THE LEADER
A loss leader or leader[1] is a product sold at a low price (at cost or below cost)[2] to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. The price can even be so low that the product is sold at a loss. A loss leader is often a popular article. Sometimes leader is now used as a related term and means any popular article, in other words one sold at a normal price.[3]

[pic]Sales of other items in the same visit

One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor.
Loss Lead describes the concept that an item offered for sale at a reduced price and is intended to lead to the subsequent sale of other items, the sales of which will be made in greater numbers, or greater profits, or both. It is offered at a price below its minimum profit margin-- not necessarily below cost. The firm tries to maintain a current analysis of its accounts for both the loss lead and the associated items, so it can monitor how well the scheme is doing, as quickly as possible, thereby never suffering an overall net loss.
An example is a supermarket selling sugar or milk at less than cost to draw customers to that particular supermarket.
Marketing academics have shown that retailers should think of both the direct and indirect effect of substantial price promotions when evaluating their impact on profit.[4] To make a very precise analysis one should also include effects over time. Deep price promotions may cause people to bulk-buy (stockpile), which may invalidate the long-term effect of the strategy. This is the association rule analysis.[5]
When automobile dealerships use this practice, they offer at least one vehicle below cost and must disclose all of the features of the vehicle (including the VIN). If the loss leader vehicle has been sold, the salesperson tries to sell another vehicle at the regular price. A customer who has missed the loss leading vehicle is unlikely to find a better deal elsewhere. This practice can be seen as a form of deceptive advertising, and is illegal in some jurisdictions. It falls under the strategy of bait and switch deception tactics.

Characteristics of loss leaders

• A loss leader may be placed in an inconvenient part of the store, so that purchasers must walk past other goods which have higher profit margins. • A loss leader is usually a product that customers purchase frequently—thus they are aware of its usual price and that a lower price is a bargain. • Loss leaders are often scarce, to discourage stockpiling. The seller must use this technique regularly if he expects his customers to come back. • The retailer will often limit how much a customer can buy. • Some loss leader items are perishable, and thus can't be stockpiled
Some examples of typical loss leaders include milk, eggs, rice, and other inexpensive items that grocers wouldn't want to sell without other purchases.

Examples

The razor and blades business model, pioneered by American businessman King Gillette, is similar to the loss leader business model. Razor handles are given away for free or sold at a loss, but sales of disposable razor blades are very profitable.
In 1979, American businessman Earl Muntz decided to sell blank tapes and VCRs as loss leaders to attract customers to his showroom, where he would then try to sell them highly profitable widescreen projection TV systems of his own design. His success continued through the early 1980s.[6]
Inkjet and laser printers are also often sold to retail customers below their margin price and could also be viewed as loss leaders. Some of the printers, especially the entry-level models, are sold at a loss-leading price which seems apparently affordable to most consumers, but they pay the regular price for ink cartridges or toner, and specialty papers supplied by the manufacturer. The manufacturer also limits the customers' options by not supporting third party ink, including refills. This analysis more closely parallels the strategies of tying and bundling products, however.
Mobile phones are offered for free or at a low cost to subscribers who enter into a contract that is typically between 12 and 24 months. The carriers profit by retaining customers for a longer period of time, and this offsets the cost of the device. However early termination fees on contracts, sometimes more than the retail cost of the phone, allow carriers to make a profit even if a subscriber leaves. These artificially lowered prices make it difficult for those selling standalone devices and unlocked handsets to compete.
Loss leaders can be an important part of companies' marketing and sales strategies, especially during dumping campaigns.
Video Game consoles have often been sold at a loss while software and accessory sales are highly profitable to the console manufacturer. In the current generation of consoles; both Sony and Microsoft have sold their consoles, the Playstation 3 and Xbox 360, respectively, at a loss and made up for it through game software and accessory profits. Their competitor, Nintendo, has sold its current-generation console, Wii, at a profit. This was largely due to the Wii focusing on motion-control rather than High-Definition content, leading to a less powerful and thus cheaper to produce console.

Definition of leader price
1. Marketing: Powerful firm whose prices are likely to be imitated by other firms in the same market. Price leaders usually are also the market leaders.
2. Merchandising: Popular item or an item of daily consumption whose price is set lower than normal to attract customers into the store. See also loss leader.
Case studies under CPA

Consumer Protection Act (CPA).

This case study concerns the liability of a manufacturer of a product for harm which is suffered by the “ultimate consumer” of that product. It is important to consider the remedies that would be available in contract and under the doctrine of tortuous liability for defective goods.
There is privity of contract in the relationship between Pamela and Cooks Stores and, therefore, in contract a remedy would be available to Pamela only. To invoke such a remedy under contract, Pamela should be able to rely on the terms implied into the contract by the Sale of Goods Act 1979, such as provided under s. 14 (2B) by which goods are not of satisfactory quality if they are unsatisfactory in terms of safety and durability, according to the standards of a reasonable person. The SGA provides recourse to a seller and, therefore, this act should enable Pamela to reclaim the £175 purchase price of the food processor from Cooks Stores.
According to the “narrow rule” in Donoghue v Stevenson a manufacturer owes a duty to the customer to take reasonable care when he sells goods in the form in which he intends them to reach the ultimate consumer with no reasonable possibility of intermediate examination. This rule is a variety of negligence and creates a regime of fault-based liability on the part of manufacturers, which will include retailers, such as Cooks Stores, alongside Price (UK) Ltd.
Both Pamela and Rose are potential claimants since here they are both “ultimate consumers” and the rule covers those who receive goods as presents and bystanders. To bring an action in tort Rose, as the claimant, would have to show the existence of a duty of care, breach and causation.
Rose might have a cause of action against Price (UK) Ltd as manufacturer, if she can show that there has been a failure in the production process, for instance. The doctrine of res ipsa loquitur may be useful here, as developed in Scott v London and St Katherine Docks Co., which, it has been argued, creates a rebuttable presumption of negligence on the part of the defendant. Following Erle CJ Rose would have to show that the accident was of the kind that does not normally occur in the absence of a want of care, that the defendant had exclusive control over the thing which caused harm and that the defendant cannot offer any plausible alternative explanation of what caused the accident. Although these would be evidential questions, they might help Rose to determine whether or not Price (UK) Ltd has breached its duty of care, which is important since experts are unable to identify the precise reason for the incident.
It is important to consider the possibility of intermediate examination and whether Rose was using the food processor properly. While it is stated that Rose followed the operating instructions carefully, it should be noted that Pamela has used it previously – if not frequently – without difficulty. This leaves open the possibility that consumer misuse is at the root of the problem. Further, the manufacturer might be exonerated if another person can reasonably be expected to inspect their product.