Solution:

Loss leader Pricing:

• A company loses money on one service but earns on a related product. This strategy is often implemented as a part of a promotion campaign.

• The intent of this practice is not only to have the Customers buy the (loss leader) sale item, but other products are not discounted.

• These bargains will attract customers who may then purchase other products/services even if they don't buy the product which price had been initially reduced.

• This is where a company will make up for the loss as it will be selling other items that generate high profits.

• One example is HP inkjet printers that are often sold to retail customers below their true value, at a price that seems to be affordable to most consumers.

• Moreover, these printers are sometimes offered for free - free after rebate, free with a purchase of an HP computer, etc.

• However, consumers have to pay the regular price for ink cartridges. It is ink cartridges, not the printers that generate high profits for HP.

• Another example is Gillette's safety razor handles that are sold at a loss, but sales of disposable razor blades are very profitable. Major forces influencing pricing are the company's strategic goals, demand for its products or services, and/or competition.

• Management should pay particular attention when deciding on pricing methods since the success of the entire business depends on it.