Sometimes it makes sense to offer a product or service at a price that is not profitable as a way to attract new customers. The strategy is to sell one thing at a loss with the hope that it will lead to the customer buying other, full-priced products or services.
There are also other instances when selling at a loss makes sense, such as to a customer with a high marquee value. Selling to that customer at a loss may be a good strategy if doing so gives you cachet with other buyers with whom you can sell to profitably. Another example is a customer who is a market influencer that drives other buyers to purchase from you. The loss from the first customer is considered marketing costs for obtaining and retaining profitable business.
If you think a loss leader strategy makes sense, are you able to specifically identify where the compensating profits will come from and how much they’ll be? Some customers will cherry-pick and only purchase your best bargains, without providing you with any offsetting value.
When your strategy is to sell certain products or services at a loss to attract other business, establish a process to track whether the other business materializes. Also establish a key metric to determine whether any compensating profits are enough to offset the loss.
Selling your products or services at or below cost should only happen as part of a pre-determined strategy to boost your over-all profitability. It should not happen by accident. And it should be discontinued if you don’t see any benefit.
For more ideas on how to boost your profitability, see: 5 Steps to Increase Your Profits from Existing Customers.
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