Loss leader pricing is an aggressive pricing strategy in which a store sells selected goods below cost in order to attract customers who will, according to the loss leader philosophy, make up for the losses on highlighted products with additional purchases of profitable goods. Loss leader pricing is employed by retail businesses; a somewhat similar strategy sometimes employed by manufacturers is known as penetration pricing.
Loss leader pricing is, in essence, a bid to lure customer traffic away from the businesses of retail competitors. Retail stores employing this pricing strategy know that they will not make a profit on those goods that are earmarked as loss leaders. But such businesses reason that the use of such pricing mechanisms can sometimes attract large numbers of consumers who would otherwise make their purchases elsewhere.
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In the world of e-commerce, loss leader strategies are intended to draw consumer traffic to an online retailer's Web site. The technique is also used for product introduction—thus several free copies of a magazine to induce purchase of a subscription, low rates for cable services, and other "introductory" pricing which, if not always priced at a loss, function in the same way. In recent years, loss leader pricing has been practiced with considerable success, especially by large national discount retailers.
The strategy is not without its critics, however. Indeed, many states have passed laws that severely limit—or explicitly forbid—selling products below cost.
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Very similar trends have emerged in Europe as well, with a ban on loss lead pricing in Irish groceries being a case in point. Lawsuits alleging that some loss leader pricing strategies amount to illegal business practices have also increased, although plaintiffs have not always been victorious.
What is a 'Loss Leader Strategy'
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Loss leader - Wikipedia
How to use a word that literally drives some people nuts. The awkward case of 'his or her'. Test your visual vocabulary with our question challenge! Build a chain of words by adding one letter at a time. Definition of loss leader. Examples of loss leader in a Sentence Recent Examples on the Web But Lowe and company see movie tickets as a loss leader to round up consumers—particularly young consumers.
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