Definition & Meaning:

Why are computer printers so cheap these days? It's not that they are so cheap to make. They are actually sold at a price where the company makes a loss on each printer they sell. It would appear to make no sense at all. So, why would companies do it?

It is basically a way to increase sales of a product/service. Selling a product/service at a price where a company makes a loss on each sale is a business/marketing strategy called a 'loss leader'. But how could a company ever make a profit by selling a product as a 'loss leader'?

There are several reasons why and all of them are focused on the future:

Follow on business: It's more difficult to attract new customers than it is to keep existing ones. So by a company using a 'loss leader' on one of their products/services, they can generate 'follow on business' (sales in the future on products/services which are not sold at a loss) from these new customers.

Trap people in its ecosystem: Some companies that sell machines (e.g. cars) or hardware (e.g. printers, tablets, video game consoles etc...) at a loss. They make their profit by controlling the sale and supply of accessories (e.g. controllers), parts (e.g. printer cartridges), service plans (e.g. repairing) and content (books, movies, video games etc...) for the machines/hardware. All of which are sold at a substantial profit.

Eliminate the competition: By selling a product/service at a loss, a company can destroy its main competitors. Allowing it to dominate the market in the future and to increase its prices and make a profit. The online retailer Amazon has been accused of doing this on the sale of books.

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Related Vocabulary:

Follow on Business, Zero-Sum Game.

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