Using non-core products as a loss leader!

One of the best ways (If done properly) to add additional revenue to your ecommerce sales is to sell non-core products (at cost or even at a loss) to gain additional core sales and new customers.

A great example that I found this weekend, is B&H Photo. They sell a variety of non-photography related computer and technical products. What quickly caught my attention is that many these products are being sold well below any other online retailer’s price, even cheaper than anyone on eBay. I don’t have access to wholesale computer accessory costs, but I imagine that they aren’t making much money, if any, on their computer product sales.

So how is this smart marketing?

When an established website like B&H draws sales from non-core products, they gain additional customers and brand exposure. What they gain by selling at cost, is the opportunity to sell other products for profit, and they gain repeat customers. In the end, if the amount of money spent marketing and supporting non-core products is minimal, there is absolutely no downside to this practice. If they aren’t making money from those computer related sales, they’re making money from those additional customers that are also interested in cameras, memory cards, photography accessories, and more computer accessories.

A good idea for some but not for everyone:

This practice can be a strong marketing technique, however, it will not create a sustainable business model for everyone. A businesses that can most effectively harness this technique must have a strong search engine presence, or the ability to draw sales and traffic at little to no additional cost. This technique is probably not a good idea for a startup business unless you really know what you are doing. A business must also have access to related but non-core products at a very competitive price.

Obvious potential pitfalls:

• Some strong reserve must be used to not cannibalize existing profit margins, as it extremely easy to sell short on everything. Don’t make everything a loss leader, only those non-core products that you are adding.
• Another danger is accidentally migrating from one core product type to another. It needs to be clear to yourself and to your customers what your business is there to do. If you are a photo shop, that sells some computer accessories, it should be clear that you are not a computer accessory seller that has some photography equipment. This is absolutely key in protecting your brand, and sustaining your business model.
• The other products that you decide to sell must be related to what your business does. If would make no sense for an online flower shop to start selling car parts. You need to be careful not to dilute your brand, message, and what it is you currently do with completely unrelated products.
• You do not ever want to enter an arena that will create a lot of additional customer support requests. This is a quick way to nullify any gain you get from additional customers and sales.

The big picture:

It’s sometimes difficult to grasp the concept of loosing money on one place to gain money in another. If you have the ability to step back and look at the big picture, you will find that there are numerous areas where a loss here can create a huge gain somewhere else. Small steps should always be taken when testing out a system that has both the potential for a loss and a gain, but I think that many will find that this is a useful, appropriate, and completely possible marketing technique.