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In marketing, a loss leader is an item that is sold below cost in an effort to stimulate other, profitable sales. It is a kind of sales promotion. There are several varieties of this profitable technique which was pioneered by Thomas Edison in the early 1880s. There are many ways in which the price of a product can be determined, the following are the foremost strategies that business alike use. ...
Marketing is a social and managerial function that attempts to create, expand and maintain a collection of customers. ...
In marketing, sales promotion is one of the four aspects of promotion. ...
Sales of other items in the same visit One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor. Marketing academics such as [1] have shown that retailers should take both the direct and indirect effect of substantial price promotions into account when evaluating their impact on profitability. To make a very precise analysis (see [2]), one should also include effects over time (deep price promotions may induce stock piling effects, ...), which may invalidate the effect of such product associations, typically discovered by association rule analysis. A customer is someone who makes use or receives of the products or services of an individual or organization. ...
A store is an enclosure for holding articles. ...
In data mining and treatment learning, association rule learners are used to discover elements that co-occur frequently within a data set [1] consisting of multiple independent selections of elements (such as purchasing transactions), and to discover rules, such as implication or correlation, which relate co-occurring elements. ...
An example would be a supermarket selling sugar or milk at less than cost to draw customers to that particular supermarket chain. Wal-Mart uses some toys as a loss leader, leading to the potential demise of toy-only competitors such as Toys "Я" Us and FAO Schwarz. (See predatory pricing.) Exterior of typical European supermarket (a Tesco Extra) Exterior of typical North American supermarket (a Safeway) A typical supermarket in Hong Kong. ...
Magnification of typical sugar In non-scientific use, the term sugar means sucrose, also called table sugar or saccharose, a white crystalline solid disaccharide. ...
A glass of cows milk Milk is the nutrient fluid produced by the mammary glands of female mammals (including monotremes). ...
Wal-Mart Stores, Inc. ...
A teddy bear A toy is an object meant to be played with. ...
Competition characterises a biochemical, ecologic, economic, political, or sporting activity whereby two or more individuals or groups strive antagonistically against one another for some reward. ...
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F.A.O. Schwarz is the name of a toy store chain founded in New York, New York in 1870 by German immigrant, Frederick August Otto Schwarz. ...
Predatory pricing is the practice of a dominant firm selling a product at a loss in order to drive some or all competitors out of the market, or create a barrier to entry into the market for potential new competitors. ...
Automobile dealerships also use this practice, offering a "1 only at this price" vehicle below cost in a newspaper ad. Potential buyers are usually told that the vehicle has been sold (which may or may not be true) and the salesperson then tries to sell another vehicle at a profit. The loss leader vehicle is never in a conspicuous place, and may even be on an off-site lot.
Under some jurisdictions, this is considered Bait and switch and is illegal. In law, jurisdiction (from the Latin jus, juris meaning law and dicere meaning to speak) is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area...
A bait and switch is a form of fraud in which the fraudster lures in customers by advertising a good at an unprofitably low price, then reveals to potential customers that the advertised good is not available but that a substitute good is. ...
Weighing scales represent the way law balances peoples interests For other senses of this word, see Law (disambiguation). ...
A related example is the practice by some auto repair shops of offering required inspections at loss-leading prices; if a problem is found preventing the inspection from being passed, they are then in a position to offer to fix it.
Characteristics of loss leaders - A loss leader is typically placed at the back of a store, so that purchasers must walk past racks of other displayed goods which have higher profit margins.
- A loss leader is usually a product that customers purchase frequently: thus they are aware of the usual price and that the offered price is a bargain.
- Items offered as loss leaders are often bulky or perishable, making it difficult for the customer to buy in bulk so as to avoid repeat visits to the shop.
- In some cases, loss leaders are placed on the floor or left dirty, scratched, or broken so potential customers get additional enticement to buy the "step-up" model.
Profit margin is a measure of profitability. ...
Sales of related items over time This is also known as the razor and blades business model, referring to the most famous example. Razor handles are sold at a loss, but sales of disposable razor blades are very profitable. American businessman King Gillette famously invented the razor and blades business model, in which safety razors were sold or even given away as loss leaders so that his company could profit by selling disposable razor blades. The razor and blades business model (also called the bait and hook model or the tied products model) works by selling a master product at a subsidised price, and making the profit on high margin consumables that are essential to the use of the master product. ...
King C. Gillette King Camp Gillette (January 5, 1855 – July 9, 1932) was an American businessman, popularly, but incorrectly, known as the inventor of the safety razor. ...
Occams Razor or Hanlons razor A razor is a an edge tool (primarily, used in shaving). ...
Occams Razor or Hanlons razor A razor is a an edge tool (primarily, used in shaving). ...
This practice is commonly used with video game console makers that sell their console units at very low margins, or even at a loss, to achieve a higher market share. They rely on profits from software sales where the markups are considerably higher. They also receive profits from 3rd party software companies for licensing fees. Microsoft has used this technique with the Xbox and Xbox 360. Sony has done the same with the Playstation 3 and, to a lesser extent, with the PlayStation 2 and PSP. [citation needed] This also translates to higher prices that are charged for the games and for original console accessories such as game controllers. The Atari 2600, Sony PSOne, Nintendo Gamecube, and Xbox 360 A video game console is an interactive entertainment computer. ...
The Microsoft Corporation, (NASDAQ: MSFT, HKSE: 4338) is a multinational computer technology corporation with global annual revenue of US$44. ...
The Xbox was a sixth generation era video game console produced by Microsoft, first released on November 15, 2001 in North America, then released on February 22, 2002 in Japan, and on March 14, 2002 in Europe. ...
The Xbox 360 is the successor to Microsofts Xbox video game console, developed in co-operation with IBM, ATI, Samsung and SiS. Information on the console first came through viral marketing campaigns and it was officially unveiled on MTV on May 12, 2005, with detailed launch and game information...
To meet Wikipedias quality standards, this article or section may require cleanup. ...
The PlayStation 3 , trademarked PLAYSTATION 3,[6] unofficially abbreviated PS3) is Sonys seventh generation era video game console, third in the PlayStation series. ...
PS2 redirects here. ...
The PlayStation Portable (officially abbreviated as PSP) is a handheld game console released and manufactured by Sony Computer Entertainment. ...
It also is used with the way inkjet printers are sold to retail customers. Again, the printers, especially the entry-level models, are sold at a loss-leading price which seems apparently affordable to most consumers, but they pay dearly for ink cartridges and specialty papers supplied by the manufacturer. This is augmented by clauses in the printer's warranty that use of cartridges not supplied by the manufacturer will void that warranty. Some manufacturers even use technological limitations so that the printer doesn't work if it is used with aftermarket cartridges. Inkjet printers are a type of computer printer that operates by propelling tiny droplets of liquid ink onto paper. ...
Similarly, some bars or concession stands will offer free or inexpensive popcorn, then sell drinks at high prices to customers made thirsty by the popcorn. Popcorn Popcorn or popping corn is a type of maize which explodes from the kernel and puffs up when it is heated in oil or by dry heat. ...
In these situations, it can be harder for dealers who use "fruitshop"-style trading methods of purchasing to negotiate buying larger quantities of consumables at a lower price in order to sell them off cheaper.
Loss leaders are an important part of companies' marketing and sales strategies.
History This business model was pioneered by Thomas Edison in the early 1880s shortly after he patented the first production incandescent lamp in 1879. The lamps were costing him $1.25 each to make and he offered to make them at $0.40 if the Edison Light Company would buy all their requirements from him during the life of the patent. In Edison's words according to Henry Ford who later wrote about it "The first year the lamps cost us about a dollar and ten cents each. We sold them for forty cents; but there were only about twenty or thirty thousand of them. The next year they cost us about seventy cents, and we sold them for forty. There were a good many, and we lost more money the second year than the first. The third year I succeeded in getting up machinery and in changing the processes, until it got down to so that they cost somewhere around fifty cents. I still sold them for forty cents, and lost more money that year than any other, because the sales were increasing rapidly. The fourth year I got it down to thirty-seven cents, and I made up all the money in one year that I had lost previously. I finally got it down to twenty-two cents, and sold them for forty cents; and they were made by the million. Whereupon the Wall Street people thought it was a lucrative business, so they concluded they would like to have it, and bought us out." Ford found this principle of manufacturing to be "most valuable."
Temporary promotions Loss leaders can also be attempts to build a customer relationship. For example, a grand opening sale at a new store might lose money in hopes of creating customer interest and building customer loyalty. A new restaurant may serve larger or higher quality meals during its first couple of weeks of business than it plans on doing in the future. The high value meals act as loss leaders, creating a marketing buzz. Word-of-mouth marketing is a term used in the marketing and advertising industry to describe activities that companies undertake to generate personal recommendations as well as referrals for brand names, products and services. ...
Low margin products Some products are sold at very low profit margins, generating only minimal profit for the company. The reasoning is the same as the reasoning behind loss leaders. Technically, these products are not loss leaders because they do not generate a loss. Examples of these include: - The Wendy's fast-food chain has a "value menu" of low-priced items to draw customers to the restaurant, where they may decide instead to buy higher-priced sandwiches (or may buy sodas, whose true cost to the restaurant is almost nothing).
- Convenience stores that sell gasoline often do so at very low margins, relying for profits on increased sales of snacks and coffee to stopping motorists. Competition for gasoline prices, especially in urban areas, is intense (especially since the prices are often readily visible to passing motorists) and as such it is hard to make a significant profit on selling gasoline.
- Some Internet-based music stores, most notably Apple's iTunes Music Store, also operate at low margins, with the possible intent of increasing sales of electronic devices such as the iPod.
- Movie theaters make almost no money on tickets—ticket sales are largely passed on to the distributor. Theaters generate revenue by selling popcorn, candy, and drinks.
Wendys is a chain of fast food restaurants based in Dublin, Ohio and owned by the American corporation Wendys International, Inc. ...
A convenience store is a small store or shop, generally accessible or local. ...
Gasoline, also called petrol, is a petroleum-derived liquid mixture consisting primarily of hydrocarbons and enhanced with benzene or iso-octane to increase octane ratings, used as fuel in internal combustion engines. ...
A cup of coffee // Coffee is a popular beverage prepared from the roasted seeds – commonly referred to as beans – of the coffee plant. ...
Apple Computer, Inc. ...
It has been suggested that this article or section be merged into ITunes. ...
A white fifth generation iPod with a sleeve and earphones. ...
A typical megaplex (AMC Rolling Hills 20 in Rolling Hills Estates, California). ...
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