loss leading

the practice whereby a RETAILER sells a manufacturer's branded product at a PRICE below bought-in cost. Loss leading is used by retailers to attract customers into their stores in the hope that buyers will then purchase a selection of full-price products in addition to cut-price items, thus making a profit on the purchases taken as a whole. In the short run, manufacturers of products subjected to loss leading may well benefit from increased sales and profits (i.e. it is the retailer, not the manufacturer, who incurs the loss), but over the longer term the practice may undermine the product's price-quality reputation with consumers. In the UK, under the RESALE PRICE ACTS, manufacturers can take court action to stop retailers using their products as loss leaders.

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