How to Compete with Loss-Leader Strategy

What Is Loss-Leader Pricing?

Loss-leader pricing is a strategy developed in traditional retail to drive traffic. Items are sold at a loss to entice customers into the store, leading to more sales. A classic example is the $5 rotisserie chicken at Costco. This price is far below the actual cost, and the strategy reportedly leads to over $40 million in annual losses for Costco.

But the pricing has remained stable, and Costco is clearly committed to it—so we can intuit that this strategy generates more business than it loses. It gets people in the door. Look across the internet and you’ll see people promoting Costco. Loss-leading is incredibly effective marketing. People love a deal. Bundle it up with a nice thumbnail, and Costco gets tons of word-of-mouth marketing from a chicken that loses them a couple of dollars per sale. Once shoppers are in the store, they’re likely to pick up other items. It’s on those other items that sellers make their margin.

For Amazon, books are the loss leaders—not chickens. I’m currently reading How to Resist Amazon and Why by Danny Caine. In the preface, he writes:

“It is possible to buy the latest bestseller on Amazon for less than the wholesale price my bookstore pays.”

He goes on to say that a book that costs him $14 to stock is sold on Amazon for $10. If this is the competitive landscape, what can reasonably be done? Grocery stores can take solace in the fact that Costco stores are typically far out of town. With same-day shipping, Amazon is effectively next door to your bookshop.

The Impact on the Bookselling Landscape

I wrote at length about the broader impact of the pricing race to the bottom in this post:

👉 The Hidden Cost of Cheap Books

That race is a direct result of the largest player in the space using loss-leader strategy—with our product as the bait.

When I talk to booksellers about partnership, the number one objection I hear is that buyers are primarily motivated by cost. This is true—especially in the used book space. But this objection overlooks something important: if price were the only motivator, the resale market would coalesce entirely around the lowest-price seller. Yet readers still make purchases outside the Amazon ecosystem. That means something else is motivating them.

Despite the trend toward centralization, a significant number of transactions happen outside Amazon. We must properly understand our buyers’ motivations if we want to build on each success. And for booksellers, every sale is truly a success.

We can’t expect the future to offer a break from books being used as the lever that turns the Amazon engine. The floor has buckled, and we’re all falling through—whether we like it or not. So we must seriously consider: Why would a reader come to our store?

We can’t be disappointed that our prices are higher than our competitors’. There’s nothing we can do if someone is willing to lose money selling our products. For long-term success, we must justify the higher price.

Some readers will always be price-driven. These individuals are lost to us as an audience. They should bear no thought in our minds. We must focus on the readers who can be swayed.

Competing Without Competing on Price

Our higher prices must be justified. It’s delusional to expect people to pay more for the same product without a reason. If, as a seller, you don’t have an answer to the question “Why should someone come to you and spend more for a book than they would elsewhere?”—then expect low-cost sellers to eat up your business.

I hear a lot of complaints that the book industry is under threat. I see many people bemoaning the fact that independent sellers are being squeezed out. But I haven’t seen many compelling reasons why shoppers shouldn’t buy from the cheapest source.

If we want to not just survive but grow, we need to try new approaches.

Our approach is to integrate author support into used book sales. What this means is that by purchasing books through our partners, the book is more expensive (this is always the case), but you’re getting more out of your purchase. There’s a compelling reason to pay more—one that aligns with why you came to buy a book in the first place.