Sell one item below cost to acquire traffic whose other purchases carry the margin.
The grocery model: milk and eggs at the back, discounted staples at the front. It works only where the loss-leader buyer cannot cherry-pick, which is why online retail changed the calculation.
In practice
- A supermarket prices milk below cost and recovers it on everything in the basket.
- A software vendor gives the editor away and charges for the collaboration server, and the editor is the reason anyone is in the building.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money