Loss leader pricing is an aggressive pricing strategy in which a store sells selected goods below cost in order to attract customers who will, according to the loss leader philosophy, make up for the losses on highlighted products with additional purchases of profitable goods.
Loss leader pricing is employed by retail businesses; a somewhat similar strategy sometimes employed by manufacturers is known as penetration pricing. In the world of e-commerce, loss leader strategies are intended to draw consumer traffic to an online retailer’s Web site. The technique is also used for product introduction
Pricing a product at a loss can still be profitable if the customer can be persuaded to purchase other items at full price during the same shopping trip.
Best example of loss leader pricing are hypermarkets. They offer the best prices for selected items each day to entice customers to go to their stores. As most buyers are impulse buyers, instead of just buying a bag of diaper or toilet paper, they buy other goods as well.