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Resist the Loss Leader Lure

“Penetration pricing” is lame. That’s when you set a low price and lose money just to raise it later or make it up on something else. It’s also called “loss leader” in retail, or maybe “dumping” by less polite competitors.

Don’t get me wrong – it’s a workable strategy in some circumstances, just probably not yours or mine.

Traditionally, here’s where it shines:
– It can give you a large chunk of market share quickly ( So you either have extra manpower lying around, or drown in work for free.)
– It can make clients dependent on your ecosystem of services ( Usually covered by either investors or deep cash reserves. Got those?)
– It can train clients to expect things for free from you ( Easy to start, VERY hard to stop.)
– It can give you loads of data about your client base ( Useful if you can handle it, but not worth it on its own.)

And people

And no, generating content (like this newsletter) is not the same thing. Loss leadership is about sacrificing immediate gain for immediate upselling, not giving away value to gather feedback and long-term brand equity. It’s information that is being traded, not cash.

Retailers or free-to-play game publishers can get away with “playing games” and risk undermining buyer trust like that, but your ability to charge is based on the client’s trust. It sounds logical, and I have seen many attempts at using it by smart people – it just never worked.

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