Today’s guest post is by WalekPeppercommer Dmitriy Ioselevich.
Black Friday has turned into a true American holiday—a day when the savings-hungry masses unleash their appetites on the country’s major retailers in pursuit of the best deals. It’s a once-a-year opportunity for cash-strapped consumers to finally spend their hard-earned dollars, except that the whole thing is really a sham.
According to The Wall Street Journal, retailers purposely mark up their merchandise prior to Black Friday so that they can yield higher profit margins. That cashmere sweater you got for $20 at a 60% discount off the $50 suggested retail price? Its true retail price is closer to $25.
Sadly, almost every major retailer does this.
“We must and will compete to win,” said Myron Ullman, Chief Executive Officer of struggling retailer J.C. Penney Co. in a transparent attempt to win over shareholders. “That means initially marking up our goods to sufficient levels to protect our margins when the discount or sale is applied.” (Cue the shifty eyed dog).
There is a concept in economics called elasticity, which is essentially the change in consumer demand as a result of a change in a good’s price. A big-screen TV is considered an elastic good because consumer demand falls as the price of a particular TV rises. An inelastic good, on the other hand, is a good that consumers will buy regardless of the price, such as water or electricity.
I bring this up because the vast majority of the products sold this past holiday weekend were highly elastic goods. The problem with this is that retailers are engaged in a constant fight to undercut each other by offering the “best deal,” leaving producers of pricier and higher-quality goods stuck with excess inventory. But there is a far better way to sell a product than through discounting tricks—branding.
Take for example Apple, owner of the most powerful brand in the world. Apple doesn’t need to discount their products because they know that people will line up out the door ready to pay whatever price it takes to get the latest device. This is the Holy Grail of the retail world—an inelastic good.
Apple may have mastered the process, but other companies need to do more to build customer equity in their brands. They need to listen to what their customers want and communicate to buyers what their products represent. A smartphone is more than just an electronic device- it’s access to information. A TV is more than just something you hang on your wall- it’s an entertainment experience. A dress or business suit is more than just something you wear- it’s a representation of who you are.
Branding has the power to turn average elastic goods into exclusive inelastic ideas.
Many companies rely on Black Friday sales to get their balance sheets out of the red, but what if they didn’t have to? What if instead of deceiving consumers with promises of huge discounts, these companies simply focused on quality control and brand management?
It’s an idea that might just be good enough to sell.