Black Friday 1, Consumers 0

Black Friday 1, Consumers 0
by: Cecilia Sim Xin Yang

Black Friday brings T.G.I.F to a whole new level. According to Adobe Analytics, the research arm of software company Adobe, online sales at the 100 largest U.S. Web retailers totaled approximately $7.9 billion on Black Friday and Thanksgiving, marking a nearly 18% increase from 2016.[1]

 

As part of the holiday season shopping, Black Friday is undoubtedly one of the most highly anticipated and busiest shopping days of the year, online and brick and mortar stores. At a glance, the outrageous discounts might lead customers into believing that they have made a substantial savings at the expense of the retailers’ losses. Be that as it may, there is, in actuality, a plot twist. The Black Friday sale is, as a matter of fact, a master plan supported by copious economics concepts. If you had been victoriously ticking off your checklist and gloating over the huge savings made, this article will make you think twice.

 

Black Friday is fundamentally based on an economic concept named the Loss Leaders Strategy. A loss leader is a product or service at a price that is not profitable but is sold or offered to attract new customers or to sell additional products and services to those customers.[2] This is especially evident in big ticket items (for example, a television) where it entices customers into the store with the lucrative discount first and then the sales associates would recommend more items along with the purchase. It disillusioned customers into thinking that they have amassed some savings when in reality, they did not. That’s the retailer’s Black Friday secret: One never just buy the TV. And by the time they are checking out, any gains they might have made on the TV itself have vanished.[3]

 

Implied scarcity is also one of the numerous business methods incorporated into the Black Friday sale. This is when a store attempts to drum up interest in their products by indicating “limited quantity” or limiting the quantity per customer which in turn makes us think we are getting something valuable when we may not be. It’s a staple of deceptive marketing, and at no time in the calendar year is it wider use than on Black Friday.[4] This theory is effectively practiced by Colourpop, a relatively newcomer that conquered the beauty industry by storm, where the brand recently limits the quantities of an item per purchase and launches new products revolving around the holiday theme on a weekly basis on top of their flash sales. It is safe to assume that Colourpop is doing things right in terms of their marketing strategies.

 

Interestingly, according to a research paper in 2007 titled “Neural Predictors of Purchases”[5], event-related fMRI was used to investigate how people weigh these factors (driven by a combination of consumer preference and price) to make purchasing decisions. It was explained that product preference activated the nucleus accumbens (NAcc) while excessive prices activated the insula and deactivated the mesial prefrontal cortex (MPFC) prior to purchase decision. However, recent behavioral economic theories have also postulated a hedonic competition between the immediate pleasure of acquisition and an equally immediate pain of paying (Prelec and Loewenstein, 1998)[6]. In essence, this study illustrates that majority of the consumers exhibit irrational behaviour as consumers generally do not exercise cost-benefit analysis from an economic viewpoint. Rather, they are choosing between immediate pleasure and pain, which is seen as a reckless behaviour and typically results in overspending.

 

On the surface, Black Friday sale may come across as a once-in-a-year necessary indulgence with little to no consequences. However, as we probe further into the economics fallacies of Black Friday sale, it becomes glaringly apparent that it is merely a sugar-coated marketing gimmick built on numerous economic theories. As such, it is only practical to think rationally before making a purchase, simply put, to evaluate their needs versus wants. A word of advice, think twice before falling into the Black Friday black hole next year!

 

 

References

  1. Fox News. (2017). Black Friday sets online sales record; shoppers spend up to $1M per minute. [online]
    Available at: http://www.foxnews.com/us/2017/11/26/black-friday-sets-online-sales-record-shoppers-spend-up-to-1m-per-minute.html
    [Accessed 29 Nov. 2017]
  2. Loss Leader Strategy. [online] Investopedia.
    Available at: https://www.investopedia.com/terms/l/lossleader.asp
    [Accessed 29 Nov. 2017].
  3. Daily Intelligencer. (2017). Why Black Friday is a Behavioral Economist’s Nightmare. [online] Available at: http://nymag.com/daily/intelligencer/2012/11/black-friday-a-behavioral-economists-nightmare.html
    [Accessed 29 Nov. 2017]
  4. Daily Intelligencer. (2017). Why Black Friday is a Behavioral Economist’s Nightmare. [online] Available at: http://nymag.com/daily/intelligencer/2012/11/black-friday-a-behavioral-economists-nightmare.html
    [Accessed 29 Nov. 2017]
  5. Knutson, B., Rick, S., Wimmer, G., Prelec, D. and Loewenstein, G. (2017).
    Neural Predictors of Purchases.
  6. Prelec, D. and Loewenstein, G. (1998).
    The Red and the Black: Mental Accounting of Savings and Debt. Marketing Science, 17(1), pp.4-28.