What is the primary purpose of a loss leader strategy?

• A. To attract customers who will purchase other profitable products.
• B. To reduce the price of all items in the store.
• C. To discourage frequent visits.
• D. To comply with inventory turnover targets.

Answer: (A)

A loss leader strategy aims to draw customers into the store by pricing a product at or near cost, with the expectation that once inside, shoppers will buy other items that have higher profit margins. The key idea is foot traffic plus effective cross-selling or upselling, so the overall sale remains profitable even though one item is sold at a loss. This approach works best when the leader item is popular or complementary to items with strong margins, creating a higher total revenue per customer than if no loss was offered.

It’s not about discounting everything across the store, so removing price discipline on all items isn’t the goal. It also isn’t intended to discourage visits; the aim is to increase frequency and total basket size. And while improved turnover can be a side effect, the primary purpose is to attract customers and encourage purchases of profitable products, not merely to meet inventory turnover targets.