The Reverse Loss Leader

A reverse loss leader occurs when a stores “loss leader” actually costs them a customer. This can happen by a loss leader being inappropriately priced, or by a store forcing customers to buy astronomical amounts of merchandise in order to even qualify for the “loss leader". This reversal of a great sales tactic surprisingly happens fairly often. It actually happened to me just the other day!

Let me explain.

I went shopping yesterday in Ace hardware store. I was looking for a hat rack and other possible items for my new hat store (I bought a hat store last week. We are still looking for a name, suggestions are welcome). While I was perusing the aisles I happened upon a terrific sale. Giant plastic bins great for storing childrens toys, blankets, books, whatever, at an amazingly low price! The bins were marked down from 112 nis to 69 nis and further marked down to the low total of 20nis per bin. Obviously excited, I stacked 6 of these bins into my cart. I would have taken more, but my cart was totally full from the extra large bins.

Not wanting to take a chance that the sale would end in the next few minutes, I sped straight to the checkout line. On my way I was stopped by a sales agent, “You know those bins are only on sale if you buy 500 nis worth of merchandise. Once you have purchased 500nis only then you will get one bin for 20 nis”. He had understood that there was no way that someone would buy the bins for the proposed not on sale price of 69nis.

Apparently I was not the only customer to be confused by this strange loss leader. If ACE had actually written, “Buy 500 nis - get a plastic bin for the discounted price of 20 nis” I would not have gotten confused.

For a few seconds I debated buying 500nis worth of junk. It only took 3 seconds to return the items to their shelves and eventually leave the store.

This just in! No one is spending 500 nis in order to save a few shekels. Additionally, please put prices on store merchandise. Not everyone will be spending 500 nis on every purchase.

That loss leader, lost them a customer.

The Loss Leader

I had the wonderful opportunity of spending a short but relaxing vacation with my wife ( no kids - they stayed by her family) at the Dead Sea this week. I was highly impressed with the hotel, and even more so by it’s keen understanding of the concept of having a “Loss Leader”

Let me explain.

We stayed at the Golden Tulip Club located on a private beach on the Dead Sea. The Golden Tulip, like all other 5 star hotels offers all sorts of gimmicks in order to increase their “market share” of the tourists and Israeli vacationers who wish to spend some idle time by the world’s lowest point below sea level. While every hotel has its uniqueness, the Golden Tulip found its way into my wallet the traditional Jewish way, By feeding me.

Some hotels offer free upgrades, some free massage, but only the Golden Tulip offered me all inclusive full board. Let me explain what that means ( upon arrival, I did not even properly understand myself) Not only did we have 3 full meals included in the very reasonable price, we also had free alcoholic drinks on tap, along with 7 different choices of soda. Snacks ( cakes and pancakes) were being serve at all hours of the night, just in case someone did not stuff themselves properly during the scrumptious meals. The open bar was open 24 hours a day and trust me, the alchohal was flowing.

Throughout my entire stay I did not understand how the hotel could be profitable. They had a very advanced free game room equipped with play stations, Nintendo wii’s, foosball, internet, and all sorts of other entertaining programs and games for no entrance fee. There were enough games to keep 20-30 people busy. There were over 5 pools ( not including Yam Hamelach) They even had a casino party ( which we won of course) where prizes were given out to the person with the most money at the end of the allotted time ( I won some nice dead sea mud and salts)
Being as I always look for deals, I had purchased our hotel stay at an excellent rate. Only when I went to the hotel’s spa did I fully understand how the hotel could offer such lavish amenities. The hotel was equipped with 40 “health rooms” to be used by masseuses and beauticians. When my wife went to schedule an appointment, she was told that everything was booked up and was given a time in the future ( later that day) that she could set up an appointment.

I quickly did the math ( they are charging 180 for a 30 min massage and 270 for a one hour) I figured they could easily be clearing close to 10,000 nis per hour on the spa alone! I am sure their costs are not that significant (the dead sea mud is located about 30 feet from the hotel) The spa is open for at least 12 hours a day ( 10,000 x 12 = 120,000 NIS)

Now that’s a smart business model. If you build it, and offer free food, THEY WILL COME!!