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Black Friday price Promotions: a good idea for your business?

24 Nov 2023 by Dan McAulay

Black Friday. You can’t miss it! The annual, global spectacle where rational consumer behaviour takes a back seat, and retailers across the globe slash prices in a frenzied attempt to outdo each other.

It’s a time when price promotions stop becoming a planned tactic, but instead an all-consuming panic for businesses.

But hold your horses! Before you join this discount derby, let’s dissect the risks of Black Friday discounting strategies.

 

What’s so wrong with pricing promotions?

When talking about the brand’s premium position in a recent interview with MarketingWeek, the head marketer of Tyrell’s described the harm the company was experiencing from the “short term drug of [price] promotions”.

Les Binet – one of the world’s top marketers and synonymous with the concept of marketing effectiveness – had strong words. He described price promotions as “the crack cocaine of marketing” and that overdoing price promotions to counter declining sales spells a “recipe for disaster.

Not good.

 

Brand Value? What Brand Value?

First off, price promotions, especially the steep discounts seen on Black Friday, can have a corrosive effect on brand equity. When you constantly tell your customers that your product is worth less than its usual price, don’t be surprised when they start believing it.

As a general rule, we know that the stronger the brand, the lower the price elasticity, the greater the pricing power, the more margin you can make. Frequent price promotions erode all of this hard-earned equity away. So, slashing prices might boost short-term sales, but at what cost to your brand’s long-term health?

Remember, once customers associate your brand with discounts, it’s a steep uphill battle to re-establish your positioning!

 

Most Price Promotions Actually Reduce Profits

Next, let’s talk profits. Black Friday might bring in the masses, but it often does so at the expense of profit margins.

This margin erosion isn’t just a one-off problem. It sets an awkward precedent. Customers begin to expect these reduced prices, putting further pressure on margins year-round. It’s a race to the bottom where nobody really wins.

Nielsen – a serious player in data and audience insights globally – estimates that as many as 84% of price promotions are unprofitable.

Although you will see a spike in sales through a price promotion, a big chunk of your promoted sales coming through are actually just subsidising what would have been existing sales. You’re giving away discounts to people who would have bought from you at full price anyway.

And, in addition to this, another chunk of your sales are just being shifted forward. You’re getting extra sales this week at the expense of future profits.

Overall, only a small percentage of these reduced-price sales boost what you would have already seen, which means we come to the uncomfortable truth: most price promotions actually reduce profits. Ouch!

 

Customers Waiting for the Next Big Sale

The addictive nature of discounts – a vicious cycle if there ever was one.

Regular price promotions train customers to wait for the next big sale. You’ve probably thought of this yourself as a savvy consumer – why buy now when Black Friday is just around the corner? This behaviour creates a pattern of purchase postponement, which can be disastrous for regular sales cycles.

Let’s not forget the impact on brand loyalty. When your customers are loyal only to your discounts and not to your brand, you’re in a precarious position. The moment a competitor offers a steeper discount, your so-called loyal customers will jump ship. This erodes true brand loyalty, making it harder to sustain business in times when you’re not running promotions.

 

The Quality Question

As a customer, have you ever noticed how some products on Black Friday seem… a bit off? There’s a reason for that. To maintain margins, some brands produce lower-quality versions of products specifically for Black Friday.

But why do businesses do this? Some businesses are forced into this move as customers become more used to the discounted price. For example, if a certain furniture shop’s sofas are always on sale, the perceived price no longer becomes the RRP, it becomes the sale price. As a result, businesses have to work with this new, lower price point and produce products that are still profitable – usually at the expense of customer service or product quality.

All of this ultimately impacts on your brand perception, customer satisfaction and your profit margins.

 

Standing Out, Not Just on Price

Finally, when everyone zigs, sometimes it’s wise to zag. If all your competitors are slashing prices on Black Friday, is joining them really the best strategy? Or does it make more sense to differentiate in other ways – perhaps through superior service, product quality, or customer experience?

Standing out in a sea of discounts requires creativity and a strong understanding of your customer base. Maybe it’s about offering a unique shopping experience, exclusive products not available anywhere else, or unmatched customer service.

In a world where everyone is cutting prices, the real winners are those who find innovative ways to add value without slashing their profits.

 

The Bottom Line

Black Friday and price promotions are like sweets – tempting and sweet but potentially harmful in the long run.

Brands should tread carefully, balancing the short-term allure of increased sales with the long-term implications for brand health, profitability and customer perceptions.

After all, a brand built on price promotions is as stable as a house of cards – one gust of wind (or one savvy competitor) and down it goes.

Is your business caught in an addiction to price promotions? Let us help!

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