What effect does a loss-leader pricing strategy typically have on consumer behavior?

A loss-leader pricing strategy involves setting the price of a product lower than its market cost to attract customers. This approach is often used to increase overall store traffic, as it entices consumers who may not have otherwise visited the store or considered purchasing other items. When a shopper comes in for a specific low-priced item, they are more likely to browse the store and potentially purchase additional products, thereby boosting overall sales.

The effectiveness of this strategy lies in the expectation that while the loss-leader item is sold at a loss, the increase in foot traffic will result in greater sales of other higher-margin products. As a result, this strategy can enhance customer engagement and may lead to additional purchases beyond the initial loss-leader product, ultimately improving the retailer's profitability.

In the context of consumer behavior, this increase in store traffic can lead to heightened brand awareness and can also encourage trial purchases of new or different products, further benefiting the store's sales strategy.