How To Draw New Clients Using Loss Leaders

Posted on August 22, 2014 by - Also by this author

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While giving away free service or discounting service below your operating costs may seem like a bad idea, this long used strategy can help grow your business over time.

Understanding Loss Leaders
Using a “loss leader” is a strategy common to department stores, grocery stores, carpet shampoo services and even air conditioning service companies. You first must understand, the goal is not to give away the store or be a good guy. It is to develop loyalty and get customers to spend money.

For example, let’s say a grocery store runs a sale on a dozen eggs for $1.  There is no way they can make money on the eggs collecting a single dollar. However, placing the eggs in the back of the store makes you walk by many other products — twice. They hope you will buy these other products while seeking out the cheap eggs.

In a more industry related comparison, an air-conditioning service company might offer a so-called summer tune up for $39. Sounds good right? Once they get there, a few things probably will happen. The technician will put a sticker on your thermostat with their company name and number in case your HVAC system should fail you. He also will inspect your system and probably find something that needs attention that will boost the sale price of the home visit. But the most important thing is establishing a relationship with you and getting that sticker on your thermostat. So when your $2,500 compressor fails, who are you going to call? The people who already serviced your system.

Remember, you should limit the number of loss leaders offered. You probably remember Mervyn’s department store and their infamous, “Open! Open! Open!” door-buster campaigns. Those gimmicks eventually bankrupted and shuttered the big chain.

Andrew Armitage, owner of Vintage Chauffeuring in Plainfield, Ill., says operators should make sure they only give away freebies to people who can likely afford and be willing to buy chauffeured services in the future.
Andrew Armitage, owner of Vintage Chauffeuring in Plainfield, Ill., says operators should make sure they only give away freebies to people who can likely afford and be willing to buy chauffeured services in the future.

Presenting Loss Leaders
The single most important factor in presenting a loss leader in your service market is identifying who you offer it to. Make sure the beneficiaries are likely candidates for future service. This includes the well-heeled, philanthropic people of your community, the movers and shakers, the high rollers and the big-money people. Where do they hang out? At high-dollar charity events where a dinner ticket can easily be $100 or more and auction items sell for thousands of dollars. Andrew Armitage, owner of Vintage Chauffeuring in Plainfield, Ill., says, “Ask yourself this, have you ever seen Tiffany & Co. give away jewelry to people who can’t afford their merchandise in hopes that they will come back and buy something from them later?” John Harris, owner of Austin Ultimate Sedans in Austin, Texas, has donated six-hour wine tours to local charities, received all the announcer mentions, and inclusion in the program, but never actually had one redeemed. He got high promotional value at no actual cost. It could have gone the other way with all his generosity redeemed.

Don’t Expect Overnight Results
In this business, growth, name recognition and reputation take a long time to build. Harris had the right idea to sponsor a golf tournament to the local concierge association. There may not be an immediate return on investment but when those concierges need to arrange transportation services for hotel guests, they will remember Harris’ investments in their association.

Likewise, Airport Limousine Service in Wheeling, W.V., has parlayed its donations to local schools in the media for double exposure, owner Renee Dorsey says. All the parents at the schools are exposed to the company name, and the color photo in the local newspaper exposes the good deed to the entire community in a “feel good” way. These investments will produce results when someone in the exposed group has a need for service. Schools have proms and graduations. There are birthdays, cotillions, bar/bat mitzvahs, Quinceaneras, and many future opportunities. But you repeatedly must get your name out there.

In some cases, there may be an immediate response, as in the case of Adam John De Lap of Badger State Limousine in Milwaukee. “People have phoned me and have said, ‘I saw you on TV last night. Do you have any vehicles available for this weekend?’” De Lap says. He also participates in some school promotions hoping that some of these young students will become customers.

“The initial investment may not pay off next week, but maybe, just maybe somewhere down the road,” De Lap says.

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