Some crafty online vendors use online coupons as a loss leader strategy. If you are not familiar with the term, loss leader is taking a loss (or breaking even) on an item by lowering its price in an effort to bring people into your store. It is a carryover from brick-and-mortar retailers, but it can easily be applied to e-commerce by using coupons. Retailers still use this technique today.
You may have been subject to this yourself. You see an ad in your local flyer for a product that you love for an unheard of price. You go into the store and you pick it up (if it’s not sold out) and while you are there, you pick up three or four other items that aren’t necessarily discounted. The retailer may have lost a bit on the advertised item but profited on the other items that you picked up.
By deeply discounting your online items to the point of break even (or less), you too can offer accessory items that are not discounted, or much less so. For this to work, you need to find accessory items that have high profit margins. Otherwise, you are always going to skirt on the edge of profitability, which can backfire if it happens too often.
Pink Elephant Socks? Probably Not
You also need to find items that have a good chance of selling. For example, you probably won’t get a lot of people into your store that are looking for pink elephant socks. Also, this strategy will not work well if visitors came to your site to buy the loss leader item and decide that is all they need. It’s a good idea to make sure your related high-margin items are prominently displayed. What some savvy e-commerce vendors do, is put the loss leader item in a spot where the viewer needs to scroll down to get to it. The high profit margin items remain at the top.
Build That List!
Another key factor to making this strategy profitable is to capture customers’ emails. You can tell them that you will send them offers from time-to-time that are deeply discounted. Of course, they will also receive offers in their emails for items that are not deeply discounted as well. This is how you will make up for the losses occurred from the advertised item.
Not all online vendors are comfortable with using a loss leader strategy with their online coupons. But it can be a great way to generate sales, get people on your list, and keep them coming back for more. If nothing else, it can’t hurt to try it and see if it works for you. If it doesn’t, simply scrap the program.
