Loss leader pricing is a controversial strategy used by retailers and restaurants to increase sales and profits. If used correctly, it works!
But why is it controversial?
Does everyone use it?
Keep reading to learn here more!
What is Loss Leader Pricing?
In a restaurant, loss leader pricing happens when you decrease your star dish below market value in the hopes that you will attract more customers.
While you will lose money on the star dish, customers probably will buy your other more profitable items on the menu and make up for it.
This is a risky strategy and requires careful consideration. But don’t worry. We’re here to give you some tips and tricks on how to effectively use loss leader pricing to boost your sales.
Does Loss Leader Pricing Work?
It does. There’s some risk involved in drastically decreasing the price of one of your top sellers, but if used right, this technique can increase your sales to the point of overcompensating that loss. Simply use the steps provided below.
Make sure to let your customers know you have items with a reduced price.
How To Use Loss Leader Pricing
1. Figure Out Your Best Seller
The first thing you have to do is choose the dish that will be marked down. Although it sounds contradictory, this should be your best-selling dish. The whole point of loss leader pricing is to draw customers in, and the best way to do that is to use a dish that you know will attract customers and sell well.
You should also consider what is popular in your area. If coffee is a big trend where you live, consider offering very cheap coffee.
2. Set The New Price
With loss leader pricing, you will need to sell your best dish below market value. Unfortunately, that means you will likely lose money on your bestseller. The best strategy is to set the price just a little bit lower than market value (enough to make you stand out from competitors).
Calculating your food cost on your star dish will also help you set the new price.
The only way loss leader pricing will work is if you advertise your new deal. You should focus on the fact that this dish is cheaper than what your competitors offer, and don’t forget to emphasize how delicious it is, too!
You should advertise it in as many ways as possible: flyers, word of mouth, you name it. You should do everything in your power to get potential customers in.
Social media for restaurants are crucial, and they mean free advertising for your business. Your customers’ online reviews and the way you engage with them can set your restaurant apart. Learn more about online review engagement in this interesting video.
4. Track Sales
Loss leader pricing is risky, and you want to keep a close eye on your sales when using this strategy. If people come for the deal but don’t buy anything else, your sales will take a big hit. In other cases, you might not get enough new customers to justify the loss-leader price. It will take a while for people to hear about you and come in to try the dish, so you should give it two or three weeks before calling it quits.
Is Loss Leader Princig Right for You?
Loss leader pricing can be a huge boost to both your customer base and your sales. That being said, there is a risk that you have to take in pricing your star dish so low.
Not many businesses use this strategy because they’re afraid of selling something under market value. But the truth is that being a business owner is about taking risks and being brave. Those that don’t bet on themselves stay stagnant.