Coles and Woolies take pot shots at each other but its their customers and farmers who are being critically wounded

 

The words “loss leader” sends shivers up my spin. Why? Because Coles is using milk as a loss leader. This marketing strategy is lining their pockets with gold and it is crippling Australian dairy faming families See previous post “ Wake up Coles please don’t put your profits before Australian farming families”

So what is a “loss leader”. Our friend DR Google and Wiki (1) do a nice job of explaining it  

A loss leader, is a product sold at a low price, at or below its market cost^[ to stimulate other sales of more profitable goods or services.

The Strategy

One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the supermarket .

“Loss leading” describes the concept that an item is offered for sale at a reduced price and is intended to “lead” to the subsequent sale of other items, the sales of which will be made in greater numbers, or greater profits, or both.

Now the concern for supermarkets using this strategy is deep price promotions may cause people to bulk-buy (stockpile), which they obviously don’t want .

Characteristics of loss leaders

1. A loss leader may be placed in an inconvenient part of the store, so that purchasers must walk past other goods which have higher profit margins.
2. A loss leader is usually a product that customers purchase frequently—thus they are aware that its unusually low price is a bargain.
3. Inexpensive products like milk, eggs, bread and other low cost items that supermarkets would not want to sell without other purchases.
4. Some loss leader items are perishable and cannot be stockpiled.(1)

So as you can see milk is the perfect loss leader, kept at the very back of the store, purchased everyday and its perishable ( no stockpiling milk)

Don’t be fooled Coles customers Coles are not doing you an favours by selling you milk at a $1/litre. The billion dollar profits tell the real story  

Thank you to this great article from Punch for the inspiration for my heading