What is a loss leader strategy?

What is a loss leader strategy?

• A. Selling products below cost to attract customers who will buy other profitable products.
• B. Pricing products based on consumer willingness to pay.
• C. Using prices to be the lowest in the market.
• D. Setting prices according to regulatory guidelines for discounts.

Answer: (A)

A loss leader strategy means selling a product at a loss or below cost to attract customers, with the expectation that they will also purchase other, higher-margin items. The idea is to draw people in with a very low-priced item and then gain profits from additional purchases that accompany it, boosting overall store profitability even if the single item is sold at a loss. In a pharmacy, this might be a popular OTC item offered at a steeply reduced price to bring customers in, who then fill prescriptions or buy more profitable products like vitamins, health aids, or other medicines. This is the best fit because it directly describes offering a product below cost to generate broader sales. The other options describe different pricing strategies that don’t hinge on sacrificing profit on one item to attract customers or rely on cross-selling to boost overall profits.

A loss leader strategy means selling a product at a loss or below cost to attract customers, with the expectation that they will also purchase other, higher-margin items. The idea is to draw people in with a very low-priced item and then gain profits from additional purchases that accompany it, boosting overall store profitability even if the single item is sold at a loss. In a pharmacy, this might be a popular OTC item offered at a steeply reduced price to bring customers in, who then fill prescriptions or buy more profitable products like vitamins, health aids, or other medicines.

This is the best fit because it directly describes offering a product below cost to generate broader sales. The other options describe different pricing strategies that don’t hinge on sacrificing profit on one item to attract customers or rely on cross-selling to boost overall profits.