When you’re developing your pricing strategy it is common to incorporate a Loss Leader into the mix. A Loss Leader is a product or service which is priced at a steep discount so that you can attract new customers to your business.
Car dealers are a fascinating market to analyze on pricing alone. If you’ve ever purchased a car, you know that dealership pricing is a multi-layered strategy designed to have you pay the highest price. Their strategy, especially for internet sales, frequently includes a Loss Leader.
Take a look at several car dealers websites and you’ll find a few examples of vehicles priced well below market value to get your attention and to get you to take action – that is to spur you to get out of the house and over to the lot for a test drive. That is the primary intent of the loss leader strategy. Though they will reluctantly sell you that car at the advertised price (if it actually exists) they are not really expecting you to purchase the loss leader. Because again, the primary purpose is to get you to take action on a good price, but the second part of the strategy is to steer you towards another vehicle at a much higher price.
Pricing to get people in the door is one thing – but the second step is where your real strategy comes into play. Entering a hot market and competing on price is not a real loss leader strategy – a low price will definitely get attention and sales but are you making the salary you intend?
Understand, create and internalize your process for the up-sell and new business add on before you set your loss leader pricing. And know your goals for closing the higher priced sale based on value not fluff.