What does Loss leader mean in marketing terminology?

Loss leader

A loss leader is a marketing tactic used by retailers to attract customers to their store and/or website as well as to promote a product. It refers to a product that is sold below the normal retail price, and therefore the retailer incurs a loss on that goods. It is a way of getting customers in the door, with the anticipation of them buying other products at full price.

Loss leaders are one of the most common promotion tools used in marketing, making them popular among retailers trying to grow their business. As they are sold at discounted prices, they create a great deal of hype and excitement amongst consumers who in turn often create positive word-of-mouth about the product showing to more people. This helps to broaden the customer base of the business.

The concept of the loss leader has been around for centuries, but in recent years, retailers have become more strategic about its use. It is now seen as an essential tool for retailers to drive sales.

Generally speaking, the guidelines for a successful loss leader promotion include:

1. Choose a Product: Before you start your promotion, you need to decide which product you would like to promote as a loss leader. The ideal product should be popular with your target audience and have high visibility that will draw attention to your store or website.

2. Select the Timing: Decide which time of year you will run your promotion. For example, depending on the product, it might be advantageous to run the promotion during the holiday season, or during the summer or winter sale. Journalistic sources also have time-related patterns, and if they report on your promotion, you can increase the product’s visibility.

Become a Sales & Marketing Rainmaker

Learn valuable skills to win more customers, grow your business, and increase your profits.
The Rainmakers Club

3. Decide the Discount: Once you have chosen the product and the timing, decide on the discount you are willing to offer. While you may want to offer the biggest discount possible to attract as many customers as you can, it is also important to remember your bottom line – you don’t want to discount so much that you’re taking a loss on the cost of the item itself.

4. Promote the Promotion: Once you’ve established the discount and the timing of your promotion, you need to let your customers know about the special promotion. You can do this in a variety of ways, from print and digital advertising to email and social media campaigns.

5. Measure the Results: Tracking the success of any promotional activity is essential for understanding what works for your business and what doesn't – is the ROI worth it? Make sure you have an adequate tracking system in place to track your sales and customer numbers.

These are the general guidelines which you should follow when setting out a loss leader promotion. However, it’s also important to remember that using a loss leader also requires you to be creative and think outside the box. Keep in mind different ways, such as clearance sales, customer loyalty discounts and special promotions to incentivize customers to shop.

Overall, loss leader promotions can bring great rewards for any retailer if done correctly. So, if you want to drive more sales for your business and create a loyal following, the loss leader could be an excellent marketing approach to try.