by Justin Grensing, Esq., MBA

At first glance, it might seem like a ridiculous strategy to price a product below its cost. Wouldn’t you just be losing money? While this is true, many companies do just that, and they do lose money. On that specific offering. This is part of a strategy known as loss leader pricing. As defined by Inc., “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.”

A great example of a loss leader is razors. Many men may recall receiving a free razor in the mail around their 18^th birthday. Why would a company send out so many products at no cost to the consumer? “Most razors are sold inexpensively [or given away for free] and are packaged with a few sample blades,” writes Matthew Hudson for The Balance Small Business. “But when it comes time to buy new blades, the prices are steep. But the customer has already bought the razor, the thinking goes, and will need to buy blades.” Hudson gives a similar example for printers and printer cartridges. In another example, grocery stores might advertise an attractive sale on a certain item to lure customers in who then purchase other, regularly-priced groceries.

But the loss leader strategy doesn’t have to be restricted to the product realm. In fact, it can be very effective with services. Consider, for example, attorneys who advertise a free consultation. They are giving away time to discuss a legal matter with someone who hasn’t yet hired them, but at the same time, they are building a relationship with that person and often end up with their business, because the client doesn’t necessarily want to keep calling multiple attorneys before selecting one.

If your business provides services, consider trying the loss leader pricing strategy. This could involve a free consultation as in the attorney example or a low-priced hourly rate for consulting services as an “introductory rate,” for example. The key is to start building that relationship with the potential customer and to “get them in the door” in the hope that they buy more of what you’re offering at the regular price in the future.

How might loss leader pricing apply to your product or service offerings? Is it a strategy you’re already using?

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Strategic Communications, LLC, works with B2B clients to help them achieve their goals through effective content marketing and management with both internal and external audiences. We are adept at evaluating and analyzing communication efforts and working with clients to plan, create and publish high-quality, unique content, through both on- and offline media to achieve desired results. Our background in business journalism, marketing, PR/media relations and online communications makes us well-positioned to serve the needs of 21^st-century marketers.

We serve clients who are looking for help creating content for a wide array of channels—from social media posts to full-length manuscripts, and everything in between. We focus primarily on service-related B2B topics and work with a number of independent consultants interested in building their thought leadership through online channels. For ongoing content management, our first step is to fully understand your goals, objectives and the competitive landscape.

Then we’ll conduct a thorough analysis and assessment of your digital presence, compared to competitors, and recommend a communication strategy to achieve your goals. But, we also regularly take on individual projects – white papers, blog posts, contributed articles, etc. If you’re interested in learning more, let us know!

(Strategic Communications is certified as a Woman-Owned Business Enterprise through the Wisconsin Department of Administration.)

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Tags: attracting customers, getting new customers, loss leader, loss leader pricing, Marketing, marketing strategy, pricing strategy, Strategy

This entry was posted on Thursday, September 27th, 2018 at 1:28 pm and is filed under Business Development, Competition, Marketing and Branding, Small Business Strategy. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.