Business, Legal & Accounting Glossary
In marketing, a loss leader is an item priced not for profit, but to attract customers. If effective, the loss leader stimulates sales of other goods. In a retail context, the purpose of a loss leader is to drive traffic into the store, in the hope that once the customer is there, additional goods besides the loss leader will be bought. Examples of the retail loss leader strategy include fast-food chains that offer “dollar menu” items and groceries stores that sell basic staples such as milk for below cost. Free software or freeware is sometimes distributed as a loss leader with the intention of convincing a user to upgrade to a more advanced, paid version of the software. Conceptually, the loss leader technique can also be applied to services. For instance, an accountant might offer to do the personal tax returns of any business owner for free, with this loss leader designed to build a personal relationship aimed toward winning the corporation as a client. In some jurisdictions, the loss leader technique might be considered illegal dumping.
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This glossary post was last updated: 10th February, 2020