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Loss Leaders

Discussion in 'Business Operations' started by Team Gopher, Nov 17, 2003.

  1. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

    In an article written by Frank Capria discussing Loss Leaders in the service industry, he said.

    "Using loss leader - products or services sold at a discount rate with the expectation that they will generate future business - is a strategy that usually backfires in the service industry."

    Do you agree or disagree with that theory? Have you used loss leaders and if so what results did you find?
  2. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Posts: 8,745

    I agree. Because then the customer is in the mindset that all future services will be cheap or have some kind of discount.

    I have tried the whole discount thing at first hoping to generate future and more work from them, and it usually is only good for short term results, not long term customers
  3. Equipguy

    Equipguy LawnSite Senior Member
    Posts: 370

    I agree as well. The customer does expect future discounts. We find it doesn't really attract the type of customer we want for the long term.
  4. dvmcmrhp52

    dvmcmrhp52 LawnSite Platinum Member
    from Pa.
    Posts: 4,205

    I agree Gopher.
    Mowing prices on commercial accounts seem to be the loss leaders.......The managers of those properties are coming to realize that and are using it to their advantage.We just went through it with a condo complex. we withdrew for other reasons but the contract is now being split up.Guess why?
    Yes,we did get other work out of it.
  5. Rustic Goat

    Rustic Goat LawnSite Bronze Member
    Posts: 1,194

    Absolute agreement, no loss leaders!
    Loss leaders may work in retail mega stores for many reasons, but retail is dealing with a completely different mark up/profit strategy, and easy 'sell up' and 'add on' products.

    If you start playing pricing games in the service industry, it can lead to many unwanted headaches, and profit losses.
    You are quite likely to draw bargain hunters for clients, and they'll be the ones that are always complaining about something, or you have problems getting paid from.
    If you get a customer using a bit of financial 'bait' they're always going to be looking for more 'bait'.

    The best customers I have and have retained are the ones that I bid fairly in the first place, treat them and the work I do for them with respect, and they never ask for some pricing deal.
  6. GarPA

    GarPA LawnSite Silver Member
    from PA
    Posts: 2,585

    no loss leaders here either...there are only a finite number of hours I have available to sell in one year....and none of them do I give away
  7. tailoredlook

    tailoredlook LawnSite Member
    Posts: 142

    The only time I use discounts for customers is if they refer a new client for weekly service of if they sign up for the super duper lawn care. You know 5 ferts. 2 limings, S&F aeration and slitseeding in the fall. They seem to help improve my sales.
  8. GarPA

    GarPA LawnSite Silver Member
    from PA
    Posts: 2,585

    as far as referral rewards, I do the same only I give them gift certifcates for dinner for 2 at one of the high-end restaurants here in town. The restaurant is one of my commercial customers and they give me a discount on the gift certificates. Everybody wins in this situation.
  9. KenH

    KenH LawnSite Bronze Member
    from CT
    Posts: 1,622

    If I have a client I really want, I quietly offer them discounted prices. Once they see/like me and my work, Im back to normal the following year, and even higher after that. Money, over the life of the acount, is made back 100fold.
  10. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    Sometimes I will purposely go a little lower than I should on the price to mow a lawn...BUT...that is because I know I will cover it a couple of times over by getting all the other premium services too (fert, aerating, etc.).

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