We are in the midst of the holiday season– and sale season. As Black Friday and Cyber Monday have just passed, many of us probably experienced these sales first hand. Personally, when going to the mall on Black Friday for the first time, I was shocked at how steep the sales were in some stores. This made me question how this whole concept started, and why it works efficiently.
My first major question when it comes to sales is how companies can sell product at such low prices. To answer this, I looked at how much it costs specific companies to produce product. The market I researched was the shoe business, specifically Nike. On average, a shoe that Nike sells at $100 costs about $16 to produce. At regular retail price, Nike makes a profit of $84 per shoe. This is a great margin, and is exactly why sales work so well for the company. Let's say Nike had a Black Friday sale, and every $100 shoe was 50% off. Although the company is cutting there retail price in half, they are still making a good $34 per shoe.
In addition, as prices drop, consumers become more attracted. Continuing with the Nike example, even though retail prices may be cut in half in a Black Friday sale, the company may make just as much money, if not more. How you may ask? Consumers may take this opportunity to buy a good shoe for cheap, running profit margins up for the day. If many consumers have this same mentality, Nike will get a lot of business, and the amount of sells with the sale may outweigh a normal days revenue.
Lastly, sales attract consumers to the rest of a company. If a clothing company has a big sale, consumers buy product and if they enjoy their purchase, they may want more from that company. If the company never had the sale, consumers may never purchase anything, blinding them from the rest of the company.
Overall, sales are a great way for companies to attract consumers to the rest of the company and make money.
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This is a great post Weston and I think it does a great job highlighting the importance of sales/marketing towards consumers. This is similar to all these coupons companies place in magazines and other media sources as they hope to entice a large number of customers thanks to the coupons in order to increase their revenue. Another point is that the discount may allow customers to buy multiple items that are on sale thus spending more while they are enchanted by the large discount.
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