Loss Leader Pricing – How to Use It to Boost Average Order Value

Have you ever thought about pricing some of your products lower than market value?

Huh?

It sounds crazy, we know.

But store owners often price their products low so they can attract customers and upsell products that pay off the low-priced product. In other words, they make money on the back-end.

This is called loss leader pricing.

And it’s a strategy you can use to boost your store’s average order value (AOV), compensate for the loss, and acquire customers who stick around.

Loss leader pricing examples

Here are some notable examples of loss leaders:

  • Holiday deals. Think Black Friday, Christmas, and similar event discounts that store owners use to attract you to their store instead of their competitors’.
  • Electronics. Gaming consoles are loss leaders. Equipment and games are the upsell.
  • New brands use loss leaders to establish their presence in a crowded market.
  • Food. Costco underprices its chickens to get more people in the store. They then buy other things.
How Does Costco Keep their Chickens so Cheap? (Loss Leaders Explained)

Below are tips on how you can use loss leaders to grow your own brand or business:

Use excess inventory

If there’s low demand for a particular product, you can use that product as a loss leader.

You can empty your stock and use that product to cross-sell and upsell other items – or acquire customer data you can later use for retention.

Sell consumables and replacement parts

Gillette is fine with selling razor handles at a low cost because they know they can get you to buy replacement parts at a higher profit margin.

If you know customers will come for necessary consumables, sell your main product parts for cheap.

Use product page recommendations

E-commerce stores use this tactic often.

Sell one product for a lower price, but then use recommendations and upsell apps to suggest complementary products to boost AOV.

Analyze your business

Sometimes you can sacrifice a bit of cash to get a lot of data. Loss leaders will boost customer activity in your store and give you more insight into their behavior.

You can then use this insight to optimize your ads and website for more conversions.

Intrigued? Now may be a good time to experiment with lower prices so you can start making a bigger profit… as strange as that sounds.

Software Blade

SoftwareBlade.com covers today's software and tomorrow's emerging technology.

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