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A loss leader (also leader)[1] is a pricing strategy where a product is sold at a price below its market cost[2] to stimulate other sales of more profitable goods or services. With this sales promotion/marketing strategy, a "leader" is any popular article, i.e., sold at a low price to attract customers.[3]
One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor.
"Loss lead" is an item offered for sale at a reduced price that is intended to "lead" to the subsequent sale of other services or items. The loss leader is offered at a price below its minimum profit margin—not necessarily below cost. The firm tries to maintain a current analysis of its accounts for both the loss lead and the associated items, so it can monitor how well the scheme is doing to avoid an overall net loss.
- ^ Leader Archived 2009-01-25 at the Wayback Machine, The American Heritage Dictionary of the English Language: Fourth Edition, Houghton Mifflin Company, 2000.
- ^ Loss Leader Archived 2008-07-26 at the Wayback Machine, The American Heritage Dictionary of the English Language: Fourth Edition, Houghton Mifflin Company, 2000.
- ^ Leader, Random House Unabridged Dictionary, Random House, Inc., 1997.