Loss Leader? Can anyone explain ?

[georgegeorgia]

I have an interest in Business related matters and came across this thread in thaivisa where the OP wrote about cafes serving breakfasts...this one apparently sold the breakfast for 60b...the OP called it a "loss leader" ...business terminology i have never heard of.

He goes onto work out their net profit out of the 60b meal.

Could a business person explain to me about "loss leader"..how does it work?

What kind of establishments use this business practice ? Is it effective?

""""However, for simplicity lets us breakdown the costs as perceived by a layman, who has taken a number of people to this gaff for this breakfast, and subsequent meals, I believe the term used in the trade is "loss leader"""""

Coffee/tea - 7 B

Egg - 5 B

Tomato - 3 B

Toast - 8 B

Bacon - 24 B

Potato - 1 B

Sausage - 9 B

Butter/jam - 2 B

total 59b

[bkkjames]

Normally it's supermarkets and convenience stores that do this to attract customers in knowing full well (the data backs it up apparently) they will buy more while there of other stuff.

Not sure how it works for breakfast, other than if someone chose to sit around and eat lunch and dinner at full price as well.

[onthemoon]

A loss leader is a product on which the business loses money, but, as bkkjames correctly says, brings the customers in, so they buy more products. And yes, I also know this term only in the context of retail (hypermarkets, department stores); could work in a cafe but I wouldn't recommend it. How many other products would the customers buy on average after they have already had breakfast?

Can you point us to the thread? Maybe he just used a wrong word.

[xen]

Restaurants can hope the breakfast customers will come back for dinner as they become familiar with the" quality" just as an "2 for 1 " introductory offer works. Notice these are usually only available on the slow days or have exclusions like drinks (high profit on drinks) . Macdonalds or Burger King use the 20 baht mini burgers or 5 baht (or whatever cost they are) ice creams to get the customers in though the door then they will up-sell to larger size or whatever. It is all about getting the customer in though the door.

Edited March 5, 2015 by xen