Loss leaders pricing strategy in retail back-to-school sales

Loss Leaders

A Sony NEX camera was on sale for $250 at Best Buy, as I gleaned from the newspaper insert. The price was fully half of what it was being offered for at other stores, even though it was a brand new camera. Surely this was one of their loss leaders, a pricing strategy that has "a history of bringing return customers, increased sales and new customers," (Griffin, 2012). Truthfully, I was planning on going to Best Buy anyway, but I had not thought about buying this model. This model of camera was out of my price range -- until now. Therefore, the loss leader did not necessarily bring me to a store that I would not have gone to otherwise. Yet if the flyer were for a different electronics store, I would have gone there to buy the camera.

When I was at the store, I did make several purchases that I would not have done if I had not bought this particular item. The sales racks strategically placed throughout the store tempted me with their low prices. I bought accessories for my new camera, and a few items I did not really need, just because they were cheap. Therefore, pricing has a big influence on my own consumer behavior.

Although I am not privy to the budgeting reports of this Best Buy store, I can assume that the contribution margins for the Sony NEX model that was on sale were very low. This is because the camera was new, and the store places the camera in a prominent position in the store. Best Buy still made some money on the cameras, but the contribution margin percentage was much lower for that item as it would be for other items in the store. For instance, some people coming to look at this model of camera found that it was not advanced enough for them, and they ended up buying the next model "up" in the series. This consumer behavior ties into what DeGraba (2003) states about the retailer's need to attract "more profitable" customers most of all. The next model up was sold at full price, but it was the sale item that got those customers in the door. Best Buy makes a decent contribution margin on the full price cameras, making up for the loss leader.