What is a loss leader pricing strategy?

• A. Setting high prices to maximize profits
• B. Offering a product at a low price to attract customers
• C. Eliminating discounts on popular items
• D. Selling products only through exclusive distributors

Answer: (B)

A loss leader pricing strategy involves offering a product at a low price, often below its market cost, to attract customers into a store or to a brand. The goal is to entice buyers with the low-priced item, which is known as the "loss leader," and encourage them to purchase additional products that may carry higher margins. This strategy is effective for drawing customers in and can help boost overall sales by increasing the likelihood of follow-on purchases, even if the initial sale results in a loss.

In contrast, setting high prices to maximize profits does not relate to the loss leader approach, as it focuses on profit maximization rather than drawing customers through low prices. Eliminating discounts on popular items could deter sales and goes against the principle of encouraging customer traffic with appealing pricing. Selling products only through exclusive distributors limits accessibility and does not embody the competitive pricing strategy that a loss leader represents.