Parks and Membership

By on August 2nd, 2010

There are several amusement parks within a short distance of my home – a few zoos, a waterpark, Wonderland. The cost of admission for a single day is quite expensive, up to $75 per person per day. The cost of a season’s pass, though, is quite cheap by comparison, costing in the area of 2-5 days admission.

At first, this doesn’t seem to make much sense. After all, with the price of the pass being so low, it’s likely that many people will buy the pass rather than pay each time they visit. The park is therefore losing money on most of the passes being sold.

In truth, however, the revenue of the parks does not come from admission (though it does make a small contribution, of course). It comes from the concessions, the games, the food stands. As such, the parks are more concerned with bringing people into the park than they are with how much they charge to do so.

The same system can be applied to many businesses. Stores will place items on sale for below the cost value, just to get customers in the door. While there will certainly be those customers who only come to buy the sale items, many will purchase other items at the same time, having only entered the store because of the sale items.

As a business owner, it is therefore important to understand that there will be times when the price paid for your product or service are lower than you might like. However, you still continue to sell them at the low price, because it brings in more clients. Even if you are losing money on the initial sale, later sales will ultimately pay for that loss.

As an example, a web development company might take jobs to build small websites at low cost to the consumer. This, in turn, results in the name of the company being displayed around the web, and being referred to others. In the long run, the dollars lost on the job are the cost of advertising, and ultimately will pay off.

How are you using loss-leaders to bring in more business? Do you find it to be effective?

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  4. Marketing – Paying Attention to What is Not Said
  5. Where to Splurge, Where to Save
Categorized under: Advice for Small Business Owners, business.
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  • http://lichtman.ca jeremylichtman

    We tried the loss leader system with building websites at my former company. It didn't work. All we got from spreading the word with cheap websites were a lot more people looking for cheap (and not particularly profitable) projects.

  • http://blog.optimalupgrades.ca Elie

    True. Web development is certainly an industry in which the only thing the client wants is the development of a simple site, in which case, there really isn't anything else for the client to buy.