We have all seen huge discounts and thought, how can they sell this at this price? In fact, many of those times they are selling it below the production cost, what makes me wonder, how are they capable of doing that? Someone is losing it's profit right? Who is losing money?
Take Sony and Microsoft for example. They're the makers of the PlayStation 4 and XBox One, two consoles locked in a war for market domination. Both of them are loosing money and selling the consoles cheaper. Why? Because by selling cheaper they permeate the market better and will eventually recuperate the money from game sales, merchandise and replacement parts. As the time passes they'll also improve the manufacture process resulting in cheaper consoles. And once they're cheaper to make and they stop loosing money the one with the biggest market share wins (the money).
Yes, that makes sense, selling the consoles below production cost to profit with the games. The same with cell phones, they sell them "cheap" because their profit is with communications, but milk, cheese and these basic products for example? The producers are cutting their already short margins?
I think that this happens when the manufacturer over-appreciated the demand for something. For instance, when an electronic device becomes a hit, manufacturers make so many of these. Unfortunately, when a better one comes out, people lose interest in the previous product. Thus, to prevent lost of profit, the manufacturer will put the wares on sale. This is the same when it comes to food.
There are some of those cases, mainly like you say in electronic products that have huge margins, but when we are talking about products from the land we know that the producers have minimal margins, so that always leaves me wondering.
There's a strategy too, of using a "loss leader," which means selling something at or under cost as draw. It gets more people in the door, and once there, they usually spend more money buying other things. It's like the Black Friday sales where you rush to the store for that super cheap TV and then buy lots of other stuff... since you're there. While a few items are standouts, most of the other items are marked down only a small fraction of the normal price, if they are marked down at all. The "loss leader" draws you in, but they make up for it elsewhere.
So are you meaning that they buy to the producers at a regular price and just take losses on those products to gain on others? That makes some sense, considering the producers are not hurt because I know for experience that some of them suffer pressures to bring their prices down.
