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Explain the benefits to an organisation of using loss leaders as a pricing tactic. - Scottish Highers Business Management - Question c - 2018
Question c
Explain the benefits to an organisation of using loss leaders as a pricing tactic.
Worked Solution & Example Answer:Explain the benefits to an organisation of using loss leaders as a pricing tactic. - Scottish Highers Business Management - Question c - 2018
Step 1
Brings customers into the shop to buy the products - and then customers may be enticed to buy other full priced items.
Answer
Using loss leaders can effectively draw customers into the store. Once inside, they are more likely to purchase other items at full price. This strategy can help increase overall sales and profitability.
Step 2
Can be used in advertising campaigns to attract customers to come into the organisation - therefore increasing the number of customers.
Answer
Loss leaders can also serve as a marketing tool, generating excitement and interest. This can lead to a higher footfall as customers are attracted by the low prices advertised, subsequently enhancing brand visibility and customer engagement.
Step 3
It can create customer loyalty - a customer may be more likely to stay with the organisation rather than going to its competitors.
Answer
By offering loss leaders, organizations can foster customer loyalty. When customers perceive value in the pricing strategy, they are more inclined to return for future purchases, ultimately benefiting the business over the long term.
Step 4
Customers may purchase the loss leader priced items in bulk - which can increase sales.
Answer
When customers find loss leaders appealing, they might buy them in larger quantities. This bulk purchasing can lead to a significant increase in sales volume, helping to offset any potential losses incurred from the below-cost pricing of the loss leaders.