Definition: Below Cost - Explained

To be sold 'Below Cost' means that the amount being paid is under what the merchant paid for it.

The reseller places items at this level as a way to gain a greater amount of the market, to clear items from its inventory or to stimulate other sales by way of a promotion which is better known as loss leader pricing -- where sellers are willing to take the loss in exchange for other sales on other profitable items -- with the traditional examples of bread and milk. However 'below cost' is not always part of a leader strategy.

Below cost is a strategy that can continue from previously being at cost like in the case where merchants find that they must further reduce pricing so as to execute desired sales.

Many 'below cost' deals are exactly what consumers are looking for, especially if the seller is a larger dealer with purchasing power. It can be common foodstuff needed like milk, rice or eggs or it can also be larger ticket items that the dealer is motivated to move like a plane occupying the part of a hangar.

At the same time though it can help to keep in mind that (a) the price at which the consumer pays for the item should be at or below other current cost to acquire items for other resellers and (b) purchasing the item could have deciding factors like for a 'must have' product, that there are no other dealers carrying the good, it is going out of production or there are other associated risks to acquire (few in-stock or other businesses claiming to carry the item might have detrimental buyer comments or feedback, etc.)

Certain below cost items are occasionally associated with products that have sat like in the case of perishables, technology products or are the result of other sell attempts.

For many kinds of commonly sought products, items priced below cost can provide some of the best deals for buyers.

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