What is a “loss leader” in merchandising?

A "loss leader" in merchandising refers to a strategy where a product is offered at a price lower than its cost, intentionally incurring a loss on that item. The primary purpose of this strategy is to attract customers into the store, where they may purchase other, more profitable items. This approach is effective because customers drawn in by the enticing low prices are often inclined to buy additional products, thereby increasing overall sales and profitability for the retailer.

The concept of the loss leader is particularly common in competitive retail environments, where attracting foot traffic is crucial for driving sales of other merchandise. By understanding and utilizing this strategy, retailers can manage their inventory and influence customer purchasing behavior effectively.