Table of contents
What is Leader Pricing Strategy?
Leader pricing strategy is a distinct pricing strategy directed at attracting customers. The key instrument used in the approach is about setting lower price points and reducing profit margins to introduce brands while stimulating interest in the business or production of a particular product. The important thing about the pricing strategy is that it often leads to profit losses. Essentially, it usually means that the approach is mostly applicable to large companies that can afford to sustain short-term losses for the sake of long-term gains.
The strategy's primary goal is to attract new customers to the business. Often the pricing approach is also called a loss-leader strategy. It leads to companies trying to introduce products to return the lost customers and get new ones. Essentially, with the rising competition in the industry, there is a greater likelihood that companies will use leadership pricing to gain a competitive advantage.
Many experts argue that leader pricing strategies have distinct challenges. Such a vision stems from the fact that the method goes against the premise of the free enterprise system and fair competition. In the United States, several states have laws restricting selling products at a loss. In addition, a range of European nations banned the practice. Namely, it is believed that it offers an unfair advantage to companies that can afford to get a competitive advantage at a loss.
Leader pricing can also be employed in the context of larger marketing strategies. Using discounts on popular products can be viewed as a marketing approach directed at propagating particular products that companies want to sell as soon as possible. As the next step, when the price returns to normal, companies that employ a pricing strategy focus on the possibility that consumers will still shop at the store even after the price returns. In addition, businesses use a leader pricing strategy to present a commitment to low prices. At this point, using the strategy correlates to a broader marketing approach that values lower prices.
The Pricing Strategy’s Examples?
One of the most common examples of leader pricing correlates to companies selling printers, like Canon and Epson. Many businesses operating in the industry produce and sell products through the pricing strategy. For example, companies produce printers at a lower cost than their production. However, the profit will be predominantly achieved by selling cartridges for printers. Companies like Epson use it to make up for the loss generated by the primary product - printers. It is crucial to understand that manufacturing printer ink is way cheaper than selling it. The evidence suggests that a liter of printer ink costs about $3,000, while the manufacturing cost is approximately $50.
The second example comes from the automotive industry. Companies like Chevrolet use leader pricing to propagate particular cars. For instance, in 2019, Chevrolet introduced its new C8 model. The original budget for the car assumed a starting price of $80,000. Yet, the actual starting price was $60,000. Such a significant difference of $20,000 represents the vision of the leader pricing strategy. The idea of standing behind such massive differences correlated to the company’s desire to make up for the losses through additional options or larger engines. In such a case, the reality showed that people who bought the model for its basic price almost always paid for additional options. And the total purchasing decisions surpassed the $80,000 threshold.
These examples suggest that leader pricing is a strategy companies use to create a particular vision that consumers get a good deal. Namely, selling the key product for a lower price boosts the demand. In turn, these products are often sold along with some additional parts or require some services. Respectively, paying for these additional parts and services ensures that the manufacturers and retailers receive the intended profits. Leader pricing can be perfectly correlated with the marketing strategies to help companies create the impression of people getting extremely good deals on products sold.
Leader pricing strategy is used to attract new customers by offering them good deals. Companies sell their key products at lower pricing points. They make up for the losses by providing additional services and parts. Leader pricing can be employed along with distinct marketing strategies. Companies like Epson and Canon follow the pattern of offering affordable products while boosting their profits through selling additional parts.
Find answers to some of the most common questions people have regarding the use of Competera.
What is Leader Pricing Strategy?
Leader pricing is a particular strategy used to attract consumers by setting lower pricing points when introducing new products and brands.
What are the disadvantages of the given pricing strategy?
The key issue with leader pricing strategy stems from the fact that attracting too many customers to the loss-leader products might not convert into sales, thus creating higher margin products while overall profits become low.