Price Discovery through Fevicol

The other day one of our Guest Speakers Mr Manoj Shelar shared a very interesting example on price discovery. He said that at one point in time many of the plywood stores would deliberately sell Fevicol at a much lower price because carpenters would use the pricing of fevicol as an indicator of how the shopkeeper would price other products. The shopkeeper in turn would deliberatley keep the price of Fevicol low and then make his profits from plywood and other products.

I have always felt the same strategy is used by the sweet shop people, where they price their samsoas very low....

This strategy is used by many other retailers too, also known as the loss leader strategy, where there would be some categories in which the retailers would not make any or only a little profit, but they would increase the traffic to the store. And once you have more walk-ins the overall sales would improve and the retailer would make profits.