Black Friday and dynamic pricing

Black Friday and Cyber Monday have now become two highlighted dates in the calendars of traders and retailers in every sector, as well as consumers. From single days they have turned into weeks of bidding battles between market players both online and offline, which can positively influence the entire year for retailers.
In the days between Black Friday and Cyber Monday 2022, it is estimated that Italians will spend around EUR 2 billion online. Among the sectors most impacted by this commercial initiative are clothing, IT and electronics, jewellery, perfumes, body care products, furniture and toys.
Black Friday 2022 will inevitably be influenced by inflation and a return to the physical shop compared to last year. In fact, online sales are expected to grow by only 8 percentage points (2021 compared to 2020 was +23%).

Black Friday, when was it born?

The tradition of Black Friday was born overseas, in the USA. The name refers to the sales of stores that, after Thanksgiving, went from having accounts in the red (negative) to black (positive). It is also believed that the black is related to the lines of black cars that filled the streets of downtown near the stores for purchases. The first Black Friday dates back to 1924, when a store near New York decided that the Friday after Thanksgiving would apply considerable discounts on its products and since then, with increasing popularity, every fourth Friday of November the windows of physical and online stores are covered with offers. This year, the “Black Friday” will therefore begin at midnight on November 24, but as we all realized, in most cases it has already started.

Black Friday and Cyber Monday

With a less long-standing tradition, but now known by everyone is Cyber Monday, the Monday following the Black Friday, whose offers are however concentrated on technological and electronic products. Given the importance of this time of year for retailers, it is essential to be able to maximize sales potential starting with an analysis of the right price at which to sell their products on the various channels.

Black Friday and Dynamic Pricing

In terms of pricing strategies and in the light of the many factors to be taken into consideration to make the offer of one’s products attractive to consumers, dynamic pricing is the most suitable solution to effectively respond to rapid changes in demand, to adapt one’s offer to the market and to adapt one’s price to sales trends. To maintain their competitive position, sellers have been helped by the development of competitive price monitoring systems, which allow retailers to identify their competitors and follow their pricing behaviour.

Black Friday, define the main goal

Generally speaking, the first decision to make regarding your pricing strategy is to define your main business goals, such as:

Maximize sales: with the help of pricing intelligence software it is possible to define the optimal minimum price, that can intercept the maximum number of buyers at each stage of the sale, to be more competitive than the competition and gain ground in terms of volumes and market shares. In such case it is fundamental to establish a minimum price, a threshold value within which not to go down to succeed to cover at least the costs, not to erode completely the own marginality. Often retailers offer some products below cost, but these are sold alongside others on which the retailer has a higher profit margin.

Maximize profit: The first step is to estimate the maximum price that potential consumers are willing to pay for the good or service in question and the corresponding expected quantity. Then, considering your positioning and your competitors’ pricing, you can increase your profits through price optimization.

Black Friday, best practices

In the specific case of events like Black Friday, to calculate the best sale price, some best practices should be taken into account, such as:

Set the optimal discount level for singol products. Often the consumer does not choose the product to buy based on the final price, but on the discount associated with the product. Using a tool that can suggest the value of the promotion to be applied is the most efficient way to make this strategy profitable.

– This is a good way to evaluate the impact of a pricing strategy by creating what-if scenarios. Before applying a strategy, it is a good idea to forecast sales against different pricing scenarios and assess the impact on revenues in each of the cases identified. To do this, especially when large amounts of historical, market and exogenous data are available, artificial intelligence is the most suitable tool to perform forecasting with a high level of accuracy, thanks to the modelling of the impact that each variable, in correlation with the others, can have on sales.

Conduct compelling marketing campaigns based on your pricing strategy to maximize your conversion rate. For example, using benefits such as free shipping, free returns, or small additional gifts turn out to be highly appreciated on occasions like these. In these cases, it is also important to coordinate the marketing actions with the pricing strategy to maintain credibility in the market and among consumers.

Black Friday, the added value of pricing software

Therefore, the use of advanced pricing algorithms based on machine learning allows to quickly grasp the evolution of demand and adapt the price in a multi-channel perspective, always identifying the main objective between maximizing sales or revenues. These algorithms can be enriched by variables such as the elasticity of demand concerning price, the sales forecast, the behaviour of competitors, the historical seasonality and the advance purchase to intercept more accurately the potential demand.  It is therefore clear that, compared to the traditional rules of price definition, dynamic pricing offers retailers the possibility to be competitive even in a market scenario that sees more and more players involved.

Leave a Reply

Your email address will not be published.