Why You Need Loss Leaders for Your Ecommerce Site

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I had to learn about retail game through second-hand information. I ended up working on the digital marketing team at one of the UK’s biggest department stores a few years back. For some reason, the company didn’t really make any effort to educate people about retail fundamentals. Maybe they assumed we would have learned elsewhere (uni, previous experience or something) but no; it was up to me to analyse the various retail reports we got each week to figure out the game.

My mind was blown when I was introduced to loss leaders. It’s one of those things that is so obvious when you know about it, but you probably take it for granted as a consumer.

What is a Loss Leader?

Loss leaders are products that, once sold, would sell at or below the price the retailer bought it for. This pricing strategy may be used for a product when it’s sold at full price or when it’s on promotion. Stores stock loss leaders in order to attract custom, in the hope that they will buy yet more goods (which will be profitable).

Things like milk and eggs are often loss leaders, as customers have come to expect them at a particular price range. When a customer goes into a supermarket on a mission to buy milk and eggs, they’re always going to leave with more than just those items.

As an online arbitrage seller, I’m now a lot more conscious of promotions that enter into loss leader territory. Baby product retailers often run promotions on nappies or bath time essentials, slashing the prices well below what they usually would be. It makes customers want to stock up on extra goods, as they’ll be in the mood to buy in bulk and they’ll believe that they’ve already made savings in their baskets.

The key with loss leaders is that they have to be leaders; products in high demand and would be purchased whether or not there was a deal on. You can’t expect to have the same effect if you choose an unpopular product which customers aren’t aware of or wouldn’t typically want to consider.

How to Incorporate Loss Leaders into Your Ecommerce Store

Ecommerce stores come in all forms, but the ones I think would benefit most from loss leaders are ones which have an engaged following (newsletter, social media) but struggle to convert people into customers. Running promotions or selling products at permanently low prices incentivises shoppers to pull the trigger and buy.

While some customers may only go to your store for the loss leader item, the majority should want to browse around. A simple way to get them to do this is by putting a free delivery threshold in place (even temporarily). Allow customer to add the cheap item to their baskets, but require them to add other items from your store to claim their much-desired free delivery.

Make sure you make your free delivery threshold point prominent through a banner (easy through plugins or apps with whichever CMS you decide to use.)

What Loss Leader Products Should You Sell?

Loss leaders come in all forms, but it makes sense to find products that you’re able to dropship. This way you don’t have to hold onto any of the inventory, and you won’t have to get involved in the fulfilment process at all. As this is the case, I would advise that you either look into dropship-friendly wholesalers that sell products that are complementary to your inventory, or consider print-on-demand.

On one of my giftware ecommerce stores, a particular print-on-demand card sells extremely well, as it goes with my lead product and takes customers over the free delivery threshold. I opted to sell the card at a low price because it’s become a no-brainer for customers to add it to their basket when they’re hunting for gifts for whoever they’re buying from.

In my case with the card I sell, it’s a conversation-starter, so it draws a lot of traffic from social media to the site, and inspires customers to check out what else they can buy. I find that customers even like to stock up on additional cards for throughout the year, so it seems to work well as a loss leader.

The key when finding something to select as a loss leader is that it should be a no-brainer for customers to add to their basket. The price has to be perfect, and it has to have mass appeal.