What is one reason retailers use loss leader pricing?

Retailers utilize loss leader pricing primarily to attract customers into the store. This strategy involves pricing a product at or below cost to stimulate customer interest and draw them in. The idea is that once customers are in the store, they are likely to purchase additional items that may have higher profit margins, thus offsetting the losses incurred on the loss leader product.

This approach hinges on the principle of foot traffic; by incentivizing consumers with low prices on popular or essential items, retailers can increase overall sales volume and enhance customer loyalty. Beyond attracting new customers, it can also encourage repeat visits, creating a long-term benefit for the retailer. The success of this strategy often relies on the ability to convert initial interest from the loss leader into more profitable transactions within the store.