Business Models
Loss Leader Pricing
Also Known As Loss Leader
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A retail pricing strategy in which a product is sold at a price below its own profit margin to stimulate sales of other, more profitable goods or services bought in the same visit. Documented examples include electronics retailer Earl Muntz using blank tapes and VCRs as loss leaders in 1979 to draw customers toward high-margin projection televisions, and the British Motor Corporation reportedly selling the 1959 Mini at a per-unit loss to encourage higher-margin model upgrades; Costco's $1.50 hot dog combo, held at that price since 1985, is a widely cited modern example.
Facts
Core MechanismA product is sold below its minimum profit margin to draw customers into a store or platform, on the expectation that the same customer will also buy other, higher-margin goods or services in the same visit, producing an overall profit for the vendor. 1 Cross-Tradition Connections
Associated With
Loss-leader pricing is a retail pricing tactic by definition: a product priced to draw a shopper into a store or platform so that the same visit produces other, higher-margin sales.
Sources
1. Wikipedia, Loss Leader
Wikipedialead sectionQuote, lead section
the vendor expects that the typical customer will purchase other goods at the same time as the loss leader and that the profit made on these goods will be such that an overall profit is generated for the vendor
1. Wikipedia, Loss Leader
WikipediaExamples, Perishable foodQuote, Examples, Perishable food
Costco sells its quarter-pound hotdog and soda combo for $1.50 USD, a price point that has not changed since 1985 and is believed to be well below cost
Open Questions (1 open question)
What is the earliest documented use of loss-leader pricing as a deliberate retail strategy, as distinct from the later, well-dated instances the source article actually names?
The source article gives a well-dated instance (The 1969 Warner/Reprise Songbook, a discounted compilation album used to promote the label's roster) but that is a documented APPLICATION of the tactic in the record industry, not its origin; the pricing tactic itself is understood to be far older in general retail, and the article names no earlier date or first use.
What would resolve this A retail-history or pricing-economics source giving a specific year or decade for the first documented use of below-cost pricing to draw store traffic, prior to the mid-20th-century instances that are commonly cited today.
Business HistoryWikipedia, Loss Leader
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