Pricing Strategies in Supermarkets: Loss Leaders

A loss leader is a pricing strategy where a “leader” product is sold at a price lower than its market cost to stimulate other more profitable sales of goods or services. A “leader” is any item for which demand is very popular.

One of the main uses of the loss leader concept is to attract customers into a store where they are likely to purchase other goods. They can also come in the form of services offered by the supermarket.

The seller expects that the average 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 a higher overall profit is generated by the seller.

As you will have understood, loss leaders are an essential element of a store’s stock to define and order as soon as possible from its purchasing center.

What Price for a Loss Leader?

The loss leader is offered at a price lower than its minimum profit margin, but not necessarily lower than its cost. The supermarket must maintain an up-to-date analysis of its accounts in order to monitor how the system is behaving to avoid a net overall loss, particularly indirect costs associated with products.

Which Products to Choose for Loss Leaders?

In the context of supermarkets, loss leaders are generally staple foods such as bananas or milk (for example, Belle France brand milk) to attract customers to their store. These items are usually strategically placed far from the store entrances to reinforce this effect.

Loss leaders, by definition, have high demand, so it’s important for the store to collaborate with its distributor and purchasing center to order its container early enough to avoid running out of stock. In short, demand must be anticipated adequately.