Loss Leaders Risky Gamble for Small Web Hosts - Why Web Hosting Companies Use Loss Leaders
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Why would a web hosting company, or indeed any company, use a loss leader campaign? There are a number of reasons. Mainly, loss leader campaigns are used when the company is trying to achieve something that it canít do simply from selling its product at the usual price. Loss leaders capture customer attention; what a company hopes to do with that attention varies.
Perhaps the most obvious thing to do with that attention is attract more customers. ďHosting companies use loss leaders to grow the customer base exponentially, with the ultimate goal being to up-sell these customers to more profitable business,Ē notes Barbara Branaman, vice president and general manager of the hosting unit at XO Communications. Thatís a good thing for large companies to do if they can handle the explosive increase in their customer base, but if youíre a small company, your customer service will probably suffer under such an onslaught.
Web hosting companies also use the attention generated by loss leaders to help them break into markets where their brand is not very prominent (or practically non-existent). Thatís why 1&1 Internet offered such a dramatic loss leader when it entered the U.S. web hosting market. That kind of promotion was bound to generate buzz and raise the companyís profile.
A third reason web hosting companies might want to use loss leaders to get attention should be familiar to everyone in the field: the cutthroat competition. Everybody is trying to offer the lowest prices to attract customers who arenít afraid to shop around and switch hosts to find the best possible deal. Itís worth keeping in mind that the customers attracted by loss leaders are just as likely to leave as soon as they find a better deal. Once your prices go up after that first year or promotion period, theyíll switch to the next company that offers them a loss leader. Sure, there is some effort involved in changing web hosts, but itís not as much effort as, for example, trying to move an entire apartmentís worth of furniture and personal effects (to say nothing of 50+ boxes of books!).
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