The news that a large number of well-known retailers in the UK are either scaling back or cancelling their Black Friday sales, should come as no real surprise to those familiar with the industry. While British consumers are as fond of a bargain as those anywhere, they are also relatively prudent, and consumer indebtedness (including credit-card debt) is already very high, leaving little scope for impulsive spending. Research on last year’s Black Friday in the UK showed that the November shopping frenzy was almost exactly balanced by an immediate drop in spending, leaving overall sales figures all but flat against the same period in the preceding year.
More interesting than the insight on the attitude of British shoppers, is what this tells us about corporate management of short-term pricing. In particular, the failure of Black Friday to represent any real net gain in value for retailers in the UK demonstrates the need for short-term pricing decisions to take account of the wider corporate, economic and market of the business. Offers and sales geared around a single day, particularly when there is consumer expectation of real ‘give-away’ prices, mean that demand is likely to be highest only for the most discounted products. What’s more, the focus on price can severely degrade a retailer’s ability to build brand loyalty, and with it, customer lifetime value.
To avoid this, retailers need to look very closely at what drives the value associated with a specific product, customer or transaction. Loss-leading discounts do have their place, but only when the net impact on the business can be clearly shown to be positive. That means understanding what drives customer loyalty, what likely customer lifetime value is, what the true average cost of acquisition is, and whether a customer is likely to refer other customers to the business.
A useable degree of accuracy on these metrics is only possible when the relationships between internal and external factors that affect them can be defined in a mathematical model. Once that is in place, however, the interactions between the business and its customers are much easier to assess and, with them, the impact of short-term pricing decisions. This allows a much more intelligent approach, one which could perhaps take account of seasonal or climactic factors, as well as the wider market, and can predict the medium-term consequences of short-term pricing decisions.
An approach of this kind does need a firmer analytical foundation than that of simply following the annual cycle of seasons and sales. The rewards however, are clear, and include the ability to ensure that price changes bring a net gain in value to the business, and the long-term return of a loyal, higher-spending customer base.