Loss Leader Pricing

Paper Summary:

This paper examines the loss leader pricing scheme employed by retail businesses like Wal-Mart. It explains how this pricing scheme should be included in Wal-Mart's pricing strategies in order to increase the volume of goods sold and therefore the amount of profits realized by the company. The writer discusses how a retailer such as Wal-Mart relies mostly on economy and occasionally loss leader pricing to maintain profitability. The writer suggests that a successful retailer such as Wal-Mart must make use of a variety of pricing schemes in order to be profitable. The writer notes that Wal-Mart is a success because it sells products at low prices that people want to buy, satisfying customer's wants and needs. The writer concludes that Wal-Mart should continue using a combination of pricing strategies, to include loss leader pricing, to entice consumers to shop in their stores.

From the Paper:

"I am asked if Wal-Mart should use loss leader pricing? One must consider the overall effects of such a practice as well as the company objectives in instituting such a policy. Additionally, a variety of pricing schemes and strategies must be understood as well as the intentions of such schemes. First, loss leader pricing is an aggressive pricing strategy where a retailer sells goods for less than they bought them for, attracting more consumers to their stores. The hope is that these consumers will buy other goods and more than offset the cost of the good being sold for a loss. This is a type of promotional pricing strategy which is a very effective method of pricing."

Sample of Sources Used:

• Grant, Lorrie (2004, Oct 11) Wal-Mart Doesn't Plan to Toy Much with Prices; Last Year's Cuts Hurt Other Retailers and Left Giant Thinking It Slashed Too Much, USA Today. pg. B8
• Nagle, T. and Cressman, G. (2002 Nov/Dec) "Don't just set prices, manage them" Marketing Management Chicago: Nov/Dec 2002. Vol. 11, Iss. 6; pg. 29, 5 pgs

More papers on Loss Leader Pricing:

• Case Study # 95635 : "Wal-Mart's Use Of Loss-Leaders"
• Business Plan # 88798 : "Product and Pricing Strategies"
• Essay # 61801 : "Aggressive Pricing"

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