© 2019 Spark Retention

Search
  • Alex McEachern

Black Friday discounting makes no sense in ecommerce, here is why

It is that time of year again, your inbox is filled to the brim with different online offers, your mailbox is stuffed with door crasher prices, and you are ready to view all of the shopping fights that will be posted to YouTube.


This time of year gets a ton of hype, and rightly so. It is estimated that the average American will spend almost $400 on Black Friday alone. But I don’t buy the hype if you are an ecommerce retailer. Your participation in mega discounting over Black Friday will hurt your business more than it will help.


“Would you lower your prices on ice cream in the summer, and even further on the hottest day of the year?”

Would you lower your prices on ice cream in the summer when people are most likely to buy? What about on the hottest day of the year? I am not saying do nothing during the busiest time of the year, but I am advocating for you to change your strategy for a few reasons. But first let's talk about the difference between retail and ecommerce during Black Friday.


The difference between ecommerce & retail during Black Friday


Even before we started to officially refer to the day as Black Friday, it has always been a big shopping day since the 1950’s. It started with stores opening early at 6am, and eventually as early as 12am. This has been taken to another level with Black Friday sales and events starting as early as the 1st of November.


But offering discounts on Black Friday was a retail tactic designed to capitalize on the heavy foot traffic. Those who were out shopping could be drawn into stores that were offering the right incentive. To make sure they remained profitable they would create loss leaders deployed to get you into the store, but then spend enough on other items to make up the difference.


These loss leaders have been replaced with store wide discounting with some brands going as far as 75% - 80% off. Without natural foot traffic to capitalize on ecommerce has adopted learned behaviour that does not make much sense for the medium.


The downfalls of discounting on Black Friday


In general, I am not a fan of discounting as a marketing tactic at all. It is particularly problematic in ecommerce, and even more so during the MEGA discounts of Black Friday.


1. It is not a new sales channel


I hear it all the time. “I am running these discounts to hook people now and get them to buy again in the future.” The reality though is that the discounts you run during Black Friday are not net new customers.


How are you planning to get the word out there about your deals? You are likely going to use email lists and social followings you have already built. Channels you would be able to mobilize without the need for heavy discounting.


You could argue that it will create net new customers If the plan is to use paid channels. If you did this you would be paying the acquisition fee plus the cost of the discount. Not only that, the price of a Facebook ad increases 70% during the final weeks of November. You will be paying 70% more for the privilege of someone seeing your crazy discount.


2. You condition customers to expect a discount


When you start a customer relationship on a discount, you condition the customer to expect it. The price they associate with your product is now much lower than normal. It becomes much more difficult to get them to make a second purchase at full price, or even for any price greater than what they originally purchased for. The discounted price becomes the reference point.


Once a discounted price becomes the reference point you create what I refer to as the death spiral of discounting. Shoppers wait till the next big sale and you never are able to realize the margins you need to stay profitable and in business.


3. Post purchase regret sets in


When you reduce your price you increase the amount of people who are willing to give your products a try. But that increase comes at a price. They are not as committed to your brand as your typical buyer and thus are not as loyal.


During Black Friday 52% of shoppers have admitted to feeling regret over something they bought on sale. This is not good for you if you were thinking that the first discounted purchase would lead to repeat purchase.


On top of that, 32% of Black Friday shoppers planned to return at least part of their purchase when they bought according to KPMG. Neither of these scenarios are what you are looking for when you are already eating into the majority of your profitability.


Ideas for Black Friday next year


Black Friday is the busiest shopping time of the year, so I am not suggesting you sit ideally and watch it go by. I am suggesting that you find other ways to capitalize on the holidays that does not rely on erroneous discounting.


Here are a few alternatives to discounting:


  1. Exclusive products that are only available during the week of Thanksgiving

  2. Release a new product or line on Black Friday

  3. Enroll anyone who purchases into your VIP customer group

  4. Give bonus points as part of your loyalty program

  5. Offer free shipping to all purchases that day

  6. Add an extra item to all orders

Now I know that some of these tactics may end up costing you the same as running the traditional discount, but they set you up to create meaningful relationships. These tactics focus on creating additional value rather than simply subtracting from the cost.


A holiday promotion that focuses on value add will help you capitalize on the busy time of the year without all the baggage.


The key takeaways


The above was a lot, I get it! That is why I will always include the key takeaways for you to grab at a glimpse.


  • The tactics we use in ecommerce for Black Friday are more effective in retail locations

  • Discounting for Black Friday is not a sales channel, it only motivates what you already have access to

  • Discounting conditions shoppers to only shop when products are around the same purchase price

  • Discounting can increase purchases but also increases return rates and post purchase regret


Next year try a different tactic that focuses on creating additional value for the shopper rather than a subtraction to the price!

JOIN THE SPARK SQUAD 

Subscribe for weekly updates. New blog posts, podcasts, and other retention news straight to your inbox.