By Wendy Mihm | January 24, 2011
Beware of the Loss Leader!
There is a money-making tactic that club stores use called the “loss leader.” A loss leader is an item that is priced so low that the club store may actually be losing money each time a consumer buys it. That’s right, losing money. So if they’re losing money on this thing, why would they bother selling it?
Well, one example of a loss leader might be a DVD. Let’s use the DVD as an example to see how it would function as a loss leader to actually make the club store money, even though the DVD itself is losing money for the store.
First, the store advertises the DVD and its other loss leaders to get you to come in. Once you’re in the store, let’s suppose you put the DVD and maybe another loss leader item in your cart. But the club store has strategically merchandised (that’s the fancy marketing term for “placed in an attractive way”) other very enticing items right near the low priced DVD you came in for. These other items are priced much better than the loss leader. Priced much better for the store, that is, not for you. Club stores in general have the best prices of all retail outlets, that is usually true. But occasionally they will carry a few items that are priced about the same on a per-serving basis (if is food) or even slightly higher than in other outlets. And many consumers put those items in their cart too. Why? Because they assume that, because the DVD was such a good price, everything else must be too. At club stores, this is often the case, but not always.
To save money at club stores, avoid this tactic.
How? First, by being aware that it exists. And second, by doing something that can be very difficult at club stores: shopping with a list and sticking to it. If you came in for the advertised loss leader item, put it in your cart and walk away.
Remember: if you don’t need it, it is not a bargain.
This takes both practice and discipline. But after shopping at club stores for awhile, you get used to what they have to offer and are not quite as enamored by their gigantic vats of bean dip and huge bags of potato chips. You’ve learned that nothing that you eventually have to throw away is really a bargain after all. But that’s a whole separate article, now, isn’t it?
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