Loss Leader Marketing – How to Use this Retail Marketing Strategy in Your Internet Business

Posted by on Sep 20, 2011 in Marketing Strategies | Comments Off

Loss Leader Marketing – How to Use this Retail Marketing Strategy in Your Internet Business

What is a Loss Leader?

A loss leader is a marketing strategy where a product is sold to the buying market at a price point equal to or below cost. This tactic is used to draw customers into the store in the hopes that they will purchase other items with higher profit margins.

You see this most often in grocery stores where the food store will sell staples such as milk or eggs below cost hoping you’ll buy other, more profitable, food stuffs.

How can using a loss leader help your internet business?

A loss leader isn’t just for retail stores. Even businesses such as consulting firms and web designers can effectively use loss leaders in their businesses.

Using a loss leader can help attract customers to your online store and put them in a buying mood. You see this all the time within the free market. Websites will offer something for free in exchange for traffic to the site or to build their email lists.

Loss leader marketing is sort of the same but a little bit different. A person who is looking for something free is in a different frame of mind than a person who is looking for a solution to their problem and is willing to pay for it. This is how you separate your customers from your fan boys. When you are selling something, the person is already in the mentality to buy and it’s easier to upsell them on other related merchandise.

Additionally, a loss leader can help you establish a relationship with your customer. They experience what it is like to do business with you firsthand. If they have a good buying experience, they are more apt to buy from you again when they have a need for the type of product you sell rather than seek out an untested competitor.

3 Tips for using loss leaders effectively

a. Only use when it’s clear that the benefits of using a loss leader outweigh the loss.

If you are using a loss leader to attract buyers, you need to be able to make money on them or otherwise gain some benefit from the sale of the loss leader. It needs to be worth the loss.

So you either need a system place that upsells them on other profitable products in place or some way to gain what you want.

b. It should be attractive to your target market

This goes without saying but the loss leader should be something your target market would be interested in buying. For example, if you were a life coach, selling a metaphysical CD at half price probably isn’t going to interest your target market who is really looking for help in achieving a goal.

On the other hand, giving 50% off one consultation as a means of getting people to experience your service would be attractive to your target customers and lead to the purchase of a consultation package.

c. Use a non-stockpile item

This isn’t as much of a danger for internet businesses as it is for retail stores but you want to make sure people are not able to buy your product in bulk or stockpile. That defeats the purpose of having them come to your store on a consistent basis.

d. Track your results

You must track how well your loss leader promotion is going. If it is costing you more money than you are gaining then by all means abandon it immediately. However, if things are going well you can consider keeping the campaign going for a long time.

In this competitive global marketing you need every advantage you can get. Using a loss leader in a smart way can help you generate the business your business needs to thrive.

Related posts:

  1. Competing on Authority – An Internet Marketing Strategy that Works

Love this post? Share it!