Yes, you may be losing money on that product, but if it "leads" people to the store... and they purchase other products too... then you actually come out ahead.

For example, this week your local Supermarket is selling a 2-Liter bottle of Coke for only 99 cents. And, next week they will be selling 2-Liters of Pepsi for 99 cents. Almost every supermarket sells soda much cheaper than you can buy it at any gas station.

The point is, people do not just purchase soda... they also purchase chips, dip and other snack items... and since people have such a preference for either Coke or Pepsi... it is a good way to lour people away from other grocery stores.

Therefore, it is worth taking a slight loss on soda, if the result is more business in the future.

This concept can very easily be adapted to bring highly qualified traffic to your website.

First, the obvious example is to reduce the price of a popular product that you have a lot of competition for. This will enable you to gain the business of a price conscious customer and then try to upsell them. Additionally, you will also have the opportunity to build a long term relationship with that new customer and earn that difference back over the many other products that they purchase from you.

But, if you use a little imagination, you can find a few more very effective ways to use the "Loss Leader" concept.

For example, one local Maple Syrup producer has an agreement with a Country Inn / Bed & Breakfast. The Maple Syrup producer provides Pure Vermont Maple Syrup at a very reasonable rate and the Inn places a free Pint of Maple Syrup & a Maple Syrup Flyer on the pillow of each guest (instead of a Mint). Both the pint container and the flyer have a sticker with a website coupon code.

The Maple Syrup Company takes a loss on the syrup it provides to the Inn, but they easily recapture what ever was lost with the new sale it creates on their website.

Another example using a loss leader to get create more traffic and complete more sales is to offer free shipping. The key here is to know your current "Average Order Size" and then offer Free Shipping if someone orders more than a specified mark-up above that level.

No one has done a better job of this than Amazon.com... who offers free shipping on all orders over $25.

They determined the average order size was around $21. By requiring customers to purchase more than $25 dollars to get free shipping, they make you purchase another book. Now your order total would average somewhere around $34.

Therefore Amazon collects 13 dollars they would not of had before... just for paying the $4-$5 shipping cost.

So, it is obvious how this tactic can make you more profit... but how does it create more traffic?

Well, I have found that many online shoppers like to "bargain hunt". And they are especially receptive to a product with free shipping. Therefore, when trying to decide which website to buy from, if the product is similar... most customers are willing to pay a little more if they don’t have to pay for shipping.

In one case of this principle in action... our average order size was 4 items that cost $4 each for a total of $16 in sales, plus $3.20 in shipping.

By changing the price to $5 each and offering free shipping for all orders of 5 or more... we had a 26% increase in the number of sales... and also raised our average orders to 6 pieces @ $5 each for a total of $30 per order (minus $3.65 shipping).