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black-friday

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How profitable is the Black Friday for business?

Business

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27 November 2019

Black Friday was absolutely unknown to most Spanish consumers  a few years ago, but nowadays it is no longer the exclusive property of big superstores and online operators.

According to the Spanish Confederation of Commerce, the Black Friday trend has been adopted by 40% of local stores. In fact, this day has such an impact on retailers that many of them manage to invoice, together with Christmas, 40% of their annual sales.

In theory, as its name indicates, Black Friday is a specific day – the first Friday after the American holiday of Thanksgiving. But from a consumer point of view activity related to Black Friday starts at the beginning of that week, when we start to receive hundreds of impacts via newspapers, street furniture, online advertisements, e-mail and even text messages informing us of discounts (either general ones or on specific items) we could benefit from.

However, activity for retailers begins a long time before this. Weeks ahead of Black Friday, retailers focus on establishing the promotions to be applied, including products with irresistible prices that attract large numbers of customers to their stores.

In the online environment, it is important to change part of the content of websites and mobile applications (especially home pages) to achieve a strong impact, catering both for purchasers who have prepared in advance for the sale day, know what they want and are looking for the biggest savings and those who do not have a clear idea and who are looking for inspiration and offers. Around Black Friday, consumers have to make very quick purchasing decisions so it is important to try to make their shopping experience as easy and stress-free as possible. Good preparatory design work in this area is essential. This means applying website usability tips, such as making sure it is responsive and adapted for mobile terminals and reducing the steps between adding a product to the shopping cart and completing payment. Other measures include user tests, calls to action and using black as the predominant color on the landing page and on banners.

In addition, retailers that have big data tools are capable of understanding the market better, defining their optimum pricing strategy. By using this information and a dynamic pricing tool, it is possible to change the price of certain items as several times a day, as Amazon does, to optimize sales. If they also have an advanced loyalty platform they will be able to have much richer interaction with their customers, increasing the average bill value. This planning must be accompanied by over-supply of stocks in stores, distribution centers and warehouses.

According to a study carried out by the market research and user experience company GfK, although 70% of Black Friday activity takes place in physical stores, a growing 30% occurs in the online world. This division of media requires a particular infrastructure allowing millions of transactions in the case of some operators.

Recently, some operators have even opened a “virtual waiting room” to temporarily send customers at peak traffic times to prevent the unwanted “page not available” message. To cast the spell of an excellent shopping experience, the increasing trend is to have the infrastructure in the cloud so it can be scaled up automatically in a matter of minutes, if necessary. In fact, good practice advises load tests during the months running up to Black Friday, pushing online platforms to the limit to ensure they can withstand traffic peaks. Another best practice consists of temporarily disabling certain systems that are non-critical for sales to ensure the critical ones can offer the best possible performance. 

Obviously a great deal of activity also goes on in the physical world and attention must be paid both to customer-facing activities and those behind the scenes. Many bricks-and-mortar retailers have analytical tools allowing them to measure traffic and the routes followed by customers (vital for placing products in promotions) etc. and even to construct money mapping solutions making it possible to optimize product exposure and the performance of the physical areas of each store in a highly visual way. In-store teams are strengthened and trained to make restocking the store warehouse and waiting at checkouts as quick as possible. Most retailers hire extra staff in November until the end of the Christmas campaign. Although the figure depends on the source, some temp agencies estimate that more than a million people are hired at these times, representing almost 5% of the Spanish working population.

Logistics and delivery companies do the same, as in some cases they will have to deliver as many packets in 2 or 3 days as they do in a normal month, as consumers are not prepared to wait longer for the purchases they are looking forward to enjoying. The most advanced agencies apply technology like Big Data and Machine Learning both to construct a model to predict demand and to simulate different scenarios. This make it possible to dimension the company’s resources on days of high demand.

The big question remains: is Black Friday profitable for retailers? Before answering the question we need to be clear about the objectives we are seeking to achieve so that performance can be evaluated. Some retailers simply aim to sell more, although we must not forget the impact of returns, because their ratio also increases after Black Friday. Others are looking for a quick way to dispose of certain stock surpluses which they would otherwise have to sell at lower prices in the January sales. In other cases, the aim is to attract new customers or even reactivate “sleeper” customers. To do this, the retailer will have to analyze the retention percentage for customers who have “woken up” to ensure they have really been recovered. Retailers such as the clothing firm Patagonia and the US retailer Everlane have decided to use the media pull of the day to promote brand values. Patagonia gives 100% of Black Friday to organizations trying to ensure better living conditions in the most deprived places. Meanwhile, Everlane devotes $13 for each order received to organizations working to eliminate plastic from beaches. Others, such as REI, are even bolder. The chain has decided to close on Black Friday to encourage its customers to spend the day away from the shops, enjoying nature.

In theory, as its name indicates, Black Friday is a specific day – the first Friday after the American holiday of Thanksgiving. However, from the consumer’s point of view the activity related to Black Friday starts at the beginning of that Thanksgiving week. This is when we start to see hundreds of ads in newspapers, public street furniture, internet, email and even in text messages informing us of exclusive deals (general ones or for specific items) we could benefit from.

However, retailers’ activity starts long time before. Weeks ahead of Black Friday, shops and e-commerce sites focus on establishing the promotions to be applied, including the exclusive deals able to attract a large numbers of customers to their stores.

In the online environment, it is important in both, websites and mobile applications to change part of the content (especially home pages) to achieve a strong impact. This strategy caters already-prepared consumers that know what they want and use this week to find a good deal; and also those who do not have a clear idea and search for inspiration and offers.

During the Black Friday week, consumers make purchasing decisions very quickly so it is important to make their shopping experience as easy and stress-free as possible. In this sense UX Design is a must for e-commerce sites. This involves the application of some usability tips, such as responsive web design on mobile phones or reducing the steps between adding a product to the shopping cart and completing the payment. Other measures include user tests, introduction of calls-to-action or using black as the predominant color on landing pages and on banners.

In addition, retailers working with big data tools will be able to better understand the market, by defining their optimal pricing strategy. Thanks to this information and through Dynamic Pricing tool, it could be possible to change the price tag of certain items even several times a day to optimize sales, as Amazon does. If they also include an advanced loyalty platform they will be able to have much richer interaction with their customers, increasing the average receipt amount. This planning must be accompanied by over-provision of stock in stores, distribution centers and warehouses.

According to a study conducted by the market research and user experience company GfK, although 70% of Black Friday activity takes place in physical stores, a growing 30% happens in the online world. This distribution between physical stores and online sites requires a particular infrastructure to make possible millions of transactions in the case of some operators.

Just a few years back some e-commerce sites used to open a “virtual waiting room” to temporarily forward consumers at peak traffic times to prevent the unwanted “page not available” message. To cast the spell of an excellent shopping experience, the increasing trend is to have the infrastructure in the cloud so it can be scaled up automatically in a matter of minutes. In fact, good practice advises to carry out load tests during the months prior to this day taking the online platforms to the limit to ensure they can withstand traffic peaks. Another best practice consists of temporarily disable certain non-critical for sales systems to ensure the critical ones can offer the best possible performance. 

Obviously a great deal of activity goes on in the physical world and attention must be paid to both customer-facing activities and those behind the scenes. Many bricks-and-mortar retailers have analytical tools allowing them to measure traffic and the routes followed by customers. This also allows them to build money mapping solutions to optimize product exposure and the performance of the physical areas of each store in a highly visual way. In-store teams are strengthened and trained to optimize to the maxium restocking of the store warehouse and the wait at checkouts. Most retailers hire extra staff in November until the end of the Christmas campaign. Although the figure depends on the source, some temp agencies estimate that more than a million people are hired at these times, representing almost 5% of the Spanish working population. 

Logistics and delivery companies do the same, as in some cases they will have to deliver in a time of 2 or 3 days the same amount of parcels they do in a standard month,  since consumers are not willing to wait longer for their long-awaited purchases. The most advanced companies apply technology like Big Data and Machine Learning to construct a model to predict demand and to simulate different scenarios. This allows the company’s resources to be dimensioned on dates of high demand.

The big question remains: how profitable is Black Friday for retailers? Before answering the question we need to be clear about the objectives we want to achieve in order to evaluate the performance. Some retailers simply aim to sell more, although we must not forget the impact of returns, as their ratio also increases after Black Friday. Others are looking for a quick way to dispose of certain excess of stock that would otherwise have to be sold at lower prices in the sales campaign. In other cases, the aim is to attract new customers or even reactivate “sleeping” customers. To do this, the retailer will have to analyze the retention percentage for “woken-up” customers” to ensure they have really been recovered. Retailers such as the clothing firm Patagonia and the US retailer Everlane have decided to take advantage of the media attention of the day to promote their brand values. Patagonia gives 100% of Black Friday sales to organizations trying to ensure better living conditions in the most deprived places. Meanwhile, Everlane donates $13 for each order received to organizations that help remove plastic from beaches. Others, such as REI, are even bolder. The chain has decided to close on Black Friday to encourage its customers to spend the day away from the shops, enjoying nature.

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