What is leader price?
Leader Pricing: An Overview
Leader pricing, also known as loss leader pricing, is a <a href="https://www.wikiwhat.page/kavramlar/pricing%20strategy" >pricing strategy</a> where a product is sold at a price below its market cost to stimulate other sales of more profitable goods or services. The idea is to attract customers into the store with the <a href="https://www.wikiwhat.page/kavramlar/loss%20leader" >loss leader</a>, hoping they will also purchase other items while they are there.
Key Characteristics:
- Below-Cost Pricing: The leader product is often sold at a loss or very low profit margin.
- Increased Traffic: The primary goal is to bring more customers into the store or onto the website.
- Impulse Buys: Retailers hope that customers will make additional, unplanned purchases once they are attracted by the low price.
- Attract New Customers: Leader pricing can be an effective way to gain new customers who may then become regular buyers.
- Perception of Value: Even if customers don't buy the leader product, the promotion can create a perception of overall value and low prices for the retailer.
Risks and Considerations:
- Potential for Losses: If customers only buy the <a href="https://www.wikiwhat.page/kavramlar/leader%20product" >leader product</a>, the retailer could incur significant losses.
- Brand Dilution: Constantly using leader pricing could damage the brand's image and perceived quality.
- Stock Limitations: Retailers often limit the quantity of leader products available to prevent excessive losses.
- Competitor Response: Competitors may retaliate with their own leader pricing, leading to a price war.
- Ethical Concerns: Some may consider it unethical if the leader price is not sustainable in the long-run.
Examples:
- A supermarket selling milk at a very low price.
- A bookstore offering a popular book at a significant discount.
- An online retailer promoting a specific item at a loss to drive traffic to their website.