What is a 'loss leader'?

What attracts people into your business? , 9 Dec 2009

What is a ‘loss leader’ and how can it bring you business?

by Olwynne Cade – Santuary House Media, Publisher/Editor Soul Quisine

Having worked in and owned businesses that have used ‘loss leaders’ to great effect I can tell you without reservation that ‘loss leaders’ are not only items that you should consider as part of your business, they are essential!

As one business person to another I thought it appropriate to lead from the front in sharing with you some vital information about how you can use Soul Quisine holistic newspaper as ‘loss leader’ to draw people into your business.

So what is a ‘loss leader’?

Source of information http://en.wikipedia.org/wiki/Loss_leaders

A loss leader or leader[1] is a product sold at a low price (at cost or below cost)[2] to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy.

The price can even be so low that the product is sold at a loss. A loss leader is often a popular article. Sometimes leader is now used as a synonym for loss leader and means any popular article, in other words one sold at a normal price.[3] One use of a loss leader is to drawcustomers 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 describes the concept that an item offered for sale at a reduced price and is intended to lead to the subsequent sale of other items, the sales of which will be made in greater numbers, or greater profits, or both.

An example is a supermarket selling sugar or milk at less than cost to draw customers to that particular supermarket.

Many years ago I worked in a family run milk bar/tearooms and their ‘loss leaders’ were cigarettes, newspapers, milk and bread.

These items brought customers into the business on a daily basis and while there, they often purchased icecreams, chocolate, milkshakes and takeaway foods.

In the 90’s I was a business partner in a lawnmower/chainsaw retail and repair business. Not knowing anything about small engine equipment was a big learning curve for me and I had to expand my consciouness to encompass the mindset of a sales person which included learning about what it was brought people to do business with us.

There were many other aspects to this difficult retail business. Small engine equipment items are not an everyday purchase and so the business required having other items to boost the income but more importantly to attract customers into the store to see our products and services thus allowing us to build a relationship of trust with them.

I would rather make a purchase from somewhere that I felt comfortable than a complete stranger. And we mostly do purchase our items from people we don’t know, but if you look at the marketing strategies of the most successful businesses you will see that they create a feeling that they know us and have our best interests at heart.

When we purchased this long standing business it already had a few ‘loss leaders’ in place one of which was BOC gases agency. We made very little out of handling the gases which required storage and permits. Lugging the bottles out of the gas room and filling out forms etc was quite a bit of work both physically and administratively. We also sold welding equipment which complimented the gases on which we made a good margin. This ‘loss leader’worked brilliantly for us by bringing customers to us on a consistently regular basis who we would not normally have gotten and eventually they came to us get their small engine equipment repaired and replaced.

We also took on a New Zealand Courier agency which again was a minimal income earner. For the time invested it didn’t make any profit but it certainly returned us great rewards in the customers that used this service and stayed for the other services we had to offer.

Soul Quisine can be your ‘loss leader’. It is a low cost item that requires a bit of effort on your part and used properly it will bring potential customers into your business every 5 weeks to pick up their copy. While they are there, you get to meet them and build a relationship with them.

When they are looking to make a purchase or they come into your business to pick up their copy, they will browse your shop and if they are anything like myself or Julia our sales rep, then they will not be able to help themselves.

Retail is a tough business. You have to give clients and potential clients a reason to use you and to come back regularly.

Our bank manager throughout our Mower shop experience was a godsend to us. He had an extensive knowledge and understanding of the retail trade. His advice to us was to see our stock as parcels of money on the shelf that demanded to be turned over regularly. He said that just because you made a good margin on something didn’t meant that it was a profitable item. If that item or items sat on your selves for an extended period then it was a liability to you and was costing you money.

Loss leaders don’t make you a lot of money, maybe none at all but they are what bring the customers through your door on a regular basis and when you have the customer there it is up to you to get the message across to them about what else you have to offer.

I have learned many things in my time in business and one of the most important lessons is this – You can tell people who you are and where you are but if you don’t tell them how they can use your business, product or service then they will go to the business that is fulfilling that requirement.

We are here to help you to use Soul Quisine as a loss leader. I believe that it is definitely worth $2.50 as a retail purchase and that as a low cost item for you and used in the right way, it will help your business to grow.

We look forward to growing and prospering with you.

Olwynne Cade

Sanctuary House Media

home of Soul Quisine.

Copyright © 2010 Sanctuary House Media