On Black Friday, it makes sense that the number of products sold would skyrocket given the huge sales going on, but how do the stores still make money despite selling their products for such low prices?
Through the low costs of certain items, stores may lose money on some items. However, these items are often big ticket items, a notable example being TVs. The low price of big ticket items isn't the stores being generous in their sales, in fact these big ticket items are used to attract more customers to their store. Once these customers are in the store, they are more likely to buy items that they didn't plan on before where the store will make most of it's profit off of. In order to make the maximum profit on Black Friday sales, the stores have to weigh the losses that they will take by putting a big ticket item on a large sale versus the increased sales and profits that they will make on the smaller items.
It's not just the profits from smaller items that drive stores to have Black Friday sales, but competition that goes into Black Friday. In fact, competition is getting so fierce that many stores are having Black Friday deals before Black Friday even comes around, in order attract more customers. Also, if a store doesn't have Black Friday sales, then it is pretty likely that there will be few customers that want to go to that store. Thus, using game theory, the worst outcome for a store is for no customers to want to go to that store, so to avoid that outcome, they have to put on Black Friday sales even if they might actually make more profit on a normal day.
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Robert, this is pretty interesting! I never thought of it like that, and so I'm surprised to learn that Black Friday has such an economic pull. I previously thought that the stores just make money through Black Friday sales because customers bought a lot of stuff. But I suppose it makes sense that the store would stagger their items, pricing some lower and others higher in order to balance their losses and profits enough to make it worthwhile. The thing that struck me the most about your post was actually the last paragraph, where you brought in game theory to explain the ubiquity of Black Friday sales. The sale has reached a point where demand now dictates supply in a sense, because the overwhelming demand for products on sale forces some stores to have to change prices, increasing the supply of low cost products. It's interesting to see a case of demand and supply reaching equilibrium not naturally, but by one having more sway than the other. Great post, Robert!
ReplyDeleteI too have wondered how stores benefit from Black Friday sales. I found your mentioned strategy of shops using big ticket items to attract customers as interesting, seeing as the purchases of big items themselves serve as large revenue products for the stores. Their duel purpose is a smart marketing strategy! Your post inspired me to consider how non retail stores such as Forever 21 and Nike, who don't sell big ticket items, generate profit from Black Friday Sales. With no main attraction to advertise, what are those stores' strategies to get people in the door? Lastly, I appreciated your subtle mention of the foot in the door phenomenon because I have actually found myself doing the same thing on Black Friday and getting something from somewhere I never expected to shop at.
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