Is Black Friday Killing Your Profit? Here’s How to Avoid It

The turkey is in the fridge cooling off and you have enough leftovers to feed a small city. Meanwhile the country is getting ready for the shopping event of the year: Black Friday. But is the start of holiday shopping really what it used to be? Could Black Friday be leeching purchases from your more profitable holiday sales?

There’s a lot for you as a retailer to tackle and take into account when it comes to Black Friday. You’re facing fierce competition, high customer expectations and buff marketing budgets. The media is reporting that people are boycotting the event as a means of supporting the environment and protesting against consumerism. And some of the people who are shopping might not have the means to buy everything they want right away.

All of these factors can contribute to lost sales, low margins, and – most concerningly – a red bottom line when it should (as the name suggests) be black. Could your business’s participation in Black Friday be a curse instead of a blessing? Let’s figure it out.

Black Friday shopping is holiday shopping

We often view Black Friday as a standalone shopping event or, more traditionally, as the beginning of the Christmas shopping season. But research suggests that it’s grown into something more than just an event launch or a one-off shopping day.

Up to half of all shoppers (US: 50%, UK: 44%) say that one of their major motivations for shopping on Black Friday is buying presents for the holidays. 38% state that they start their holiday shopping before November, meaning that the traditional holiday shopping month of December is actually more of a three month period starting in September. Could this be a new shopping behaviour? If it is and you don’t respond, you might miss out on the 38% who start their shopping early.

You might have heard the term “holiday creep”, meaning that Christmas should be seen as an incrementally increasing shopping season starting somewhere around September. Some major retailers launch their first Christmas campaigns as early as mid-August, and while that might be considered a bit extreme, data indicates a behaviour of early holiday shopping which puts some merit to it. To keep up with the bigger competition, one idea you might want to consider is stretching your holiday marketing activities into months rather than weeks and reaching a double crescendo during Black Friday week and mid-December. You could also consider tailoring your Black Friday marketing and product offering to fit the notion of buying holiday gifts. Social media ad placement costs usually increase around the busy periods so you might have to get creative.

Good news for retailers – naysayers are not a major factor

Despite media reports and social media trends of people boycotting the event due to anti-consumerism and environmental concerns, it’s all pointing towards a stellar year for retailers. Consumer participation jumped by 20% (from 38% to 46%) in the US between 2015 and 2017. In the UK, the same figure is a whopping increase of 284% (from 19% to 54%), most likely due to the fact that the holiday doesn’t have the same long history there as it does across the pond. Only 12% avoided the holiday altogether in the US while only 6% of Brits rejected the notion.

Combined with the fact that Black Friday is later in the month and closer to the holidays than usual, this means we might be looking at a record-breaking day in every sense of the word; chances are that we’ll shatter the $6.2 billion record set last year.

People spend more than you think…

…but you might miss out.

Now that we’ve ascertained that Black Friday equals holiday shopping, that it’s bigger than ever, that it’s growing and that it’s not going away, let’s talk about how you can incentivize those high-ticket purchases and get customers adding extra items to their carts.

It turns out people are budgeting some serious cash for the event:

  • 92% of participating Americans and 90% of Brits plan on spending more than $100
  • 45% of participating Americans and 24% of Brits plan on spending more than $500
  • 16% of participating Americans and 6% of Brits plan on spending more than $1000


Source: McKinsey Black Friday Shopping Report.

So what categories are the most popular?

While we can fall back on our preconceived notion that most of the highest ticket purchases are in the electronics segment, that’s only half the truth. Looking at the figures, Clothing actually matched or came in a close second to Consumer Electronics as the most popular category last year. There’s no reason to write off other segments for more expensive purchases either, especially when people are buying holiday gifts for friends, family and extended family. See below what categories the participants plan to shop within.


Source: McKinsey Black Friday Shopping Report.

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Are you losing out on high ticket purchases?

Data suggests that one of the main ways to not lose out on those high-ticket purchases is to offer flexible payments or, more specifically, installments and financing. Of the purchases that Klarna processes, retailers typically see a 68% higher average order value for purchases where the shopper decides to spread the cost over time (the shopper sees the option to pay for a product for as little as $XX per month).

More importantly, the conversion rate increases by 30%. 75% of US shoppers and 83% of UK shoppers state that they do little to no advance planning for their purchases but will simply browse various retailers’ websites during the day. Having that boost in conversion rates is key in making sure that those spontaneous purchases don’t get lost along the way.

Average order values are higher on Black Friday than any other day of the year (as mentioned above, 46% state that they’re going to be shopping and 45% of those are planning to spend $500 or more). We’re talking big money here and it would be ill-advised to not incentivize these high value, high margin purchases.

The biggest shopping FOMO event of the year

Shoppers know Black Friday is full of exceptional deals that don’t come around very often and customers want to take full advantage of this opportunity (Fear of Missing Out). Buy now and pay later services allow customers to buy what they want immediately and pay later, either in installments or in full. This boost in purchasing power encourages shoppers to buy a slightly nicer Christmas gift for their friend or spontaneously decide to do all their Christmas shopping at your store.

Don’t let your Black Friday deals ruin your margins

Another word on margins: With up to half of customers shopping for holiday gifts, be sure to create deals that attractive without being so crazy or ill-conceived that they hurt your bottom line. This is supposed to be the day when red figures turn black – but not at the expense of holiday shopping profitability.

Check out our full report with insider insights on how to create the perfect Black Friday deal here: US Black Friday Report | UK Black Friday Report

A big part of e-commerce is removing doubts and obstacles. Offering safe, simple and flexible payments is a solid means to that end. When people see something they want, it’s often an emotional desire; it’s just their rational doubts and obstacles that get in the way. Every obstacle you clear is another dollar in the bank. Clear those obstacles. Don’t miss out.

Don’t be a stranger!

TL;DR

Conclusion

  • Black Friday isn’t leeching off of holiday shopping as long as you can:
    • Create deals with good margins that don’t tank the profits of the increased sales volume
    • Incentivise and boost high-ticket purchases by offering flexible payments and pay later services as people plan to spend big
  • Up to half of people shop for gifts on Black Friday. From a customer perspective there is no line (or a blurry one) between holiday shopping and Black Friday
  • Sales volume per category is less segregated than one might think. Electronics and Clothing lead the league in transactions but many other segments are not far behind.
  • People start holiday shopping before November. Consider stretching your marketing efforts to keep up with major retailers
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