Sometimes it makes sense to offer a product or service at a price that is not profitable as a way to attract new customers. The strategy is to sell one thing at a loss with the hope that it will lead to the customer buying other, full-priced products or services.
There are also other instances when selling at a loss makes sense, such as to a customer with a high marquee value. Selling to that customer at a loss may be a good strategy if doing so gives you cachet with other buyers with whom you can sell to profitably. Another example is a customer who is a market influencer that drives other buyers to purchase from you. The loss from the first customer is considered marketing costs for obtaining and retaining profitable business.
If you think a loss leader strategy makes sense, are you able to specifically identify where the compensating profits will come from and how much they’ll be? Some customers will cherry-pick and only purchase your best bargains, without providing you with any offsetting value.
When your strategy is to sell certain products or services at a loss to attract other business, establish a process to track whether the other business materializes. Also establish a key metric to determine whether any compensating profits are enough to offset the loss.
Selling your products or services at or below cost should only happen as part of a pre-determined strategy to boost your over-all profitability. It should not happen by accident. And it should be discontinued if you don’t see any benefit.
For more ideas on how to boost your profitability, see: 5 Steps to Increase Your Profits from Existing Customers.
Permission to reprint all or part of this article in your magazine, e-zine, website, blog, or organization newsletter is hereby granted, PROVIDED: 1. You give full attribution to the author; 2. The website link to www.Roitblat.com is clickable (LIVE), and 3. You leave all details intact (i.e. links, author's name, etc.).
- Problem-solving produces an emotional benefit, not a financial one - March 18, 2022
- Innovation is about Solving Mysteries, not Puzzles - September 7, 2021
- Overcoming That’s the way we’ve always done it - August 3, 2021
