“Free” versus Loss Leader

“Free” versus Loss Leader

A loss leader is product or service that is sold at a low price or below market cost to get customers to buy another, more profitable offering. For example, inkjet printers were commonly sold at a loss. Printer manufacturers would then make their money back, including profit, by selling proprietary ink cartridges that needed to be refilled. In general, any strategy that focuses on losing money should be carefully reviewed or eliminated. Why? They lose money. The market can also force proprietary offerings into commodity offerings as it did with ink cartridges.

A better acquisition strategy is to give customers something for free. Smart customers know what “free” means. They know that you are in business to make money (they are too). If they accept a test or trial product or service, there is a good faith understanding that a successful experience will lead to a sale. Their participation also leads to persuasion; e.g., customers that test a product are more likely to buy than customers that do not. When a customer invests effort, money or time, they are always closer to buying than a non-invested customer.

In addition to free, making low risk offers is also effective. For example, the seller positions a cost savings assessment with the customer. If no cost savings are found, the assessment is free.  If cost savings are found and the customer moves forward, the assessment fee will be rebated. If cost savings are found, but the customer does not move forward, they pay the assessment fee, but keep any recommendations for free. The chance of a participating customer not moving forward is low. Even if they do not, if they move forward later, they will need you for implementation.

Tip: If possible, present offers/proposals in person. It is easy to say “no” to email and harder to say “no” to a person.

All contents copyright © 2013, Josh Lowry. All rights reserved.

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