Product Loss Leaders

Product loss leaders—also called “loss leaders” or simply “leaders”—are items that manufacturers or retailers sell at or below cost to consumers or business customers. Manufacturers often use the strategy of product loss leaders when trying to penetrate the market with a new technology that could significantly shift customers' buying or usage habits. Furthermore, manufacturers that make accessories or components or that provide postsale service for a loss leader often rely on sales of these ancillary goods to generate profits. IBM used this strategy in 1999 when it switched its distribution of desktop computers to an online-only option. David Thomas, head of IBM's personal computer (PC) systems group, noted that he expected to make only about three cents per dollar in profit for each desktop PC ...