DECA Sports and Entertainment Marketing Practice Exam

What pricing strategy involves pricing a product below its cost to attract more customers?

1. Discount pricing

2. Loss-leader pricing

3. Penetration pricing

4. Value-based pricing

The correct answer is: Loss-leader pricing

The pricing strategy that involves pricing a product below its cost to attract more customers is known as loss-leader pricing. This approach is utilized to draw in customers by offering select products at a significant discount, often at a loss, with the intention of encouraging them to make additional purchases of higher-margin items once they are in the store or engaged with the brand. Loss-leader pricing leverages the idea that while the initial product may be sold at a loss, the strategy is crafted to increase overall sales volume and customer traffic, thereby generating revenue through supplementary sales. This method is commonly observed in retail scenarios, particularly during special promotions or seasonal sales. Discount pricing generally involves reducing the price of a product but does not necessarily mean selling it below cost. Penetration pricing is used to gain market share by setting a low initial price, but it is typically set at a level that still allows for profitability. Value-based pricing focuses on setting prices based on the perceived value of the product to the customer rather than its cost.