The curse of Black Friday: Are discounts all they’re cracked up to be?

It’s that time of year once more where phones buzz, emails ping and shop windows flash, bursting with all sorts of tempting discounts and deductions. Yes, The Black Friday sale is back. It’s a period where consumers can expect to see jaw-dropping deals on all sorts of products and services as companies slash their prices. This year, it’s expected that £10 billion could be spent throughout the week, with £2.5 billion of that being spent on Black Friday itself (and eclipsing Boxing Day as the day with the most volume of transactions).

But is excessive discounting really beneficial for brands or are they in fact causing more damage in the long term?

Much of the criticism for Black Friday comes from the idea that the discounts simply bring the shopping period forward from December, leaving less opportunity for consumers to purchase throughout the holiday period, because they have spent and purchased all they need or can afford during the Black Friday week.

On the other side of this, shoppers are reluctant to spend money earlier in November, instead holding out for the Black Friday deals. Furthermore, November and December are key purchasing periods when consumers would happily pay full price for items anyway, in the run up to Christmas. Therefore, while brands believe that they are making large amounts of profit, they are reducing the amount of spending that could take place over the entire period and not taking into account how much money they might have made if they had sold at full price.

By combining customer behavior insights and pricing data, a retailer can understand the correlation between the level of discount, the customer type, the communication method and the value and volume of sales.

Moreover, as discounts continue to be placed earlier and earlier every year, with some retailers lengthening Black Friday into a month-long event, they run serious stock risks: buy too little and run out before the holiday season has peaked, but buy too much and risk having to continue discounting into January.

However, a study by Starcount into customer-centric pricing for a high street retailer shows that, while Black Friday need not necessarily be scrapped entirely, there are methods that retailers can use to ensure profitability, while also offering value to customers. What is this strategy? Put simply, it’s about understanding the motivations behind consumers when it comes to discounts on specific products.

By understanding how different customer groups interact with any given product, Starcount can identify those products which are likely to successfully sell at a lower discount, resulting in a saving in margin, without compromising on target cover rates at the end of a sales period like Black Friday.

By combining customer behavior insights and pricing data, a retailer can understand the correlation between the level of discount, the customer type, the communication method and the value and volume of sales. This is especially effective when a store can utilise its own customer data, which, when compared with the pricing data, can produce the correct kind of discount applicable, not just to a specific product, but also tailored to an individual customer.

Perhaps a better strategy for those major retailers with a treasure trove of customer data at their disposal, would be to apply tailored discounts of products that have been through this analysis to specific customers. Then, by overlaying the results with emotional data, one of the various data dimensions pioneered by Starcount, they could apply look-a-like identification to a whole range of consumers who might also have an interest in that product based on this emotional insight. In this way, not only do you offer a specific product at a correct discount ratio rate to an individual customer who is likely to purchase it, but you also apply this to a whole segment of potential customers, identified through a similarity in emotional data to your primary customer.

The result? Not only do you save money by correctly discounting the right products instead of random ones or even all of them, but you can also more accurately estimate stock amounts, meaning that brands won’t run out or have too much. On top of that, you’ll probably wow your existing customers with your individual Black Friday deals, giving them a more personalised experience, and you’ll probably make some new ones at the same time.

So, is it all a waste of time? The short answer is no. Black Friday has the potential to generate large amounts of revenue for brands, but it also has the potential to waste large amounts of the war chest. By planning more carefully, incorporating discount and customer data analysis and then using emotional data to overlay the whole thing, you can pretty much guarantee hefty returns without the losses. Now that is the deal of the decade.

By utilising your customer data and enriching this with a range of other data sets, Starcount offers a unique way of understanding the passions and motivations of your customers.

For more information on what Starcount can do for you, please contact team@starcount.com

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