Which pricing tactic lowers the price below store cost?

Which pricing tactic lowers the price below store cost?

• A. Loss-leader pricing
• B. Price discrimination
• C. Price skimming
• D. Premium pricing

Answer: (A)

The idea here is a loss-leader pricing tactic—setting a product price below its cost to attract shoppers into the store. The goal is to drive traffic and encourage purchases of other, higher-margin items, so the retailer makes up the shortfall on the popular item with profits from the rest of the basket. This approach hinges on drawing customers in and increasing overall sales, rather than making the item profitable on its own. Other strategies don’t involve selling below cost. Price discrimination means charging different prices to different groups based on willingness to pay. Price skimming starts with a high price and drops it over time. Premium pricing keeps prices high to signal superior quality. None of these rely on pricing a product below cost to lure customers.

The idea here is a loss-leader pricing tactic—setting a product price below its cost to attract shoppers into the store. The goal is to drive traffic and encourage purchases of other, higher-margin items, so the retailer makes up the shortfall on the popular item with profits from the rest of the basket. This approach hinges on drawing customers in and increasing overall sales, rather than making the item profitable on its own.

Other strategies don’t involve selling below cost. Price discrimination means charging different prices to different groups based on willingness to pay. Price skimming starts with a high price and drops it over time. Premium pricing keeps prices high to signal superior quality. None of these rely on pricing a product below cost to lure customers.