Using the pizza industry, cite examples that clearly distinguish between leader pricing and bait pricing. What do they have in common?
I would argue that it would be very difficult to find any examples of bait pricing in the pizza industry. Bait pricing is illegal in the United States and large pizza chains would be very leery of using such tactics. By contrast, leader pricing is commonly found in the pizza industry.
Leader pricing (also known as loss-leader pricing) is a strategy by which a firm sells a particular product at a price that is close to (or even below) the cost of the product. The firm does this because it wants to attract customers. It hopes that customers will buy other products that will bring profit to the firm. It may also hope to attract new customers and retain old customers. As an example of this, Pizza Hut’s website (as I type this) is offering me an any size, any topping pizza for $10. This is a very good deal. A large meat lovers’ pizza would normally cost me $17 (again, according to Pizza Hut’s website) but, for the moment, at least, I can get it for $10. This is surely very close to the cost of producing the pizza. Pizza Hut presumably hopes that I will order such things as bread sticks and soda, that I will pay for delivery, and that I will continue to think of them first when I want to buy pizza.
By contrast, bait pricing occurs when a firm advertises a very good price but does not actually have that price available. Using the example of Pizza Hut, bait pricing would occur if I ordered the $10 pizza only to be told that the store was out of that kind of pizza. I would then be pressured to take advantage of some other deal that was allegedly a good deal but which was not nearly as good as the advertised bargain. It is very unlikely that a large chain like Pizza Hut would do this. This is illegal and would have the potential to harm the firm’s image. It would also be very hard to claim that Pizza Hut has run out of any particular kind of ingredient for their pizzas. It would be hard for example, for them to advertise a cheap pepperoni pizza only to claim that they no longer have any pepperoni.
Thus, it is very easy to see leader pricing in the pizza industry as almost every sale price that is offered is a loss leader. By contrast, it is much harder to see bait pricing because this is illegal and because pizzas are not the sort of product that are conducive to bait and switch tactics.