Published on April 27, 2010 Loss leaders: What are they and can they help your online shop?
Using loss leaders is a tried-and-true pricing strategy that really works. What are they? Loss leaders are “super sale products” reduced to the point that they are below cost-price, in order to get consumers into the store just to buy them. The business makes money out of them through the extra things that the customer purchases while in the store.
As an example of loss leaders think about the grocery catalogues you get every week – chances are that some of these products are loss leaders and are a special so good you’ll do your weekly shopping there. Loss leaders are also a great strategy in an online shop but are not a good idea for everyone. Here are some dos and don’ts of using them for your ecommerce website.
When are loss leaders good for an online business?
Loss leaders work best when the item offered has a low financial value to you but a big value to customers. One clever way to use them is to find an item that is related to your core product at a minimal cost to you but helps you sell your main product. For example:
- Mobile phone companies selling cheap replacement batteries or chargers
- Photographers selling cheap photo frames
- Laptop companies selling cheap iPods
- Electronics companies selling cheap DVD players to encourage sales of Plasma TVs
- Shaver manufacturers giving away shavers to encourage sales of the refills
- Computer sellers offering cheap motherboards and CPUs to encourage DIY computer builders to buy an entire computer’s worth of parts in their store.
Another good idea is not to change the prices of your products at all but use free shipping as a loss leader to drive traffic. Shipping costs can cause anxiety for some buyers so free shipping on a particular bulky product or entire order can be a good strategy for you to follow.
When advertising your loss leaders, take advantage of your email subscriber list and social media like Twitter and Facebook. If you’re sending out the offers in an email include links to some higher priced but attractive options for customers as well (but not necessarily the highest priced ones!)
When are they bad for your online business?
In an online shopping environment, it’s much easier for customers to shop around and buy just the item that they want – they might be buying your loss leader but not purchasing anything else in your store. If this is the case you’re taking a big financial hit for little gain. What’s more you could run out of stock of the loss leader and you could be committed to buying more in… not good for business!
The thing to remember is that you need to choose carefully – try to find a product that is related or adds-on to the product you are selling that isn’t very valuable on its own and isn’t transferrable from people who already have that product? If you’re a bed manufacturer with a well known brand you could offer a free mattress with online purchases. Some people who already have beds might take you up on that, but many people buying a mattress will probably also buy a bed.
Loss leaders are an effective strategy when thought out well but are not good for every online seller.
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