Loss leader

I don't think we really have a Danish word for "loss leader", but nevertheless, it is widely used anyway.

Support-billede
By Vadskær
more than 2 weeks ago
Approx. {eight} minutes

A loss leader is an item that is sold at a loss with the sole purpose of bringing customers into the store. Naturally, with the hope that the customers will then buy something else either at the same time or later.

The most well-known among loss leaders in Denmark is probably milk. Almost all Danes need milk and for many years, supermarkets sold milk below cost price. The milk was then placed at the back of the store, so you had to go through the whole store to get it - and then you might as well buy the rest of the groceries too.

So, simply put, a loss leader is a product that you, as a merchant, lose money on, but which is designed to entice people into the store to buy something else.

You see it in many places - the telecom companies that sold cell phones for a few hundred dollars (or even a penny). The only requirement was that you had to be a customer for 6 or 12 months. However, they knew that the vast majority of customers stayed longer than 6 or 12 months and thus the cost of the cell phone was recouped several times over. The trick here was for the telecom company to know their CLV. If they knew exactly how long a customer remained a customer, they could sell the phone for 1,- and still make money in the long run.

You can also easily have loss leader products in your webshop. Many people might buy more to get "free shipping" and other customers you will only sell your loss leader to initially, but might be able to sell to them again later via email marketing.

There are also smaller webshops that have loss leaders solely to achieve a minimum number of packages each day so they can maintain a lucrative shipping agreement with their carrier. So it's not about generating more revenue, but keeping other costs down.

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