The practice of selling a product below the cost price to attract customers to a...
The practice of selling a product below the cost price to attract customers to a shop is known as
- A) Hedging
- B) loss leader
- C) Skimming
- D) Under-invoicing
Correct Answer: A) Hedging
Explanation
The question is asking about a practice in which a shop sells a product below its cost price to attract customers. This practice is known as loss leader.A loss leader is a pricing strategy where a business sells a product at a price lower than its cost in order to entice customers to come to the shop. The idea behind this strategy is that while the shop may make a loss on the individual product being sold below cost, it hopes to make up for it by attracting customers who will also purchase other products at regular prices.
For example, let's say a shop sells a popular toy below its cost price. This low price will attract customers to the shop who are interested in buying the toy. However, while they are in the shop, they may also purchase other items that are sold at regular prices, such as batteries or accessories for the toy. This way, the shop can make up for the loss on the toy by earning profits on the other items. The correct option for this question is B: loss leader.
To learn more about this pricing strategy and other marketing techniques, you can read about it in your Commerce textbooks.