Enlisting 'Loss Leaders' to Boost Sales

If ever you thought the annual Black Friday giveaway deals are a sign of desperation on the part of struggling retailers, think again. Certainly, many resellers utilize the limited-quantity bargains to jumpstart sales at the beginning of the holiday season, but we all know their first goal is to capture buyers' attention. Once they have that, sellers busily offer additional goods that are compelling without being profit-cutting.

Now consider how this selling tactic is used online. Every day you surf the Internet, you're bombarded with pop-up ads and flashy banners that tell of incredible deals, all in an attempt to capture your attention and draw you in to take a closer look. Once you've secured your prize—so to speak—you're typically curious to see what other interesting offers the seller might have for you. This is the technique of utilizing "loss leaders," those ridiculous offers that seem too good to be true, but actually serve to attract buyers so they will browse the rest of a seller's inventory.

When you're just as determined to catch a customer's eye to guide them through the virtual aisles of your total offerings, sometimes a little bait is all you need to boost sales.

Loss leader defined

Before going any further, let's be sure we agree on the definition of the term "loss leader." Classically defined, this is an item (possibly more) you position to sell at a significantly reduced price, perhaps even below your own cost. While this may sound like a bad business plan on the surface, the loss leader is merely a tool to act as the lead element in your marketing approach.

The idea is that customers will be drawn to the crazy bargain you're offering and step in closer to determine if this is a real opportunity. Determined the deal is legitimate, the customer is now "present" in your virtual store—be it your eBay Store of fixed-price offerings or an auction listing where you can tout other tantalizing items concurrently up for bid—and ready to be courted by your follow-on efforts to promote "regularly priced" items of similar style or interest. When the customer begins to peruse the other goods for sale, the loss leader has served its purpose: Generating more traffic into a seller's virtual store and increasing the potential for additional sales.

Manage loss leaders to ensure you don't take a loss

Focus on an item that is desirable to multiple market segments and not focused on a niche base

The key to getting the most from a loss-leader strategy is to know how to properly implement and manage it to the benefit of your business. Follow these principles and you'll see how near-giveaway items can lift your online income:

• Loss-leader marketing works best when applied to an item that has wide appeal to a large customer audience. Focus on an item that is desirable to multiple market segments and not focused on a niche base.
• As you prepare a loss-leader campaign, be sure to have adequate stock on hand to support increased demand. Customers get cranky when they find your super bargain has already dried up by the time they arrive to benefit from the ridiculous deal (unless this is your strategy to restrict too much profit loss in offering the deal. Just be prepared to offer explanations to those disgruntled folks who missed out).
• As you prepare your loss-leader inventory, investigate if a higher-than-normal inventory acquisition will secure a lower-than-usual acquisition cost. If so, you can hedge your margin of loss on the item or you can reduce the item purchase price even lower. When you can price super low, you'll often attract bargain hunters who'll make a purchase even if they're not particularly interested in the item itself; it's just such a great deal that they can't pass it up.
• Most importantly, coordinate the availability of a loss leader with as many other complementary items as possible (available at regular profit-bearing prices) to help ensure additional purchases and mitigate the profit loss of the loss-leader item.

More ways to profit

Buyers drawn in by the loss leader who can then be converted into repeat customers are pure gold

Certainly, the value of gaining a boost in your customer base is not to be understated. Buyers drawn in by the loss leader who can then be converted into repeat customers are pure gold. Beyond this, here are some additional gains from loss-leader campaigns:

• If you specialize in seasonal or holiday-themed merchandise, plan loss-leader campaigns around calendar events since customers will be actively pursuing such goods. This helps draw even more customers in to purchase the bargain, then they proceed to select among the other seasonal goods you offer.
• When you encounter an opportunity to acquire a quantity of inventory at low acquisition cost, consider the potential of offering that merchandise as a loss leader. You may be able to establish a good relationship with a supplier of goods such that you can secure additional low prices on inventory down the road.
• If you're overstocked on some goods you need to move out, use the loss-leader approach to deplete your stock without having to be stuck with it or attempt to return it to a supplier and possibly incur restocking fees.

Using eBay for loss-leader marketing

Finally, recognize how some non-eBayers use the auction site solely for loss-leader marketing. Some businesses, be they entirely virtual or an extension of a brick-and-mortar presence, see the low-cost advertising potential of offering loss leaders to eBay's swelling user base of more than 200 million. Given that marketing via eBay is relatively cost-effective (as compared with traditional advertising and promotion costs), a loss-leader offering—temporary or ongoing—can help promote a business when customers come to take advantage of the great deal, while the business makes full use of the opportunity to provide more information and direction to its commercial existence elsewhere.