A loss leader strategy involves selling a product or service at a price that is not profitable but is sold to attract new customers or to sell additional products and services to those customers. Loss leading is a common practice when a business first enters a market. A loss leader introduces new customers to a service or product in the hopes of building a customer base and securing future recurring revenue.
Consider this example: Razor blades. Gillette, for example, often gives their razor units away for free or at a low price, knowing that customers must buy replacement blades, which is where the company makes its profit. And after few repeat purchases the free unit (or loss making unit) that was given to the customer will break even.
A Platform Business in contrast like that of a loss leader actually does not make any money for the company that runs that platform but this turns out to be the full time business (primary product) of the company.
Consider this example: A Payments company making the payment sending/receiving free (or near dirt cheap) will actually get lot of customers to use this service.
Now for providing this platform for sending and receiving money might not make money for the company but the data it generates can be used in a multitude of ways. Some use cases can involve, building a data analytics service engine (like Twitter’s firehose) and selling that to Brands or use the purchase/sale data to underwrite customers/retailers for lending them money out of own book or partnering with a lender.
These platform businesses typically hide in plain sight considering people don’t consider the cost they are paying to use this service (remember that if you don’t pay for the product, you are the product) is their data!
Internet businesses have taken the world of loss leaders by storm, a loss leader in true sense never was the primary product (face) of the company that used this strategy but these digitally native companies have built an entire ecosystem of sorts behind the veil of Tech!