Wednesday, November 27, 2013

A dirty secret about Black Friday

Some stores will open on Thanksgiving evening this year to get a jump on the traditional Black Friday sales.  (Maybe it's because the number of days between Christmas and Thanksgiving is at a minimum this year?)  Ads lead shoppers to believe that this is the best day of the year to make gift purchases.

The truth?  If you want the real bargains, stay home and rake leaves or watch football on Friday and do your shopping online closer to Christmas.  Yesterday's WSJ reveals the pricing strategy firms use year around to convince shoppers that they are getting a bargain.  It is a simple twist on versioning, a topic we cover each year in my MBA economics class.  Retailers start with an unrealistically high list price, one at which they know only the most dedicated followers of fashion will accept.  The price then comes down as time passes, either through direct markdowns or through sales and coupons.

Most consumers are not well informed about how much prices of close substitutes, so they use the sale or coupon as a signal that they are getting a good deal.  Money quote:

The red cardigan sweater with the ruffled neck on sale for more than 40% off at $39.99 was never meant to sell at its $68 starting price. It was designed with the discount built in.
To be fair, there will be a few items on sale Friday that are priced below cost, but these items serve as bait to get customers in the store.  Customers will make better informed decisions if they comparison shop online.  

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