TapRun Consulting

The Pricing Newsletter

February 2019 issue

Hello Pricers!

February is upon us, and we all know what that means. The holiday spirit is overtaking public consciousness and causing people to write cheesy poems for their loved ones.

That's right. February is Haiku Writing Month, and we all need to do our part.

Here's one that I recently penned:

You see customers
Maybe they will buy your goods
If the price is right

Pricing Question from a Reader

Today's question comes from reader W. R.

My company is planning to start using loss leaders. Unfortunately, none of my fellow coworkers has much experience with them. What types of products should we select?

A warning about loss leaders

I'm usually hesitant to recommend the use of loss leaders, because they are often perceived as an admission that you need to compete on price. Using them may serve to attract price-sensitive bottom feeders and repel buyers (existing and potential) who focus upon other criteria for their buying decisions. In addition, the use of loss leaders may train customers to buy from you only when you price your offerings at unsustainably low levels.

That said, sometimes loss leaders can work unbelievably well. As you consider your strategy, you'll want to make sure that your loss-leader strategy will:

Factors that make for good loss leaders

The proper design and effectiveness of a loss-leader strategy is highly dependent upon your individual circumstances. Here are some rules of thumb that often apply. Do remember, however, that a strategy that results in substantial profits for one firm may result in incalculable losses for another.

Other considerations for loss leaders

Selecting the products to use as loss leaders is only half of the battle. It's also important to ensure that they are used effectively.

The following tips will help to ensure that you don't lose your shirt in the process:

Conclusion

Using loss leaders is, in many ways, like playing with fire. You're awfully likely to get burned. Nevertheless, they can, and do, work wonders when used properly. Just make sure that you have a good reason for using loss leaders, understand your risks, and analyze your results on a recurring basis.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the News

From the Blog Archives

Notable Pricing Quote

"Why is electricity so expensive these days? Why does it cost so much for something that I can make with a balloon and my hair?" -- Dennis Miller

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