Black Friday (the day following the Thanksgiving Day holiday on the last Thursday in November) remains one of the biggest retail sales days in the United States, often regarded as the unofficial start of the holiday shopping season.

What is Cyber Monday?

Cyber Monday, the Monday after Black Friday, is a 24-hour online shopping event that was created to persuade people to do their shopping online and is now seen as an extension of the Black Friday sales.

Traditionally, retailers would issue a wide variety of in-store deals on everything from electronics to toys to kick off the Christmas shopping season, opening the stores as early as 5 am. However, in recent years, the shopping frenzy has moved online, with 2018 being a record-breaking year for eCommerce retailers bringing in $6.2 billion in online sales growing by 23.6 percent compared to the previous year.

Note that with more and more people preferring to carry out their pre-holiday bargain hunting online, eCommerce retailers enjoy an unprecedented opportunity to attract new buyers and increase their sales volume. Black Friday shoppers are more likely to shop online than in-store, with more and more people using mobile devices to complete purchases online. Americans are 6 times more likely to buy online on Black Friday compared to sales on any other Friday.

According to reports, eCommerce retailers report up to 240 percent and 380 percent increase in revenue on Black Friday and Cyber Monday respectively. Compared to a normal sales day, online traffic increases up to 220 percent on Black Friday and 155 percent on Cyber Monday.

In addition, more than 70 percent of Black Friday desktop shoppers spend their money with retailers who offer free shipping. The five-day shopping bonanza is an ideal time for e-retailers to clear their stock and capturing a share of the growing Black Friday market represents a huge opportunity for eCommerce retailers on the lookout for new sales angles.

Common Ways Companies Make Money on Black Friday

So many people believe companies take a huge loss due to discounts and promotions flying around on black Friday. This may be true, but here are other ways companies make money on Black Friday.

  1. Loss Leaders

Simply put, a retailer can lose money on items being put on sale (either in the sense of a price below the cost of the item or in comparison to the price they might be able to get you to pay if they didn’t put the item on sale) and come out ahead if they increase the probability of getting you to buy other things that day in the store or entering into a lucrative future relationship with you (via brand affinity or things like warranties and replacement plans) by enough.

  1. In-Store Sales

In-store coupons and other similar concepts are a form of price discrimination that can allow a company to make substantially more money. ‘Discrimination’ here doesn’t mean prejudice based on sex, race, etc. Instead, it refers to this idea that different people are eager to pay different amounts of money for the same thing and the efforts that businesses make to charge more to people who are willing to pay more.

For instance, say you are trying to sell a grinder to two different people. One has a part time job and doesn’t make a ton of money, but he does enjoy home-made fruit juices so he is willing to pay $500 for a new grinder. Another is an investment banker with a wife and two kids who makes a ton of money and would pay $1500 for the same grinder, but for whom the day after Thanksgiving constitutes about half of the free time he has to spend with his kids all year.

Have it in mind that a retailer could offer an outrageously large Black Friday discount for the grinder and the I-Banker is not going to fight the crowds at the mall. So, if your entire target market is made up of these two types of people, you could make the most money by having the grinder sell for $1500 in general but be only $500 if you are at the store at 5 am on Black Friday or something like that.

Being able to price discriminate successfully requires either being able to formally filter people by status (e.g. senior discounts at the movies), filter them based on their time/taste preferences in the buying process (e.g. the above example, coupons, etc.), or by creating two different versions of the underlying product (iPhone 5s/5c, etc.).

Indeed, all these types can reduce total economic surplus as the company has an incentive to make life more annoying for certain customers or make a lower-performing version of a product, even if there is no cost reduction to them when they do so.

The most often cited example of this in academic economics is when Intel sold a budget version of an early processor by using the same creation process as their top of the line processor and then destroying/disabling the math coprocessor on the chip afterward.

Conclusion

Online Black Friday sales can start as early as Monday of that week, so make sure you are ready to engage the bargain-hungry shoppers well in advance. To generate more sales, you need to drive more traffic to your website quickly, that is why paid social media and Google ads are marketers’ go-to tactics for driving online footfall.

However, you can also try to incentivize shoppers to share your promotions and increase social traffic by offering discount coupons. Have it in mind that the best spots to place these offers are the homepage, the product page, checkout page, and the order confirmation page. You can also experiment with sticking the coupon in your purchase confirmation email.

Solomon. O'Chucks