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  November 29, 2013
Understanding Black Friday...

 

 

Getting ready for a large Thanksgiving Day dinner, I needed to pick up a few last-minute items at the grocery store.

As I drove around the parking lot looking for a place to park, I noticed that there were a few people waiting behind some velvet ropes in front of Best Buy.  Black FridayI correctly assumed that these people were queuing for Black Friday, one of the busiest retail days of the year.

I wondered why normally intelligent people would spend their Thanksgiving Day and ensuing cold evening huddled in front of a retailer just to make a purchase.  I figured that there must be some sort of big payoff for being so inconvenient. 

There was no such thing as Black Friday when I was growing up.  No, Black Friday is a recent phenomenon contrived by the National Association of Retailers to promote shopping on a typically slow news day.  It was a brilliant idea.

Their plan was relatively simple...

First they needed to find a day when people are typically not working and had very few other obligations to attend to... like the day-after Thanksgiving.  

On Thanksgiving, people are busy with traveling, feasting, watching football and socializing.  However on Friday, very little is happening so why not try and get all those idle people to the malls to begin their Christmas shopping.

So how do they get all those people to the malls?

Retailers realized that they could offer highly discounted merchandise to entice people to their stores.  However, if they significantly discounted all of their merchandise, they would lose a significant amount of profit; therefore they introduced the notion of scarcity into the equation... to raise consumer demand. 

The retailers would only offer highly discounted prices on a very limited amount of items.  Other items would still be on sale, but the best deals would be reserved for those first in line.

Now, when I say that an item is on sale, I don’t mean for a moment that the retailer is actually losing any money. 

A retailer might purchase an item for $50.  They will then typically mark that item up to an initial price of $300. 

If the store sells the item at full retail, they will make a nice $250 profit. 

If that item is still in the store 3 weeks later, the retailer will then place that item on sale, reducing the price by say 25% or $75 (enabling them to still make a $175 profit on the $50 cost). 

3 weeks more and the price is reduced once again by another 25% still giving the seller a profit of $100. 

After 10 weeks, the retailer will typically off-load the unsold merchandise to a liquidator or outlet store at slightly above their original cost.

So by offering a very few items at a heavily discounted price, the retailer has only forsaken a few profit dollars on those "door-buster" items. However they have also packed their store with shoppers who are willing to pay full-price for new items not on sale... more than covering their loss on leader items.

So how do the stores build demand for those highly discounted items?

They start with the scarcity.

There are only a few reserved "super deals" so you need to be one of the first or you won’t get that special discounted price. 

Black Friday retailers aren’t the first marketers to invent the shortage concept.  Scarcity marketing has been employed by companies like Apple, DeBeers, Ticketmaster, and all of the oil companies for many years.  

These companies create a shortage (real or imagined) to build demand for their products.  People feel lucky just to get the opportunity to make a purchase... at any price.

They enlist the help of the "neutral" media to help them get the word out. 

Retailers will issue press releases and offer statistics as hard science facts as to why Black Friday is the best day of the year to shop and why it’s important for the consumer to be first in line to secure the very lowest price on those limited quantity items.

There will be plenty of anecdotal news stories reported by local and national media outlets demonstrating the great bargains to be had for those who will be lucky enough to be first in line. 

The media has two self-serving reasons to propagate this "news".

First, the day after Thanksgiving is traditionally a very slow news day.  Black Friday gives those news outlets something to actually report.  If there is no news... then make some.

Secondly, and more importantly, retail stores are one of the media’s biggest advertisers... spending billions of dollars each year.  The media wants to support their customers so it adds fuel to the fire by creating "news" stories about the mad-rush to the malls and the ensuing hysteria.

The media throws in a few stories about the plight of the store workers trying to keep up with demand, a few fights between customers trying to get that last remaining bargain, and tips on how to beat the system. Black Friday is all about surviving shopping.

Soon consumers, driven either by greed or fear, are lined up in front of retailers trying to be that first person in line as not to miss out on something big.

So is there a benefit to spending valuable time to be first in line at a store?

There could be... if your time isn’t all that valuable.

I recall several times in my early life where I stood in line to purchase concert tickets or camped out on the streets of Pasadena trying to hold my viewing spot to watch the New Year’s Day Rose Parade.  

At that time in my life, my time wasn’t very valuable so it made sense to me to spend my time trying and waiting in line to get something I wanted.

Today I am no longer compelled to spend my time waiting in line to make a purchase, a purchase that I could make at some time in the future (albeit at perhaps a slightly higher cost).

These days my time is far more valuable than trying to save a few dollars on something that I probably don’t really need in the first place...

...choosing to spend my Thanksgiving with family and friends... in a warm cozy house... and sleep in a comfortable bed... instead of a wet, cold, hard sidewalk with hundreds of strangers.

And for that... I am most truly thankful this Thanksgiving Day...

Thank you very much for your support of OptiFuse where we hope that you always find everything that you want this holiday season.

 


Jim Kalb
President

Email - jimk@optifuse.com
Website - www.optifuse.com

Blog - www.optifuse.blogspot.com
Twitter - @OptiFuse


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