Loss Leader

A loss leader is an offer sold below a specified cost measure to attract purchases that may offset the initial loss. Viability depends on the connected purchase path. Cheap or free introductory offers are related strategies but do not alone establish below-cost pricing.

The accounting unit is the incremental purchase path, not merely the discounted item. Losing four dollars on an introductory offer could make sense if it produces seven dollars of additional contribution after follow-on costs. Purchases that would have happened anyway are not additional profit, and other promotion expenses still need to be included.

Trace the route from the initial offer to the profitable purchase. Some customers buy only the discount; others substitute it for something previously bought at full price. Support, returns, capacity, and timing can erase gains. A free sample is not automatically a loss leader, and complementary-product pricing does not always involve selling below cost.

When to use it

When customer acquisition costs justify below-cost pricing on entry products; when the path from loss leader to profit center is clear and reliable; when competitive dynamics require aggressive initial pricing; when evaluating whether a 'free' offering has a viable monetization path.

How it can help

Compare the entry subsidy with incremental follow-on contribution after service costs, returns, and displaced sales. Make the paid offer clear and cap the initial trial.