The Loss Leader Effect

Understand Your Buyer > How To ConvertThe Loss Leader Effect


What is it?

The Loss Leader Effect is an offering sold below cost to attract buyers.


Why does it work?

It works because buyers can spot a great deal when they see one. Even if a buyer knows you are working at a loss to try and sell them more in the future, it creates an attractive proposition. Having a Loss Leader can be an alternative to a Freemium model where buyers access your offering in a basic form for free. Sometimes being free can damage the perception of value, so having a low priced offering – even one at a loss – can highlight clients who have a greater lifetime value and the likelihood of buying.


How can you use it?

Identify an entry-level offering that will demonstrate the value you can deliver and encourage a buyer to buy more in the long term. Discount that as low as possible, even below cost, to attract buyers into your product/service ecosystem.

Because the Loss Leader Effect involves trading at a loss it must be used with EXTREME CAUTION and sparingly to prevent long term costly issues.


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