All this hard work that you’ve put in to building a reputable, ethical company, with sales staff that love your customers and are passionate about what they sell. It all goes out the window, if a customer can buy something retail, cheaper than you can buy it wholesale.
Or, does it?
There are many reasons why retailers sell below cost (or below the cost you could buy it for), so instead of being outraged, let’s take a look at how to leverage loss leader products.
So what are loss leader products, and why do stores waste time and money, having them?
Loss leaders are designed to draw you in, with the lure of a bargain, and the strategy to sell you more.
You’ll generally find these products located in areas of the store that require you to pass other products on the way. Strategically placed point of sale displays are constructed to appeal to the consumer on an emotional level and when utilising loss leaders, complimentary products are high on the merchandising agenda. Maximising the instore ‘advertising’ of products that have high profit margins, is the key to converting customers that have come to purchase the loss leader.
Next, you need to be aware that selling at what you believe is below cost, doesn’t necessarily mean the retailer isn’t making money. In big box stores, the supplier/manufacturer is usually required to absorb the discount, meaning the store can still make money.
But why would a supplier do this? It could be to draw brand awareness and/or to poach customer loyalty from other brands.
If you’ve ever been sucked in by a loss leader advertisement, you may have experienced the annoyance that when you arrived in store, there were no products left. Loss leader sales often have limited stock quantities, so that once you’ve been drawn into the store, you stay and shop.