Are you a small business owner looking for smart ways to attract new customers and increase your sales? Then you need to learn about using loss leaders.
This ingenious marketing strategy allows you to strategically price certain items low to entice customers, so they’ll purchase other higher priced products or services too. For example, grocery stores often price milk and eggs as loss leaders, knowing that shoppers will likely buy many more items once inside.
Implementing loss leaders in your own small business can help build your customer base and brand perception in the long term. Keep reading to learn all about the different types of loss leader pricing and how to successfully use leaders to attract customers and sell products.
What is loss leader pricing?
Loss leader pricing is a clever marketing strategy where you price certain items below cost to entice customers and build your customer base.
The idea is that while you lose money on the loss leader item, you’ll make it up through sales of other products. Many small businesses have found success with loss leader pricing, especially service-based ones like landscapers, massage therapists, and dog walkers.
Types of loss leaders
Here’s a brief overview of the most popular types of loss leader pricing:
- Limited-time offers: Like Black Friday deals, offer loss leaders for a short period to drive sales. This works well for services with excess capacity.
- Product bundles: Bundle a loss leader item with full-price products. Customers get a deal on the bundle but you still profit.
- Loyalty incentives: Offer loss leaders only to loyal customers, or those who spend over a certain amount. This rewards your best customers and encourages higher spending.
The long term benefits of loss leaders
Look at loss leader pricing as an investment in growing your customer base and business. While it may cut into profits short-term, the long-term benefits to your small business can be huge. Loss leaders attract new customers, build your email list, and strengthen your brand over time. And once customers purchase the loss leader, they’re much more likely to buy full-price products and services from you in the future.
How loss leaders entice customers to purchase other items
With loss leader pricing, you drop the price of certain items to entice customers into your business. Once inside, the hope is that they’ll purchase other full-priced items. For small service businesses, loss leader pricing can be an effective marketing strategy to implement.
Let’s say you run a landscaping company and want to attract new residential customers. You could offer an introductory loss leader like yard clean-up or lawn mowing at a steep discount. The goal is to get customers in the door, then upsell them on additional landscaping services at full price to build your customer base.
Draw them in, keep them coming back
Loss leader pricing works because people love a good deal. By offering select products or services at a loss, you’re giving customers an incentive to choose your business. The trick is to not only entice them with the loss leaders but to also sell other items at a profit to make up for it.
As a small business owner, think about high-demand services you offer that you can discount to attract new customers, then rely on to sell full-priced products or services.
Build your brand and customer loyalty
Over time, loss leader pricing can also help strengthen your brand and build customer loyalty. When customers get a great deal from your business, it leaves a positive impression and perception of your brand in their minds. They’ll be more likely to come back again in the future and refer others.
The key is to take a long-term approach. While loss leader pricing may cut into your profits in the short term, your aim is to establish your business as the smart, affordable choice in your customers’ minds for the long run.
Examples of loss leader pricing strategies
There are a number of different types of loss leader strategies. Here’s some information about the most popular approaches:
Doorbuster deals
Many small businesses use loss leader pricing around major holidays or sales events, to draw in customers. Offering steep discounts on popular items during Black Friday or other big sales days is a proven loss leader strategy. The low prices entice customers to visit your store or website, and hopefully they’ll purchase other items at regular price once they’re there.
Product bundles
Bundling several products or services together at a discount is an easy loss leader tactic for small businesses to implement. You take a hit on the bundled items to attract new customers, who you then upsell to buy additional products at full price.
Many field service businesses like lawn care, pest control or maid services use bundling to gain new long-term customers. They’ll offer an initial deep discount on the first visit if you sign up for recurring service, then charge full price for ongoing work.
Limited time offers
Running a special limited time promotion on a product or service is a simple way for small businesses to use loss leader pricing. You dramatically drop the price for a short period to attract new customers and increase brand visibility.
Using loss leaders to attract new customers
Attracting new customers is key to success for every small business, and loss leaders can help when you use them correctly. Here are some smart ways to utilize loss leaders to grow your customer base.
- Loss leaders to attract repeat customers: Sell certain items below cost to attract new customers with the hope they become repeat buyers of your other profit-making products or services. For example, a plumber or electrician could offer an initial service call at a discount to acquire new clients.
- Loss leaders for special events: Discount select items for a limited time to drive traffic and sales. This works well for holidays like Black Friday or seasonal changes. However, be careful not to make loss leaders your only strategy, or customers may only buy the loss leaders and not other products.
- Strategic loss leaders: Pick certain products to discount that also boost your brand perception. For example, a high-end clothing boutique could offer a trendy handbag or accessory at a loss to portray themselves as an affordable luxury brand. This helps change customer perception in the long term.
Loss leader pricing is a useful tool for small businesses to build their customer base. When implemented strategically, loss leaders can attract new customers and boost long-term sales. The key is finding the right balance to generate traffic without sacrificing too much of your profit margin.
Implementing an effective loss leader strategy for your small business
To implement a loss leader pricing strategy, you first choose a product or service to offer at a deep discount or even below cost. This should be something that attracts new customers and boosts your brand perception. Then, price your other items at a normal profit margin. For example, a dog walker could offer a free initial consultation, a landscaper could discount the first mowing of the season, or a massage therapist could run a special on 60-minute massages.
Here’s a step by step guide to implementing a loss leader pricing strategy:
- Choose high-demand products or services that attract your target customers.
- Price items below your costs but still high enough to generate traffic. Around 10-15% below cost is typical.
- Limit loss leaders to just a few key items so you can still profit from other sales.
- Clearly advertise your loss leaders to attract new customers.
- Provide excellent customer service so new clients become repeat buyers.
- Measure the results to see if loss leader pricing boosted sales and was worth the temporary loss.
The key to a successful loss leader pricing strategy is to choose your loss leaders carefully, based on your business goals and customer demand. You want to select items that will truly entice customers but not cut too deeply into your profits. You also need to have a plan to sell products at regular prices once customers come through your door.
Loss leader pricing could drive growth for your small business
With the right mix of loss leaders and full-priced items, loss leader pricing can be an effective strategy for small businesses looking to attract new customers and stand out from the competition. The key is to implement loss leaders strategically. With the right loss leader pricing strategy and careful planning, you can build your brand perception and achieve long term success.
