CODEXCard 7 of 8 · Hidden Architectures of Daily Life
Loss leader
The thing they're losing money on is to capture the thing they're not.
A loss leader is an item a business is willing to sell at little or no profit because of what it leads to. The cheap item draws you in, and the real margin sits in the purchases that follow, such as refills, accessories, subscriptions or the rest of your shopping basket.
The model is old and widespread. Supermarkets advertise a few deeply discounted staples to fill the store. Printers are priced low because ink is where the money is. Razor handles are cheap and the blades are not, a pairing often linked to King Camp Gillette. It works because we judge deals by the price in front of us and rarely total up the cost over a year of use.
The mistake is avoiding every loss leader on principle. Sometimes the cheap item is simply a good deal, and you can take it without buying the rest. What matters is whether the follow-on purchase is optional or locked in. A discounted game console with games you can buy anywhere is different from a device that only accepts expensive proprietary refills.
The habit to build is asking two questions at the till: what will I need to buy next, and from whom?
Example
A coffee machine is on sale for a fraction of its usual price, but it only accepts one brand of capsules. At two capsules a day, you work out that within a year you would spend several times the machine's price on pods, all of them from the same company that sold you the machine cheaply.
Try it this week
For your next discounted gadget, estimate one year of refills or add-ons before buying, and decide on that total instead.
From Hidden Architectures of Daily Life (Design & Economics).
