A company is buying a product with cost Rs.5 and sell it at Rs. 4.5 and makes profit of Rs.1 lac.How does it do so?

Also add that there is one more company which is buying the same product for Rs. 4.5 and sell it for Rs. 4.5 and earns no profit.

Answer :-

The product we are talking about is a popular product, say parle-g biscuit. Suppose, a pack of  parle-g biscuit costs Rs. 5 to the retailer (just assume this). Now other retailers are selling the packet at 5 Rs. but our retailer sells it at 4.5 Rs.. Since parle-g is an extremely popular product, this retailer would get popular for selling it below MRP and this would lead to more sales. But where is the source of Rs.1 Lakh profit?

Here's the catch. Grocery is such a category that you buy almost all the needed products from one place itself. Since people would feel that this retailer is an honest person and does not try to exploit the customers, they would be buying the other grocery items too from this shop. No matter if he is selling the rest of the items at MRP, people would feel that this retailer is better than others, and this is how he would make profits even by selling one product at loss.

In marketing, such a product is called Loss Leader. A product which is sold at loss so that other products can be sold easily.