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Supertarget - Loss Leader Analysis/Explanation

Let's look at a 6 pack of Charmin toilet paper as an example. This product can be purchased at a Supertarget for $2.50/pack, A&P grocery chain for $2.75/pack or a local convenience store for $3.50/pack. The reason that you pay the most at the convenience store is because of the fact that the convenience store cannot offer the same scale of economy vs. a larger superstore. You are paying for the convenience of being able to walk to the neighborhood store and make your purchase in a matter of seconds. The reason that the Supertarget is cheaper is that they may be using the product as a loss leader to get the consumer into their store in the hopes that the customer will purchase more expensive items. The Supertarget sells other things like house wares, clothing, etc, in addition to groceries. The A&P is in the middle in terms of price because while they may have the same economies of scale like a Supertarget in terms of size of grocery, they may be less inclined to use the product as a loss leader.

For Supertarget, why did you lean towards loss leader as opposed to volume purchased? The 25 cents doesn't seem big enough for that.


Solution Preview

By using a loss leader strategy instead of using volume purchased, Supertarget hopes that the customers who come to their store will also purchase other products, ...

Solution Summary

This solution is comprised of a detailed explanation to answer why did you lean towards loss leader as opposed to volume purchased.