Do loss leader products work on you the way they’re “supposed to?”
To put it simply, a loss leader is a product put on sale such that the store makes no money on it and usually takes a bit of a loss. The purpose of these products is to get people in the stores and get them to buy. They’re most frequent during Black Friday sales when stores have five DVD players at ridiculously low prices in order to get people to come into the store. Sure, they lose money on those five DVD players, but people who come into the stores lured by those prices still spend a lot of money. Even if they’re buying sale products – the sale products are still bringing in a profit to the company. Just maybe not as big of a profit per item.
So are you the kind of customer who the companies love? Do you fall for the loss leader? Will it get you into a store? If a grocery store that isn’t your normal store has a great sale, will you go in and do all your shopping there that week, or will you just buy the sale item? If your normal grocery store is offering a sweet sale, will you buy more because you saved so much money on the sale items?
The other day, I decided to use my free rotisserie chicken coupon (the thank you for using the grocery store’s pharmacy). And all I intended to buy was the chicken itself. But for whatever reason, I decided to also pick up a pack of gum. Why? I don’t know. Maybe because I wasn’t going to pay anything otherwise. Maybe because it was cheap. Maybe because I like gum (which I do). But normally, I buy gum in bulk because it’s so much cheaper. Instead, I picked up a single pack.
Clearly, this wasn’t a big purchase. Nor was the chicken really a loss leader for this purchase – rather it was designed to get me to use the pharmacy. But still, I spent money when I didn’t initally plan to.
Along the same lines, I’m a sucker for a good coupon. A store that I frequent just sent a 15% off coupon good until the middle of May. So I’m sitting here, figuring out what I will need from that store in the next few months. Why not stock up while things are on sale, after all? But I have to be careful to not splurge just because things are on sale.
Coupons and loss leaders often trick us into spending more. The trick is to not let your money get away from you.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.