What is a Loss Leader?
A loss leader is a product that a retailer intentionally prices below cost or profit margin in order to attract customers. While the product itself may not generate a profit, the loss leader strategy is designed to increase store traffic—whether online or in-store.
Why Loss Leaders matter
Loss leaders are a strategic tool used to influence shopper behavior. The idea is simple: get people in the door with an irresistible deal, then encourage them to buy additional products at full price. When executed well, a loss leader promotion can increase average transaction value, offload excess inventory, and introduce customers to new categories or brands.
However, it requires careful planning—too many loss leaders can eat into profits, and shoppers may become conditioned to only buy when discounts are steep.
Practical example
A grocery store advertises milk at a price lower than its cost, knowing that it’s a staple product that will bring people in. This classic loss leader tactic works because once inside, customers pick up other essentials like bread, cereal, and produce—items with healthy margins that offset the loss on milk.
