Magic of a Loss Leader

Definition: A loss leader is a product sold at a low price (at cost or below cost) to stimulate other, profitable sales.

If etailers analyze their sales data they’ll see a familiar pattern- a small percentage of visitors buy, and those that buy once often buy again.

Before discussing loss leader strategy let’s understand what is happening online.  According to Practical Commerce there are 600 available shopping carts.  Magento, which is just one of those 600, is cart of choice for 75,000 etailers (source).  Long story short, there are way too many online stores.  Translation- to succeed etailers have to figure out a way to improve first purchase metrics.

This is where a loss leader can be useful.

Few rules for picking a loss leader-

1. It should be an item that appeals to early-stage shoppers.
2. It should be an item with broad appeal.
3. It should be an average ticket item (when choosing between a $50 and $94 dollar item pick the one priced @ $50).

For a gardening site like cleanairgardening.com Grow Your Own Food Made Easy Book is a good loss leader because it fulfills criteria 1, 2 and 3.

Here is how I’d implement the idea.  Identify new visitors through a cookie.  For new visitors display a banner graphic with the text- “Welcome first time visitor.  We have a special one time offer for you…”

Clicking this drives traffic to a page (/welcome.html) with a two sentence intro.  Below that is a paused video welcome message.  In the video the CEO/founder welcomes the visitor, mentions why she started the company, talks about their unique selling proposition, presents the loss leader and notes this a one time lowest-price-on-the-web offer.  Below that we display a photo of the loss leader with an add to cart button.

Split test /welcome.html to see conversion lift.  Advanced users can split test different loss leaders to identify the best one.

4 thoughts on “Magic of a Loss Leader

  1. If instituted correctly, this can be just as valuable as a tool to grow responsive email lists. Using your example, Clean Air Gardening could provide a free downloadable report or book that both educates and potentially primes the customer for future sales. The only stipulation is that they have to optin to the newsletter to get the download link…

    Once you’ve tied the customer to the email database you can segment them ad nauseum- frequent buyers, niche buyers, tire-kickers, etc.

    • Hi Mike,

      I can only speak for myself- I hate reading long text on a computer screen. That said, your suggestion in conjunction with a loss leader physical item could be a killer idea.

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