The Disruptive Online Loss Leader

A slow business environment tends to highlight novel and effective marketing. Among interesting techniques retail outfits are adopting is the co-optation of low-cost, high-margin internet business models as “loss leaders” to get people in the stores and spending money.

Case in point: My wife spent about an hour on Shutterfly, one of the highest-traffic photos sites, attempting to get photo cards printed on the cheap. After a few technical glitches she gave up, and then remembered a friend describing a good experience on Costco’s site.

Costco? for online photos? Turns out the Costco experience was quicker, easier and about 50% cheaper. Being the marketing wonk I am, I thought about what Costco did that Shutterfly couldn’t.

Here’s the breakdown:

1. Wife has superior experience getting the card done and sends them to the store to print.
2. Wife goes to Costco to collect her prints, takes a detour through the store.
3. Costco adds logo on backs of the cards, which are then mailed to family and friends.
4. Husband wonders how $21 photos became $250 in bulk groceries.
5. Costco wins a big purchase, free viral advertising and a happy customer in worst economic recession in decades.

Now try this with other businesses that are supposedly exclusive to innovative online companies. Netflix? Try a video kiosk at McDonald’s for a buck, and grab a burger while you’re there.