Loss-Leaders
The concept of a ‘Loss-Leader’ is well practiced in many retail businesses. It basically is the process of offering an incentive for people to try your business which then creates the opportunity for an ‘up-sell’!
The idea of a loss-leader is worthwhile only if the Return on Investment (ROI) works out and if the seller realises and understands the ‘lifetime value’ of a client. (Our next Business Boost will look at this concept.)
Even if the initial ROI doesn't seem to be fantastic ... if the promotion generates new ‘names on a database’ and the advertiser uses the names to build further sales, then the ROI can continue to improve.
The down-side of Loss-Leaders is that those new customers may come to expect the ‘freebie/discount’ in future transactions. As long as it is ‘costed in’ to future sales then the business can continue to trade profitably.
Of course, if you can, take the lead from most major retailers who use their Suppliers to ‘fuel’ their ‘Loss-Leaders’ by providing heavily discounted product or even ‘free giveaways’. This way their promotional activity is always ROI positive.
Anthony Davis
Of course, if you can, take the lead from most major retailers who use their Suppliers to ‘fuel’ their ‘Loss-Leaders’ by providing heavily discounted product or even ‘free giveaways’. This way their promotional activity is always ROI positive.
Anthony Davis
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