Loss leader

• What is loss leader pricing?

  Pricing a product below its cost
• Why would a business use loss leader pricing?

  To attract customers to buy other products
• If a product costs $7\text{ pounds}$ to make and is sold for $6\text{ pounds}$, what is the loss per item?


  $1\text{ pound}$
• How does loss leader pricing lead to overall profit?

  By selling other high-margin products
• What is a potential risk of loss leader pricing?

  Customers may bulk buy the loss leader
• What is bulk buying also known as?

  Stockpiling
• What is a consequence of bulk buying in loss leader pricing?

  Significant financial losses for the business
• Under what circumstances does loss leader pricing work best?

  1. Set a maximum purchase limit
  2. Use perishable goods
  3. Place items at the back of the store
  4. Offer a wide variety of products
• Why are perishable goods effective in loss leader pricing?

  They encourage quick customer visits
• How can store layout enhance loss leader pricing effectiveness?

  By placing items at the back of the store
• What is choice architecture in retail?

  Designing store layout to influence purchases
• How does having a high choice of products affect loss leader pricing?

  It reduces customer discipline in purchasing
• What is the ultimate goal of loss leader pricing?

  To achieve overall profit per visit