Loss leader

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In marketing, a loss leader is an item that is sold below cost to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor.

An example would be a supermarket selling sugar or milk at less than cost to draw customers to that particular supermarket chain. Wal-Mart uses toys as a loss leader, leading to the potential demise of toy-only competitors like Toys 'R' Us and FAO Schwarz.

A loss leader is typically placed at the back of a store, so that purchasers must walk past racks of other displayed goods which have higher profit margins. A loss leader is usually a product that customers purchase frequently: thus they are aware of the usual price and that the offered price is a bargain. Items offered as loss leaders are often bulky or perishable, making it difficult for the customer to buy in bulk and thus avoid repeat visits to the shop.

Under some jurisdictions, this is considered dumping and is illegal.