When does having the lowest price make sense?

Not very often.

Yesterday, I was talking about the folly of competing primarily (or mostly) on price and how silly it is because of the lack of loyalty it creates among your customers.

However, there are a few times where the low price makes sense.

One example is something retailers call “loss leaders”.

For example, a grocery store offers milk or eggs at a ridiculous price to get you in the store, knowing full well that most people won’t leave the store with just milk and eggs. Obviously, that’s why milk and eggs are at the back of the store, to force you to walk past the frozen pizza, ice cream, wine, steak, light bulbs, pasta and tampons, or whatever you forgot to put on your list – assuming you have one. The hope is that you’ll spend some dough on something else and make up for the loss (or lack of profit) on the milk and eggs.

Loss leaders are a good way to get a client into your store, nothing more. They still don’t generate loyalty. They don’t do anything to make me think “There’s no place else I’d rather buy groceries, and I don’t care what’s on sale across town.”

Thing is, most grocery stores don’t put forth the effort to generate loyalty among their shoppers. Maybe it’s because their margins are typically 2-3% so they assume most people’s loyalty lies with Wednesday’s sales flier.

Oddly enough, there are grocery stores that DO have loyal customers and that see much larger margins. Why? Because they do more than just sit food out in an attractive kiosk and offer special coupons on Wednesday.

Stew Leonard’s is probably the best known example, but there are others. Dig around in Google about their business and see if you don’t find some ideas that you can borrow for your own business.

Be careful not to fall for the “But Mark, I’m not a grocer” trap: You don’t have to be in the grocery biz to learn from their stores – and that’s where you should look for ideas on beating WalMart.