Which pricing approach involves setting price below costs of production to entice customers to buy other products with high profit margins?

Which pricing approach involves setting price below costs of production to entice customers to buy other products with high profit margins?

• A. Dynamic pricing
• B. Loss leader pricing
• C. Mark-up
• D. Penetration pricing

Answer: (B)

Loss leader pricing uses intentionally low prices, even below production costs, to draw customers in. The idea is to attract shoppers with a very cheap item and then encourage them to buy other products that carry higher profit margins. That combination—selling one item at a loss to boost sales of profitable items—defines this approach. Dynamic pricing adjusts prices based on demand and supply and isn’t about undercutting costs to lure customers toward high-margin items. Mark-up means setting prices by adding a profit margin to cost, which typically stays above cost rather than below. Penetration pricing sets a low price to gain market share, but its goal is widespread market entry rather than using one loss-leading item to push other higher-margin sales.

Loss leader pricing uses intentionally low prices, even below production costs, to draw customers in. The idea is to attract shoppers with a very cheap item and then encourage them to buy other products that carry higher profit margins. That combination—selling one item at a loss to boost sales of profitable items—defines this approach.

Dynamic pricing adjusts prices based on demand and supply and isn’t about undercutting costs to lure customers toward high-margin items. Mark-up means setting prices by adding a profit margin to cost, which typically stays above cost rather than below. Penetration pricing sets a low price to gain market share, but its goal is widespread market entry rather than using one loss-leading item to push other higher-margin sales.