Loss Leader Strategy

What is a 'Loss Leader Strategy'

A business strategy in which a business offers a product or service at a price that is not profitable for the sake of offering another product/service at a greater profit or to attract new customers. This is a common practice when a business first enters a market; a loss leader introduces new customers to a service or product in the hope of building a customer base and securing future recurring revenue.

BREAKING DOWN 'Loss Leader Strategy'

The loss leader strategy is more than just a nifty business trick - it is a successful strategy if executed properly.

A classic example is that of razor blades. Companies like Gillette essentially give their razor units away for free, knowing that customers will have to buy their replacement blades, which is where the company makes all of its profit.

Another example is Microsoft's Xbox video game system, which was sold at a loss of more than $100 per unit to create more potential to profit from the sale of higher-margin video games.

RELATED TERMS
  1. Customer

    An individual or business that purchases the goods or services ...
  2. Razor-Razorblade Model

    A business tactic involving the sale of dependent goods for different ...
  3. Penetration Pricing

    A marketing strategy used by firms to attract customers to a ...
  4. Customer Service

    The process of ensuring customer satisfaction with a product ...
  5. Customer Relationship Management ...

    The principles, practices, and guidelines that an organization ...
  6. Client Base

    A company's primary source of business. A client base consists ...
Related Articles
  1. Investing

    Is Gillette's Market Edge Becoming Razor-Thin?

    Despite Gillette's success with the razor-and-blades strategy, the increasing popularity of beards and new competition may slow the brand's growth.
  2. Financial Advisor

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  3. Retirement

    Harry's Review: Is It Worth It?

    Find out if Harry's, the fast-growing, online purveyor of low-cost razor blades and shaving kits, is worth all of the hype in this review.
  4. Personal Finance

    How Dollar Shave Club Grew to a 630M Valuation

    Dollar Shave Club's rapid rise to become a major player in the razor industry.
  5. Entrepreneurship & Small Business

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
  6. Entrepreneurship & Small Business

    How To Make $1 Million In Your Small Business

    Make your dream a reality. Find out what you can do to reach this financial goal.
  7. Investing

    5 Warnings Signs of Risk for a Small Business

    Learn how to keep on the lookout for these five potential warning signs of risk that your small business is stalling out or failing.
  8. Retirement

    Dollar Shave Club Review: Is It Worth It?

    Learn about the business model of the Dollar Shave Club, and find out whether the razor subscription company is a worthwhile investment.
  9. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  10. Entrepreneurship & Small Business

    How Big Data Has Changed Marketing

    Big data has enabled marketers to enhance their customer engagement and customer retention strategies by providing insight into behavior and thoughts.
RELATED FAQS
  1. Is good customer service something to look for in a company in which I am considering ...

    Learn about the importance of customer service when deciding whether to invest in a stock. Good customer service can ensure ... Read Answer >>
  2. How does a customer base dictate goodwill?

    Find out how a customer base dictates the value of the goodwill by providing a ready market for its products and spreading ... Read Answer >>
  3. How does a merger affect the customer?

    Learn how a merger may affect customers of the industry. The effects of mergers may be positive or negative, but there's ... Read Answer >>
  4. What is the Razor/Razorblade model?

    The Razor/Razorblade business model owes its name to one King Gillette, founder of the eponymous razorblade company. The ... Read Answer >>
  5. How can small businesses manufacture demand?

    Create demand for a small business product or service by focusing on the brand and market. Continue to learn offer excellent ... Read Answer >>
  6. What are some examples of different types of business models in major industries?

    Learn what types of business models are currently being used in the marketplace as well as examples of models that work for ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center