How do loss leaders typically drive profit for a retailer?

Loss leaders drive profit for a retailer primarily by increasing total sales within a category. The strategy involves pricing certain items, often staples or popular products, at a lower price than usual, or even below cost, to attract customers into the store. While customers may initially come in for the loss leader, they are likely to purchase additional items at full price, thereby boosting the overall sales volume and profitability for the retailer.

This approach leverages the psychology of consumers, who may feel compelled to buy other products once they are in the store. Furthermore, customers may also develop loyalty to the retailer, encouraging repeat visits where they might buy other items.

The alternative choices presented do not align with the primary mechanism of how loss leaders operate. Exclusive brand promotions tend to focus on specific products without the broader sales impact of loss leaders. Digital marketing strategies, while useful, do not inherently create the same immediate sales spikes as loss leaders do. Finally, reducing the number of products offered could limit consumer choice and lead to fewer sales rather than increasing them.