Loss Leader Losers!

Loss leaders are goods or services offered at steep discounts (generally below cost) in order to attract new customers to a store. It is a time-honored practice that has been met with much success, especially by large discount retailers. The intent of this pricing strategy is to not only having the customer buy the (loss leader) sale item, but other products that are not discounted.

Precision Tune Auto Care's main loss leader is the oil change. In our city, you can get an oil change there for about twenty bucks. If you change your own oil, you'll pay between twelve and twenty dollars for five quarts of oil and an oil filter. As you can see, it's a loss leader.

For dentists the loss leader is usually a teeth cleaning or free x-rays or a combination of the two.

Your local grocery store usually publishes its loss leaders in the paper or in their circular ads. Popular loss leaders for them are products like Coke, Dr. Pepper, Pepsi or other beverages.

A loss leader for a bank is free checking and free checks. I recently got ad-letter from Chase Bank. They are willing to give me $50 if I open an account there.

A loss leader for your cell phone company is your cell phone. They will give phones away all day long in order to get people to sign up for two years.

If you decide to use a loss leader to get new business, be smart and never get sideways with a customer over the loss leader. Let me give you a real T-Mobile example. My wife and I have been using T-Mobile for our cell phone service for the past five years. It's been pretty good with fairly good service when I travel. A few weeks ago my wife broke her phone and needed a new one. I stopped in and picked one up on a Monday morning. It had a built in mp3 player and a few other bells and whistles she never touched. On Thursday of the same week it quit working. The battery cover wouldn't fit right and it kept shutting itself off. I got all of the wires and parts together and returned it to trade it for another. I spoke to a little phone-nerd named Pat. He said, "I'm sorry this phone got wet and we won't be able to help you with a new phone. You'll have to buy a new one." I smiled and kindly let him know the phone did not get wet and I would like to have a different one. Pat handed me a brochure from a local company that fixes phones that have been water damaged. I showed him the phone, how it doesn't close properly and asked again for another phone. Any phone, I need to talk to my wife, a lot. We have five kids and one of them is in need all of the time. Again, he said no and I'd have to buy a brand new phone and since I just got a new one, I couldn't get a discounted one. I smiled at him one more time and said, "If I walk out the door, I will be looking for the T-Mobile off-ramp and I will find it. Are you sure you want to lose thousands of my annual dollars over a fifty dollar phone?" Pat said he was sorry he couldn't help me and told me to go get my phone fixed. I got Sherri a new phone and am shopping for a new company to give thousands of dollars to.

If you get sideways with me over an oil change, you'll never get my brake and engine work.

If you get sideways with me over x-rays, you'll never do my root canal and crown.

If you get sideways with me over a bottle of $.99 Diet Dr. Pepper, I won't be buying your produce, dairy and meat.

Am I making you some cents?

The Definition of Value

Scenario #1
Your spouse asks you to stop by Sam’s Wholesale Club to pick up disposable cups, plates and flatware for an event you are hosting. You like to look around Sam’s while you’re there. You stop by the apparel section and notice a sign that says genuine full-length fox fur. You mosey over to check out the prices. They have one hundred and thirty-five full length fur coats packed tightly around a circular stainless steel clothing rack. You grab one of the sleeves to check out the tag. It’s two-thousand-four-hundred and ninety-five dollars. You think to yourself, that’s a crazy high price for a coat!

Scenario #2
You are in Chicago visiting some friends. You are walking downtown. You walk past Sacs 5th Avenue, a landmark jewelry store and you step into an elegant little fur store. The showroom only has five on display at any one time. These are full length minks and grey fox coats. The kind you see on people who hang out with The Donald. Each coat is strategically merchandised and individually lit with five halogen bulbs. They are like diamonds glittering on black velvet. You step near a grey fox, stroke the back of your hand down the sleeve and gently flip over the tag and look at the price. It’s $2495.00. You think to yourself, “WOW! That’s a good deal for a coat like that!”

It’s the exact same coat. At one store you choke at the price and at the other you are pleasantly surprised.

I watched a Cosby Show episode a long time ago. It was the last season of the show. The second youngest daughter Vanessa came home from college winter break her freshman year, she brought her brand new husband home with her! She didn’t bother telling her family she got married. On top of that, she married the college janitor who was twelve years her senior. After the parent’s anger subsided, Heathcliff found out the new husband was a military veteran, who had a master’s degree and owned his house free and clear. I’ll never forget how the wise Cosby dad explained the situation. He said, “Vanessa my dear, you brought me a delicious steak dinner with garlic mashed potatoes and green beans with almonds. But, you served it to me on a dirty trashcan lid.”

Many times business owners have products and services other people need, but they are serving them up on dirty trashcan lids. Poor sales, marketing and merchandising lowers the anticipated cost. When people arrive and discover your price is higher. The “poor value” light starts flashing in their head.

Fortunately, the opposite is also true.

Awkward!