Loss Leader Strategy Australia 2025: How Discounting Drives Profit

The phrase ‘loss leader’ might conjure images of supermarkets slashing prices on milk or hardware stores selling drills below cost. But in 2025, the loss leader strategy is experiencing a resurgence, driven by changing consumer habits, fierce online competition, and new policy incentives. So, is this classic retail tactic still relevant—and profitable—in the Australian market? Let’s take a closer look.

What Is a Loss Leader Strategy—and Why Are We Talking About It Now?

A loss leader is a product or service sold at a loss to attract customers, with the aim of encouraging additional purchases at profitable margins. This isn’t just old-school retail trickery; it’s a calculated move. In 2025, Australian businesses—ranging from supermarkets to online marketplaces—are leaning on loss leaders to drive foot traffic, grow market share, and build customer loyalty.

• Supermarkets: Coles and Woolworths continue to discount staples like bread, milk, and eggs, even as wholesale costs rise. The idea? Get shoppers through the door and fill their trolleys with higher-margin goods.

• Tech Retailers: In the wake of aggressive global competition, chains like JB Hi-Fi offer big-ticket electronics at cost (or below) during launch periods, betting customers will buy accessories or extended warranties.

• Online Marketplaces: Startups and e-commerce giants are using loss leaders—think free shipping or discounted first orders—to rapidly acquire new users, with the expectation of repeat business.

The renewed interest is being fuelled by two main forces: the shift to digital shopping and recent government incentives for small business growth. The 2025 Federal Budget introduced new tax deductions for marketing and customer acquisition, making loss leader campaigns more financially viable for SMEs.

How Do Loss Leaders Work—and Who Really Wins?

Loss leaders are about psychology as much as economics. When customers spot a genuine bargain, they’re more likely to shop—and to keep shopping. But the strategy isn’t foolproof, and its success hinges on smart execution. Here’s how Australian businesses are navigating the risks and rewards in 2025:

• Bundling and Upselling: Chemist Warehouse often advertises deep discounts on select vitamins, knowing shoppers will also pick up full-priced cosmetics or supplements on impulse.

• Membership Models: Online grocers like Aussie Farmers Direct offer first-time buyers heavily discounted boxes, then lock in recurring subscriptions at standard rates.

• Data-Driven Targeting: Retailers now use AI-driven analytics to identify which products will most effectively lure customers—and which shoppers are most likely to spend more once inside.

However, the risk is real: ‘cherry pickers’—savvy customers who buy only the discounted items—can erode profits if the wider strategy isn’t robust. That’s why many retailers in 2025 are limiting quantities, requiring membership, or using loss leaders as part of a broader loyalty program.

2025 Trends: Policy Shifts and Market Innovations

This year has seen several key developments that make loss leaders more appealing (and more complex):

• Tax Incentives for SMEs: As part of the 2025 budget, businesses with turnover under $50 million can claim expanded deductions for marketing expenses, including loss-leading promotions. This levels the playing field for independent retailers competing with big chains.

• Consumer Law Enforcement: The ACCC has stepped up scrutiny on ‘bait advertising’. Retailers must ensure advertised loss leaders are genuinely available in reasonable quantities—no more luring customers in with ‘phantom’ bargains.

• Digital-First Campaigns: Social commerce is booming. Brands are using flash sales and influencer partnerships to promote loss leaders, creating urgency and viral buzz that amplifies both reach and risk.

One recent example: An Australian pet supplies startup ran a viral ‘$1 dog toy’ campaign via TikTok, selling out stock in hours and converting over 40% of new buyers into repeat customers with personalised follow-up offers.

How Can Consumers and Businesses Make the Most of Loss Leaders?

For businesses, the message is clear: loss leaders can be powerful, but only when paired with a smart strategy. Key tips:

• Use data to target the right products and the right customers.

• Bundle discounts with profitable items, or tie them to loyalty programs.

• Keep a close eye on margins and monitor for ‘cherry picking’ behaviour.

• Ensure compliance with ACCC guidelines to avoid regulatory headaches.

For consumers, loss leaders remain an opportunity to save—if you know how to spot genuine deals. Look out for:

• Weekly supermarket specials that can be paired with your regular shop.

• Limited-time online offers for first-time buyers (but watch for subscription traps).

• Bundled deals where the savings outweigh the spend.

In 2025, the loss leader strategy is evolving, blending old-school retail wisdom with new tech and policy shifts. Whether you’re a business owner or a budget-savvy shopper, understanding how it works could help you make smarter moves in the months ahead.