The secrets of a loss leader sale or coupon

Sale

Loss leader sales can save you money, if you shop carefully. Image: Flickr / Just Ssome Film / CC-BY-SA

When grocery stores and retail stores advertise deals, there are often a few items at seemingly unbelievable prices. Called “loss leaders”, these incredibly low-priced items can be budget savers, if you shop carefully.

What is a loss leader?

In the retail business, a loss leader is a product sold at or below the cost of the product. Stores price items this way for a simple reason: a screaming deal will get people in the store. If milk is being sold at 50 cents a gallon less than every other store around town, many more people will come in to the store, and will likely purchase other items, which will make up for the financial loss on that product. Some stores will sell loss leaders when their suppliers mark down an item, others will make a strategic choice to price down a “normal” item.
[Payday loans are usually priced much lower than equivalent banking products, such as overdraft fees.]

Finding the loss leaders

Loss leader products are usually very heavily advertised. Go through weekly advertising circulars, or look for products placed at the middle or back of the store with large, bright signs. Compare the price of the items you think might be loss leaders with the same or a similar product sold at other stores. Some major stores will always price the store brand or the less-expensive options as loss leaders, then mark up the other options so the loss leader provides a perception of a great deal, no matter what the price. Loss leaders are rarely found online and are usually limited to a certain number of items per customer.

Saving money with loss leaders

It makes sense that, if you need the product, purchasing loss leaders can save you money. However, loss leaders are not always the products you need or want. The first thing to remember is if you buy something you do not need, you are not saving money, no matter how good the deal may be. If you want to buy a loss leader, make sure it is something you will actually use. Secondarily, plan your shopping trip carefully. Most stores will increase the price of associated items. If milk is on sale, cookies might have the price increased by a few cents. Keep in mind, too, that shopping somewhere other than your normal store may include more driving and time; balance these costs carefully with the money you might save on the loss leader.

Sources

About.com
Investopedia
EconPapers

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