Loss Leaders @ Big Bazaar

The concept of ‘Loss Leaders’ might sound crazy at first but for a fact it has been in use in many industries for many years to pull in more customers, create brand awareness and in some cases to clear stocks as well. Let’s first see what exactly a loss leader is. As Wikipedia defines it ‘A loss leader is a product sold at a low price (at cost or below cost) to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. The price can even be so low that the product is sold at a loss. ‘

Well, the practice of pricing popular items like milk, sugar and eggs attractively and situating them at the other end of the store, so that shoppers go through other items too and end up buying one, has been in use for long. But what stores like Big Bazaar have done is use the concept of loss leaders quite astutely to create a price perception in the mind of the shopper. So for example if most shoppers buy potatoes & cereals from the store and base their perception of the store on prices of these items, the store will offer them at low price and simultaneously hike the prices of the items bought along with these items like tomatoes and rice thus, making profit overall. So while earlier you knew that you are getting a deal or discount on the popular items, now you are made to think that the store on the whole is the cheapest and the best! The fact is that only 4-5% of the items are cheapest as compared to other stores around you but since these are the popular or frequently bought ones, you tend to think that you are getting a good deal on other products as well.

The retailer’s strategy can go wrong if shoppers start piling up such items leading to losses for the retailer. But this glitch can be handled by a) choosing perishable goods as loss leaders and b) keeping less SKUs of such items. This becomes essential since, if customers pile up the stocks then they won’t come back to purchase the items again and thus, the idea that the sales of other items are pushed every time a loss leader is purchased, won’t work.

Just read through the following excerpt from a piece in Mint,
‘Balasubramanian usually does her grocery shopping at Big Bazaar on the first Sunday of the month, after her banker husband draws his pay. On this particular weekend, she bought items ranging from toothpaste to tea and her total bill that day was for Rs3, 410.
Mint tried to compare rates for the items Balasubramanian purchased at Big Bazaar from a small grocery store located a few hundred metres from the hypermarket. For a start, only 30 items were available at Grover Store at Atta Market in Noida against the 48 items on the Big Bazaar bill that Balasubramanian showed Mint.
Mint then attempted to find out the total bill of only the comparable items at both the mom-and-pop store and the hypermarket. The total bill for the 30 like-to-like items, including staples from sugar to sunflower oil, at Big Bazaar was Rs1,812 compared with Grover Store’s Rs1,723—a saving of Rs89 at the neighbourhood grocery store.’

Of course the kirana store stands nowhere in front of air-conditioned aisles at the supermarket and secondly, the big bazaars win by far when it comes to the number of SKUs. Thus, if we keep on increasing the basket size, the super and hyper markets will always come out trumps.

And as I was about to publish this post, I saw an ad by Reliance Fresh @ Amritsar offering cheapest rates on 70% items. Possibly, the fundaa of loss leaders is evolving too and retailers are using it to differentiate among themselves. But it's too early to say that. So for the timebeing, let's keep our eyes open and also try not to get fooled by the false perceptions created by these stores.