A loss leader is a product sold at a price below its minimum profit margin to stimulate other sales of more profitable goods or services.
The use of a loss leader is a pricing strategy, a sales promotion strategy, and a marketing strategy. The loss leader is offered at a price below its minimum profit margin, not necessarily below cost.
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 goods at the same time as the loss leader and that the profit made on these goods will be such that an overall profit is generated for the vendor.
The vendor tries to maintain a current analysis of its accounts for both the loss leader and the associated goods, so it can monitor how well the scheme is doing to avoid an overall net loss.
It is called a leader because it is intended to lead to the subsequent sale of other goods or services.
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