What pricing strategy involves selling a product for less than its production cost to attract customers?

The pricing strategy of selling a product for less than its production cost to attract customers is known as Loss Leader pricing. This approach is often used to draw in customers who may then purchase additional items that have higher profit margins or to establish a market presence in a competitive landscape. The strategy operates on the principle that once consumers are attracted to the store or brand through the low-priced product, they may be encouraged to make other purchases that will ultimately cover the loss incurred from the initial price reduction.

For instance, a grocery store might sell a popular item at a significantly reduced price, creating foot traffic and increasing overall sales. Loss Leaders are typically well-known products that customers are likely to buy, which helps the business boost revenues when consumers buy other products alongside the loss leader item.

To clarify context on the other options, Discount Pricing involves reductions from the regular price, but typically products are still sold above cost. Psychological Pricing focuses on how prices are perceived by customers, such as setting a price at $9.99 instead of $10 to make it seem cheaper. Price Skimming is a strategy used to maximize profits from early adopters by setting high initial prices before gradually lowering them, not involving selling below production cost.