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Should You Use The Loss Leader Strategy In Virtual Services?

In our Facebook community the topic of loss leaders was introduced. Do we use the loss leader strategy in the virtual service industry? Typically if you ask Virtual Service Providers (VSPs) if it’s a good idea to provide 1-2 hours of tasking time as an introductory offer you’ll receive an echoing no. While some won’t give free time individually, as a loss leader many are doing it under other names like ‘freebie’.

Enter the Loss Leader.
We hear about the loss leader strategy in retail settings where a physical product is being sold, but it is being modeled in the virtual service industry as well. Some may not realize it’s the same underlying principle so I decided it’s time we talk about it.

Let’s define what a loss leader is:
loss leader (also leader) is a pricing strategy where a product is sold at a price below its market cost to stimulate other sales of more profitable goods or services.

Another definition says:
A loss leader is a product or service at a price that is not profitable, but is sold or offered in order to attract new customers or to sell additional products and services to those customers. This is a common practice when a business first enters a market. Essentially, a loss leader introduces new customers to a service or product in the hope of building a customer base and securing future recurring revenue.

I like the second definition, it more accurately aligns with what we see in the physical and online marketplace today. A retail store may offer something free to introduce new customers to a service or product in the hope of building a customer base and securing future recurring revenue. And Virtual Service Providers are doing the same in a variety of ways.

In addition to being a virtual service provider I’m also a photographer and makeup artist. In the world of makeup M.A.C. Cosmetics recently did a huge campaign giving away a free lipstick. Founded in 1984, they aren’t a new business so why did they use this strategy? The short answer is to reignite existing customers and entice new ones.  I like their ability to create marketing chaos for their products and services.  I don’t use their products often, but they are awesome at marketing.
Notice in the image below M.A.C is offering a free skin kit with foundation purchase-a loss leader.

Loss Leader

As Virtual Service Providers our product is service based. Our product is solutions. Some of these solutions are in the form of knowledge, strategy, digital products (to be used on and offline), tasking etc.

Loss leaders for VSPs may include:
Free downloads with valuable tips and tricks (aka freebie, lead magnet)
-Free consultation or strategy call
-Free website review
-Free social media platform review
-Free virtual services (1-2 hours)
-Trial virtual services (reduced price)
-Free social media graphic
-Free webinars or masterminds
-Free email courses
-Free courses

Virtual Service Providers use the loss leader strategy. It is re-imagined, but at its core it is still a loss leader. Loss leaders like anything else won’t convert every person who gets the free product or service. Some will get the free product or service and disappear; they have no intention of signing on for recurring service. Some people go from virtual service provider to virtual service provider doing what is called “cherry picking” which is grabbing up freebies.
If we want to keep it real, VSPs do a lot of cherry picking when they are doing a start-up on a DIY basis. 

Knowing this you have to decide if offering actual time for free tasking is a good fit for your business. There is no blanket answer or one size fits all, just what’s right for your business. Although I’ve been in my photography business over fifteen years, like M.A.C. Cosmetics I launch an annual promotion that uses the loss leader strategy and it works for my goals.

One of the keys is strategy. But knowing you can’t control the cherry pickers is reason enough to not offer free time and tasking. This is one reason the free download is a widely used method. You put the work in to create the product once and it is used over and over again as a loss leader.

Some are going to say “That’s not a loss leader.” Sure it is. Your design skill, time which equates to money, knowledge and expertise are represented in your freebie, and in most cases that’s a part of the services you offer. Your freebie is crafted to attract people who want what you have to offer, right?

Sometimes a loss leader in the form of hours or reduced hours works, and sometimes it doesn’t. It worked for me here, but I wouldn’t use it regularly. You decide what is a right-fit for your business. Don’t be afraid to try new strategies. The beauty is if it doesn’t work you are free to not use it again, right?

Here’s a good read on how Prince used the loss leader method. What free or low cost method in product or service have you used or are you using, and what has been your results?

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