by: Roger Dooley
Across the U.S., retailers launched massive ad campaigns for the day after Thanksgiving, a.k.a Black Friday.
The biggest shopping day of the year offers retailers a major
challenge: how to get people into THEIR store, because once there the
customers may spend a good part of their holiday gift budget. While
most of the stores use the unsubtle approach of marking a small number
of items down to ruinously low prices, there’s certainly some
psychology at work too.
We know that our brain’s pain centers are activated when we have to
shell out money for something, and that this activation is strongest if
the price seems too high based on our experience. So, the stores seem
to be working several angles that are consistent with neuromarketing
and neuroeconomics research: very low prices (often with very limited
quantities) and payment plans that minimize current cash outflow.
Fantastic Prices! Almost none available!
A staple of Black Friday promotions is the limited quantity loss leader
item. It’s an item that is desirable, and that many consumers have some
familiarity with. It’s advertised at an amazingly low price. And, most
importantly, the fine print reads something like “At least 5000
available chain-wide!” In reality, this may mean that the store you go
to may have just a few of these bargains available. For example, the
store gets a deal on a few thousand of a slightly out-of-date plasma
TV, marks them down to a price a few hundred dollars below what
consumers expect to pay for that size television, and puts it on the
front page of their Black Friday ad. This pitch is neuroeconomic
perfection: consumers see the product, and are shocked by the amazingly
low price. At the same time, neuroeconomics research tells us that
people aren’t good at translating odds and percentages into real-life
probabilities. 5,000 plasma TVs sounds like a LOT of televisions, and
most consumers wouldn’t have a clue that a particular chain might have,
say, a thousand stores. And, if every store gets just a few units, the
chance of actually being able to buy one is very low. Still, many make
the trek into the store early on Black Friday hoping to do just that.
course, there are customer satisfaction issues involved with luring
people into your store with the promise of bargains and then
disappointing them. Stores have adopted policies like voucher
distribution to waiting customers to create a perception of fairness
and ensure orderly distribution. And many of the advertised bargains
are present in numbers large enough to satisfy the day’s shoppers.
additional benefit of these limited-supply offers is the creation of an
atmosphere of savings. If people are lining up at 4 AM to buy stuff,
the prices must be incredible, right? This savings frenzy may carry
over to other products and even infect shoppers not pursuing the
No Payment, No Pain.
The other brain-based technique used not just on Black Friday but
throughout the season is financing that minimizes current cash outflow.
“No Payments Until July!” “No Interest for Five Years!” and similiar
pitches abound. In each case, the possibility of immediate
gratification with very little in the way of “paying pain” will no
doubt close more deals. (The mere enabling factor of these offers is
important, too; some consumers simply can’t pay for the product in
full.) One furniture store ad I saw offered payment terms through 2013!
Do you really want to be making payments on a six-year old couch? Will
they send out a repo man after five years if your payments falter?
(”Get the dog off the couch, ma’am, we’re taking it back.” ) Some of these financing offers make sub-prime mortgage lenders look downright sensible and cautious.