate several disadvantages, which arise especially because of a lack of preparation. In this sense, and to begin with, it is important to make sure that there is enough product in stock to be able to guarantee that customers remain happy and thus avoid inconveniences.
When KFC unveiled one of its coupon promotions but ended up running out of chicken, for example, there were people who were prepared to start riots. With this in mind, it will be essential to stock up before implementing this strategy.
Similarly, it is essential to ensure that you perform the necessary calculations. And is that if the services or products offered have a very low price, there is the possibility that the company will never be able to recover the money that it could lose because of the Loss Leader.
Finally, at present, there is a huge network of consumers who are continuously hunting offers through the Internet, which has generated a considerable increase in the number of customers who seek to take advantage of the services or products offered with Loss Leader strategies. , but that in fact they do not want to acquire any other product or service that the company can offer.
That is precisely why sometimes when implementing this marketing strategy, a company perceives that it cannot generate the expected number of sales, and it is all because of this network, so in the end, they end up giving away their products for extremely low prices.