Rafi Mohammed

On Black Friday, Welcome Back Customers With Steep Discounts

Posted on November 19th, 2009 (0 Comments)

Reprinted from the Harvard Business Review website.

While retailers gird their loins for the day-after-Thanksgiving rush, they're facing a rare make-or-break marketplace. The economy is starting a slow recovery, and consumers are finally emerging from their cash-conservation bunkers. In normal times, the right strategy would be to hold steady on margins and bank profits. Why start a margin-eroding price war? But this season is different; the head-turning discount you offer shoppers today will pay off handsomely over the long run.

Consumers have had it with scrutinizing purchases and shopping at lower-end stores. They're eager to return to their old, higher-priced shopping haunts and open their wallets. Satisfying this pent-up desire with "to the floor and out the door" discounts is a great way for retailers to welcome old customers back. Low prices on selected goods yield the usual loss-leader benefit of driving higher-margin ancillary sales. But those revenues are peanuts compared to the real upside: bringing former customers back into the fold with prices that say "we miss you; it's time to come back."

Offering discounts is a time-honored pricing incentive that motivates customers to take action. Once in the door, it's your job to remind them why they enjoyed shopping at your store and restart old traditions. Are these discounts risky? Sure, some consumers will take the discount and run. But consider the downside of not lowering prices: watching former customers — those who you have been yearning to welcome back — start new shopping habits at rival stores.

I've seen leaked advertisements for Black Friday sales that reveal fantastic after-Thanksgiving deals including $3 kitchen appliances, $39 camcorders, and $449 large screen televisions. If these are your competitors' discounts, you need to go lower. Give the $3 appliance away for $2.49. Shave $50 off the already-bargain-basement priced TV. If an additional 10% off will bring old customers back, secure their loyalty, and position your store for the economic recovery, isn't it worth it?

Act now! This is a limited-time, "use it or lose it" opportunity to reclaim old customers. In this winner-moves-all pricing environment, crazy discounts on flashy loss-leaders will reap huge long-term rewards.

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