Definition of Leader Pricing
It incorporates offering smaller price points and decreasing the usual profit limits in order to present new companies or bring attention to the company in general or to a specific line.
Description of Leader Pricing
Here, you bring in shoppers with good deals to attempt to get them to also purchase full priced items. Take for example the razor company, Gillette. They give away their razor units for free because they understand that the customers will have to purchase their replacement blades in the future. However, just make sure you have enough in stock or else you may run into some problems.
Advantages of Leader Pricing
If you implement this technique correctly, you’ll bring in both new shoppers and old ones aw well. Keep in mind, that a little loss at the beginning could possibly lead you to make a lot in the future.
Disadvantages of Leader Pricing
When you, for instance, bring in a lot of customers to the cheaper items, but they don’t end up covering the cost of the more expensive ones, your global margins decrease. Also, if this is the only strategy that you end up using, then your target audience may turn into shoppers who only stop by to purchase those cheaper items.