The Risks, Benefits, and Point of a Loss Leader Pricing Strategy

Ever wonder why milk is always at the back of the store? It’s a staple in most American homes, so why isn’t it conveniently up front?

Without even knowing it, you’ve encountered loss leader pricing.

Loss leader pricing is the time-honored tradition of pricing certain items — like bread or milk — below the cost it takes to produce them in order to bring buyers into the store and entice them to purchase other items — like, say, cereal, a candy bar, and some laundry detergent.

It’s a smart strategy, especially since recent surveys have found the average consumer spends $5,400 on impulse buys every year. That’s $450 per month and around three impulse purchases a week.

So, if it’s giving consumers good deals and bringing in added revenue for businesses, what’s the problem? Let’s dig in below.