Loss leader strategy is a popular pricing strategy that allows companies to attract more customers by offering a product or service at a price lower than the cost of production. The idea behind this marketing approach is to entice potential customers and draw their attention to the business. The strategy takes the focus away from the product’s cost and more towards the benefit the customer can expect by purchasing the product at the discounted rate. The businesses provide an incentive to the customers which in turn gets them to spend more on other products offered by the business.

The use of this strategy is often seen as unethical and predatory, considering it lowers the price of products being offered. This means businesses can undercut their competitors and drive them out of business. Critics also feel that it can be employed by large companies with deep pockets who can easily absorb the loss, putting their smaller competitors at a disadvantage who are unable to offset the losses incurred in engaging in loss leader practices.

While the use of loss leader strategy undoubtedly has its critics, it can be argued that this strategy offers several advantages to businesses. Loss leader pricing can help new businesses penetrate new markets, as customers are more likely to patronize a new brand when they are presented with a seemingly good deal. It is also a great way to reduce the competition as customers gravitate towards the brand offering the discounted prices.

Businesses must also take into consideration the effect their loss leading strategy will have on their suppliers. Suppliers are more likely to cut their own margins in order to accommodate the reduced cost of production, further reducing the ability of the supplier to make profits.

The use of loss leader strategies can be beneficial to businesses, however careful consideration should be given to the implications on their suppliers. Businesses can set limits and make sure that the discounted prices are still within the market rate. This will ensure that suppliers are not suffering an unreasonable loss or putting too much strain on the market. Ultimately, it is important for businesses to analyze their target market and engage in an informed debate to decide whether or not loss leader strategies should be employed in their strategies.