What is the primary purpose of a loss-leader pricing strategy?

The primary purpose of a loss-leader pricing strategy is to increase store traffic. This pricing tactic involves offering a product at a price that is lower than its market cost, which can attract customers to the store with the expectation that while they may purchase the loss leader item at a discount, they will also purchase other products at regular prices.

By luring customers in with attractive deals on certain items, retailers aim to boost overall sales volume. Once customers are in the store, they are likely to buy additional items, potentially leading to increased overall revenue which compensates for the loss incurred on the discounted items. This strategy is particularly effective in competitive retail environments, where gaining the attention of price-sensitive customers can lead to long-term loyalty and increased market share.

The other options do not align with the primary intent behind a loss-leader strategy. Increasing profit margins and reducing inventory costs are typically not objectives of this approach, as selling products at a loss does not improve profitability in the short term. Additionally, decreasing product demand contradicts the fundamental strategy, which is designed to stimulate interest and boost sales volume.