No. 187 · Strategy · Economics
Loss Leader Strategy
A price can be a doorway, not a destination: the bargain is meant to lead you somewhere.
In the Almanac
“King Kullen”, 1930 · “PlayStation 3”, 2006
Both stories in full, three ways to use it and where it misleads.
Get the AlmanacListen · Watch
Questions
What is Loss Leader Strategy?
The Loss Leader Strategy prices one product at or below cost to draw people in, then earns its profit on everything else they buy. Supermarkets, game consoles and free trials all rely on it, but it only works if the follow-on sales really arrive.
How do you use Loss Leader Strategy?
As a shopper, follow every bargain to its destination and budget for the whole journey. As a seller or freelancer, choose an entry offer that opens a relationship, and plan how it grows into properly priced work.
When does Loss Leader Strategy matter?
Loss Leader Strategy is one of the 56 mental models for strategy, the situations where you ask: How do I win when others want the same thing? Within that, it belongs to “Winning customers”, alongside Adverse Selection, Apostle Model and Churn.
What is an example of Loss Leader Strategy?
Two stories show it at work: King Kullen (1930) and PlayStation 3 (2006). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Loss Leader Strategy?
Bait and Switch, Anchoring and Activation Energy. Loss Leader Strategy itself comes from economics.