A “Loss Leader” is marketing tool that can help increase sales and motivate customers change the shopping habits. By Gary Shotton #000348
By Gary Shotton
My name is Gary Shotton, and I’m here is a part of Inspiring Better Business “IBBTalks.com”.
Today, I’m going to talk on the marketing tool to increase sales called a loss leader. And it’s a tool that’s used especially in retail sometimes in restaurants, sometimes with gas stations or shopping online.
It’s a common thing that I’m familiar with and you may not be it depends on your culture, but it starts with the concept and definition of what a loss is. loss is when you don’t make any money.
Well, we don’t want to do that very often. But you would pick one or two things that you could advertise and because you know the cost. The base cost of that product or service. You would offer that at extremely low cost to your customer.
Now you don’t make a loss, in my recommendation but you don’t make any money or no not much money. On every product or service, you have you need to have a mark up, you need to have something above and beyond the very base cost to cover your overhead to cover your profits, some things that are why you’re in business and so you’re willing to take off that extra and offer this product or service at an extremely low price.
Mainly so that you catch the eye of the market that person, your customer, the person you want to reach. If you can catch their eye and brought attention to your store or your product or your service, then you’ve kind of started to word number two, Leader.
You’re leading somebody into your store, think of you have a horse or a donkey or a mule or something like that and you have a chain around their mouth and neck like a bridle, and now you’re leading that person, they’re following you a leader.
You’re being the leader, so you have a loss that leads your potential customer to you, your service, your website, your product and by doing that, you start doing something kind of unique.
You must recognize that people myself included we are kind of creatures of habit, once we like something, we like to repeat that over and over again. I just ate out dinner last night with some friends, and I was at a restaurant I hadn’t been very long ago or hadn’t been very often, I’ve been quite a while ago and I knew the menu and have a lot of different items on the menu, but I’m always disappointed if I don’t buy this one particular meal.
So, I bought it again, I have a habit if it’s not every day to order that one meal because I really like it. We are people of habit, there are many examples of the habits, but just the habit of once I’ve gone to a grocery store where we buy our produce and our product or food, I know where things are at, I know where the bathrooms at, I know where the checkout line is, but I know where the butter is, I know where the bread is, I can find things much easier and easier in a store that I’ve been to several times over and over.
So, I will go out of my way to go to that store because it’s faster it’s easier even if it’s out of my way, and by the way, these chain stores that know what we’re talking about on the habit they set up their store in another city at another state and it’s laid out exactly the same many times. So, you go into that establishment even in another city and you feel comfortable you know where things are at.
So that’s the idea of leading somebody into your store. So, they start creating a habit and those habits are good for you, you want those habits, you want them to have a habit of coming to your store, you don’t want to break that habit, you want to be careful to keep them happy.
So, let’s give some examples number one, I go regularly to one place that I get my gasoline, but every time I’m filling up my gasoline it says five-cent discounts on gas, that’s the money. Well, that’s a loss leader because they’re going to reduce the price, five cents per gallon for one month or two hundred gallons provided you sign up for a credit card. Great idea, they’re going to make up the money in the end.
Let’s say just going to the store and outside they put milk, and that milk is a stable item, that first of all they put at the back of the store so you have to go all the way through the store to get it. and then you could buy other things, but you say milk is a particular price and then they have given it like 20% cheaper than normal. Wow I’m going to go to that store and get my milk not realizing that everything else is a little bit higher, but you’re there and once you buy the milk, you buy the bread, you buy the other things and so they’re willing to take a loss in that product to lead you into the store to buy more things especially if it’s a process of making a habit.
What about online purchases, you’ll see that there’ll be ads come to your phone and they’ll give an unbelievably good discount or something free. They will mail you something free if you will sign up for their app, which gets you on a habit of using something they’re leading you into using their app so that you’ll get more familiar with them.
That you’ll buy things easier more conveniently. I’m telling you Amazon Prime is so easy to buy somethings. It’s ridiculous, you find it and with one button you bought it, it has the second button to confirm but it is so easy to buy.
This has been a long tool way back almost forty years ago, I received in the mail an advertisement that said we will give you a free frying pan if you signed up for the credit card, this is years ago when credit cards were not so prevalent. And so those credit cards were coming into their own, and you know it was a very cheap frying-pan guarantee it was not a fancy heavy-duty expensive frying pan. So that led me into selecting their credit card and as far as I know, I might have kept that credit card for many 10-15 years after I started with that credit card.
it was a loss, to begin with, but it led me into the use of what they’re guiding me into. and they’ll make up the difference, the profit, the success on the rest of the purchases after that loss. and remember it’s not actually a loss like they actually lost money normally. it’s just or unless they gave you something but normally if it’s a reduced price, it’s something that they wiped out all the profit on that, and other things had to carry the profit for the company.
Well, I hope this makes sense, you can use this in your advertising once you have that wide item that you want to use to pull them in then make sure you advertise a big-time monitor it knows your numbers make sure you know what the result of this marketing tool is and I think you’ll have increased sales by doing it.
Thank you very much for being a part of Inspiring Better Business
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