Marketing 12th Edition by Charles Lamb,Charles Lamb,Joe Hair

Exercise 10

According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into "the black." Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season.

Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
Are the Black Friday deals discussed here examples of seasonal discounts? Why or why not?