INTRODUCTORY PRICE
Definition
A loss leader is a price that is intentionally set very low—sometimes even below cost—for a visible and desirable product, with the goal of driving traffic to the store or the website
. The objective is not to make a profit on this product, but to attract customers who will then purchase other, more profitable products
. The loss leader is a classic promotional marketing tactic.
Why it's important
- Drive traffic: A spectacular price grabs attention and encourages consumers to come in or visit the website.
- Attracting new customers: Introductory prices are often used to introduce the brand to customers who don't usually shop there.
- Boosting cross-sales: Once customers are in the store, they typically purchase other products with normal profit margins, offsetting the loss on the loss leader.
A concrete example
A hypermarket is offering a 6-bottle pack of mineral water for €1 (regular price: €3), representing a loss of €2 per pack
This offer is featured in flyers and at the front of the aisles
Result: Store traffic increased by 20% during the week of the promotion
On average, each customer who comes in for the water spends €35 on related products (fruit, bread, laundry detergent, etc.) at normal margins
The cost of the loss leader (€2 loss × 10,000 packs sold = €20,000) is more than offset by the margin generated on other purchases.
Key takeaways
The introductory price is subject to certain conditions:
- A recognizable and well-known product: the offer must be immediately understandable (milk, coffee, consumer electronics).
- Effective communication: without advertising, no one knows the introductory price. Flyers, in-store signage, and social media are essential.
- Stock limits: To prevent customers from buying only the loss leader in large quantities, retailers often limit the quantity per customer or the total stock.
Common Mistakes
- Loss leader: If customers buy only the loss leader and nothing else, the strategy erodes the margin without generating any profit.
- Overusing loss leaders: Using this tactic too often damages the brand’s image and trains customers to buy only when items are on sale.
- Cannibalizing your own sales: If the loss leader is a direct substitute for another product you normally sell, you risk losing sales without gaining any traffic.
Learn more
- Research & Data: Price analysis to identify the most effective products in terms of introductory pricing and measure their impact on the average basket size.
- Solutions: Promotion management to drive your introductory pricing campaigns and optimize overall profitability.
- Tip: Operational pricing to structure your introductory pricing strategy without damaging your price image.
- Resources: Check out our pricing FAQ for more promotional strategies.
Mini FAQ
See our solution: pricing strategy development.
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