The Harry Phenomenon – A Loss Leader???

This week you really can’t do much without reading or hearing something about the new Harry Potter book coming out on Saturday. And the way that this craze has set in, it really IS news. After all, Amazon.com, the world’s largest online retailer, has already sold over 2 million copies in advance. They are offering the book at 50% off with free super saver shipping, and a $5 coupon on your next order. Do they expect to make money off this sale? No. So why do it? Why throw away all that profit? The reason can be explained in two simple marketing words “Loss Leader.” Now, I am not talking about Harry himself, mind you. Although today’s news is that there are many leaks circulating about the ending of the book, this is not one of them.

The seventh Harry Potter book is simply a “loss leader” for Amazon.com and other retailers because they are making a conscious trade off of gaining customers but losing a sales margin. When they purchase their book, all those Harry Potter fans are buying those books and having some type of customer experience. Maybe they feel excited and happy after they order the book because they got such a bargain, maybe they find that ordering the book online is easier than they thought. Maybe they decide to buy a couple of other books while they are shopping. But in general they are having a positive experience buying from that business. And if they are happy, they are more likely to buy again. And if they buy again, they are loyal customers and will tell others about how great buying from that retailer is. And, if nothing else, they are giving the retailers some information – their buying habits, interests, contact information and probably many are setting up an account. And this is why loss leaders are born.

Those online and offline retailers have a bunch of number crunchers behind the scenes and they know their average cost-per-customer. For different markets and products, that number varies. Basically it is the cost that you spend on attracting, marketing to, and making a sale to a customer. Sure, those Amazon.com folks lost some their sales margins on this loss leader, but they gained over 2 million customers. Over two million. Those number- crunchers know how much money it costs to get two million customers, and I can guarantee you in the long run this little discount is well worth the effort for them.