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Black Friday and your business: A trade-off between volume and value

Nov 22 2018 19:26

On Black Friday, a sale is essentially a trade-off between volume and value, says Dr Yudvir Seetharam, head of analytics at FNB Business.

Enormous discounts offered during Black Friday sales have been known to induce a spending frenzy among consumers.

During Black Friday and Cyber Monday, the average spend per South African taking part is R1 600, with clothing electronics and entertainment making up the bulk of purchases each year, Seetharam says.

"A business can increase sales by either selling more at the same price, or by selling the same amount at a higher price. Therefore, the basic formula applied during Black Friday and Cyber Monday is the reduction of price to make up the deficit through increased volumes," he explains.

Therefore, he cautions, promotional discounting should be weighed up carefully, and used strategically under certain circumstances.

Three main benefits 

There are three main benefits for businesses holding sales.

The first is creating brand awareness. "When a business wants to increase its brand awareness, Black Friday and Cyber Monday have the capacity to launch brands to the public that may have never heard of them before.

"This affords a brand the opportunity to use the promotional period to grow the number of people that are not aware of the existence of that brand," he says.

The second is drawing more customers. "When a business needs to increase customer traffic to either their store or website, promotional periods allow a business to use price differentiation to interest a customer to visit their store or website."

Seetharam emphasises that this may not result in a purchase. However, it means that the business has an opportunity to place itself in a space where it is considered by a greater number of possible customers.

The third is clearing stock. Black Friday and Cyber Monday promotions can be used to free up storage space for new products. "Before taking part in Black Friday, a business must examine its profit margins and ensure that it is able to forecast sales. You can use promotional mechanics to forecast, however, this should only be done if the profit margins are healthy," Seetharam advises.

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