Using a loss leader to increase your value proposition

I spend a lot of time thinking about how to increase the value proposition of products and services in business. Sometimes, this is at my place of employment.  But other times this is for business ideas and concepts that I examine in this blog. Recently I was reading Free: The Future of a Radical Price by Chris Anderson. Chris discusses the economics behind pricing products or information for free. While his arguments, interpretations, and predictions have received mixed reviews, the text does provide some thought provoking ideas and examples of how free products have evolved over time.

One of the examples from Chris is the classic marketing strategy of a loss leader. Have you thought about using loss leaders on your web site to drive additional traffic and ultimately more sales?

The idea is to give away one thing to create demand for another or to give away what be easily copied or imitated and sell that which adds value to your customer.

Why would use this for your Internet site? Here are a few examples:

1. Encourage more customers to use the Internet channel. I see this most often with free shipping offers for Internet orders. If your business is more profitable with Internet orders due to lower overhead costs then think about increasing the value proposition for the web site by offering services there for free that are priced higher in other channels.
2. Introduce a site or Brand. What better way to get attention to a new site than to offer products for free for a promotional period. This reminds me of the new gas station on the corner that offered .99 gas when it first opened. People knew it was there and open after that. The free price generates excitement and helps to achieve initial site volumes.
3. Empty inventory of a discontinued product.
4. Give a basic product for free knowing that some customers will by a complementary product or more advanced version of the product. This is like getting free email for a basic version but paying for a version with more advanced features.

The most important thing is that you increase the value proposition of your goods and services to your customer. After all, at the most basic level, marketing is an exchange process that aims to create satisfaction between the entities involved. To be satisfied with a transaction, the buyer must perceive they are receiving value and the merchant must realize value by helping their customer and profiting. The loss leader strategy is one means to achieve marketing satisfaction between buyer and seller. It’s also a strategy that marketers need become more comfortable and familiar with as its use is becoming more prevalent.

Photo Credit merfam / CC BY-NC-ND 2.0