What is it?
The Loss Leader Effect is an offering sold below cost to attract buyers.
Why does it work?
It works because buyers can spot a great deal when they see one. Even if a buyer knows you are working at a loss to try and sell them more in the future, it creates an attractive proposition. Having a Loss Leader can be an alternative to a Freemium model where buyers access your offering in a basic form for free. Sometimes being free can damage the perception of value, so having a low priced offering – even one at a loss – can highlight clients who have a greater lifetime value and the likelihood of buying.
How can you use it?
Identify an entry-level offering that will demonstrate the value you can deliver and encourage a buyer to buy more in the long term. Discount that as low as possible, even below cost, to attract buyers into your product/service ecosystem.
Because the Loss Leader Effect involves trading at a loss it must be used with EXTREME CAUTION and sparingly to prevent long term costly issues.