Loss Leader. It’s catchy enough to sound like a superhero name, isn’t it?
It’s also ironic. After all, how can a respected word like “leader” be associated with something as negative-sounding like “loss”?
Before you start to overthink and stress yourself out, listen to this, my young grasshopper. “Loss Leader” simply means a popular product is sold at a discount to attract customers and encourage more sales in the process.
Confused? Just think of companies selling low-cost computer printers that need expensive ink or brands selling cheap razors with replacement blades selling for a heftier price.
Amazon also takes advantage of it by selling the Amazon Kindle at a discounted, too-good-to-be-true price. After all, they know that by buying a Kindle, you’d also need to buy accessories and ebooks exclusively available within their brand.
Ecommerce brands strategically use loss leaders because even though they may be selling at a loss, they’re aiming to make up for it by increasing the customer’s Average Order Value. As a result, they cover the loss and still produce profit.
Both you and your customer win. Your customers get a great deal and you can use this strategy to grow Customer Lifetime Value. Here’s how you can get started:
First, identify your top 10% customers in terms of Customer Lifetime Value.
Once you know who these customers are, find out the initial products they purchased with you. Look for products that they bought for their first purchase with you.
Then, rank these products according to how many top customers bought it. The more it was purchased by the top 10% customers, the higher it’ll go up in your list.
Will a single product top the list? Or will you identify a product bundle that most customers buy because it provides the most value for their money? You’ll only find out once you do this exercise.
Knowing which of your products are loss leaders enables you to strategize a marketing strategy that works in your favor. You can push your loss leaders to a prospect who’s recently signed up for your mailing list.
After all, you may just break even on your loss leader’s sale, but theoretically, this first-time customer will also make repeated purchases over time, based on the purchase history of your top spenders.
There’s no second-guessing or blindly hoping for the best scenario here. You’re promoting your loss leader simply because they promote sales — just refer to the abovementioned exercise that you need to do before implementing this strategy. Remember: numbers, like Shakira’s hips, don’t lie.
Now, if you’re not a fan of discounting, it’s okay. The key here is to expose your prospects to your loss leaders as soon as possible. While your prospects are browsing on your website, redirect their attention to your loss leaders. During this time, they’re highly engaged so they’re more likely to check it out.
If they haven’t made a purchase yet, you can also send them a follow-up email. A simple “Hey, just wanted to check in on you. By the way, most of our customers bought this product. Here’s what they have to say about it. You may be interested…” can get the ball rolling in the direction that you’d like.
Of course, if you’ve identified a product bundle as your best-selling item, you can also send them product pitches about those as historically speaking, they’ve already been effective in increasing your Customer Lifetime Value over time.
So there you go! As of this writing, you can do the exercise manually since there’s no tool available for it yet. And if you’ve reached the end of this post and you’re excited to develop a tool that helps does this efficiently and effortlessly, let me know in the comments below! I’ll totally share it with you guys. See you next week!
(Photo by Boxed Water is Better from Unsplash.)