Amazon Leveraged a Loss Leader – Should You?

Amazon took a two-day loss on Lady Gaga’s album sales to increase visibility for its new music service. Should your credit union do the same for new products?

 
 

Like her or not, Lady Gaga’s new album Born This Way sold in record time and at record numbers amid a slumping music industry. Gaga’s sales got a big boost from Amazon’s decision to use it as a loss leader, which is a discounted product intended to generate interest at the expense of immediate profit, for a new music service. Perhaps Amazon’s successful promotion of the Amazon Cloud Drive with a loss leader could be a strategy your credit union could use when launching new products.

In an interesting marketing move, Amazon paid the wholesale price of $8.39 per album to Gaga’s record label, then turned around and offered it to Amazon customers for 99 cents during the first day of its release and then did it again later that week. News of the bargain catapulted through the Internet, through Twitter accounts and Facebook pages, and garnered significant media coverage. Lady Gaga can thank Amazon for 300,000 of the 500,000 album sales she scored on Born This Way’s release date, according to Billboard. Amazon’s decision to take a loss, which totaled more than $3 million, was an unusual move for the company. Even its other deep discounts, including price cuts on albums to as low as $3.99 and on single tracks to 69 cents, still drew a profit.

Amazon took a short-term financial hit with the Gaga gamble, but gained invaluable exposure for its Amazon Cloud Drive service. The promotion proved that offering a new product that needs to be exposed to the public at a painful discount can be beneficial in the long run. Is your credit union planning to launch a product that could temporarily be offered at a loss to generate long-term interest? Are there any products your credit union could offer that wouldn’t profitable, but would provide an invaluable service that could help shore up membership?

A loss leader may not immediately help the fiscal budget, but the exposure may make up for that by attracting new business and building a solid reputation in the long run. Perhaps offering a good product at a hard-to-beat price is just the move to promote and distinguish your credit union and gain members -- even if it means accepting a brief profit loss.

 
 

June 6, 2011


Comments

 
 
 
  • StretchPay (CU alternative to payday lenders) is a good example. Fills a need, serves the member, not a big moneymaker but unfortunately not a tremendous business driver.
    Fred
     
     
     
  • The bigger story is that the first day out sales overwhelmed Amazon's Cloud Drive showing how fragile the service was. They came back a second day to handle the demand from the first to provide delivery. Credit Unions should note that short term profits or marketing could backfire. Turning away new business in our market space leaves many opportunities for others to fill our service void.
    D Mover