11
Jun
8

Using non-core products as a loss leader!

One of the best ways (If done properly) to add additional revenue to your ecommerce sales is to sell non-core products (at cost or even at a loss) to gain additional core sales and new customers.

A great example that I found this weekend, is B&H Photo. They sell a variety of non-photography related computer and technical products. What quickly caught my attention is that many these products are being sold well below any other online retailer’s price, even cheaper than anyone on eBay. I don’t have access to wholesale computer accessory costs, but I imagine that they aren’t making much money, if any, on their computer product sales.

So how is this smart marketing?

When an established website like B&H draws sales from non-core products, they gain additional customers and brand exposure. What they gain by selling at cost, is the opportunity to sell other products for profit, and they gain repeat customers. In the end, if the amount of money spent marketing and supporting non-core products is minimal, there is absolutely no downside to this practice. If they aren’t making money from those computer related sales, they’re making money from those additional customers that are also interested in cameras, memory cards, photography accessories, and more computer accessories.

A good idea for some but not for everyone:

This practice can be a strong marketing technique, however, it will not create a sustainable business model for everyone. A businesses that can most effectively harness this technique must have a strong search engine presence, or the ability to draw sales and traffic at little to no additional cost. This technique is probably not a good idea for a startup business unless you really know what you are doing. A business must also have access to related but non-core products at a very competitive price.

Obvious potential pitfalls:

  • Some strong reserve must be used to not cannibalize existing profit margins, as it extremely easy to sell short on everything. Don’t make everything a loss leader, only those non-core products that you are adding.
  • Another danger is accidentally migrating from one core product type to another. It needs to be clear to yourself and to your customers what your business is there to do. If you are a photo shop, that sells some computer accessories, it should be clear that you are not a computer accessory seller that has some photography equipment. This is absolutely key in protecting your brand, and sustaining your business model.
  • The other products that you decide to sell must be related to what your business does. If would make no sense for an online flower shop to start selling car parts. You need to be careful not to dilute your brand, message, and what it is you currently do with completely unrelated products.
  • You do not ever want to enter an arena that will create a lot of additional customer support requests. This is a quick way to nullify any gain you get from additional customers and sales.

The big picture:

It’s sometimes difficult to grasp the concept of loosing money on one place to gain money in another. If you have the ability to step back and look at the big picture, you will find that there are numerous areas where a loss here can create a huge gain somewhere else. Small steps should always be taken when testing out a system that has both the potential for a loss and a gain, but I think that many will find that this is a useful, appropriate, and completely possible marketing technique.

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8 Comments:
  1. SengHooi Dot Com 12 Jun, 2008

    Yup , selling non core product is a great idea. Currently my company is providing business card at a super lower price , but what we aim is to introduce the customer our main products once they walk in to our store.

  2. Shopping Cart 14 Jul, 2008

    Yes it is very good idea, basically it is called diversification but one thing which should kept in mind not diversify 100% like e.g if you have website of selling computers which is your core product then diversify a little like to start selling digital cameras or other electronic devices not to start selling non-electronic devices. But it is the good idea and I appreciate it very much to gain your knowledge.

    and one more good idea like on amazon are related products like with CD player there can be related products like headphone so you should give the option so that customer could compell to purcahse both.

  3. E-Commerce India 15 Jul, 2008

    This sounds like a very interesting way of gaining new customers but at the same time is only possible for well established companies to practice such measures.

  4. geetha 4 Aug, 2008

    Ya, selling non core products for gaining core sales is a great Advances in technology often transfer rapidly into new products, providing significant consumer benefits using non core technologies.

  5. Casey 2 Sep, 2008

    You don’t always have to lose money to make more money. Don’t forget the power of cross-sell. Cross-selling your products on your website drives your customer to buy more and this is all done by pushing already existing products.

  6. twift1 10 Oct, 2008

    Ya it could be a good idea, but first we have to see whether their is a potential inclination with the consumers for this segment.

  7. […] The eCommerce Blog – The name says it all! Not many regular postings but lots of archives worth going through to dig out some great content. A post I like is: non core products as a loss leader […]

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