What is a loss leader?

A loss leader is a pricing strategy where a business sells a well-known product at a loss to attract customers who will then purchase additional items with higher profit margins. This approach is commonly utilized during peak shopping seasons, such as holidays, to draw in more customers.

Key Aspects:

• Purpose: To bring customers into the store or onto a website.
• Mechanism: The loss on the lead product is compensated by the profit from other, higher-margin items purchased subsequently.
• Examples: Selling essential items like diapers at low prices to lure in customers who then buy other baby products with higher margins.

Alex Hormozi explains that a loss leader works by selling an easily recognized product at a lower price than usual. The goal is to get customers in the door, where they are likely to buy other products with higher markups, thus compensating for the initial loss 1 2.