Pricing Strategies : Competitive 1.3.3

Competitive pricing (Loss leader) - Setting the price of a product or service based on what the competition is charging. This pricing method is used more often by businesses selling similar products, since service can vary from business to business, while the attributes of a product remain similar.

Loss leader - is a product prominently displayed and advertised and priced below the normal price and even below cost to the seller.

Business try to compete in various aspects of the marketing mix.

The use of loss leaders is a method of sales promotion. A loss leader is a product priced below cost-price in order to attract consumers into a shop or online store. The purpose of making a product a loss leader is to encourage customers to make further purchases of profitable goods while they are in the shop.

Aim: encourage people to buy complementary goods at full price.

ADVANTAGE

▪ If a business undercuts it's competitors on price, new customers may be attracted and existing customers may become more loyal. So, using a loss leader can help drive customer loyalty 

▪ A product which is sold at a low (even loss making) Price in order to encourage customers to buy other full price products from the business along with the loss leader product.

DISADVANTAGE

▪One risk of using a loss leader is that customers may take the opportunity to "bulk-buy". If the price discount is sufficiently deep, then it makes sense for customers to buy as much as they can (assuming the product is not perishable).

Using a loss leader is essentially a short-term pricing tactic, so it makes sense to change the loss leader or its merchandising every so often.