Black Friday Lines
This year many major retailers, spurred by competition and disappointing sales, decided to start their usual Black Friday deals a day early. Their reasoning was twofold: 1) an earlier start would help them get a jump on any competitors who waited until Friday morning to lower prices, and 2) a larger time window for their discounts would allow more potential shoppers to take advantage of discounts.
This brilliant idea may have resulted in the worst Black Friday sales results in years.
Not long afterwords, many U.S. news outlets started running articles like this and this. While the concept of Black Friday has been eroding for years (Kmart and many online retailers had started their deals early in years past), this was the first year where the customary effect of Black Friday was truly upset. Local news stations reported by and large that the Black Friday crowds lacked the intensity of previous years. Retailers had more empty parking spaces. In water cooler conversations, people commented that they simply wouldn’t bother getting up at 5am this year.
The 2013 post-Thanksgiving weekend sales were successful only from a very specific viewpoint: public safety.
Traditionally, the Black Friday concept makes very good use of one of Robert Cialdini’s “Weapons of Influence”: Scarcity. In this case, it’s not the purchased item that’s scarce, but the deal itself. In the past, Black Friday discounts have been available only for a couple hours, or until stock runs out. This creates an insane, in some cases dangerous amount of urgency. There is nothing so motivating as a perceived dwindling supply of something you perceive to be valuable. In this case, the opportunity to buy a $400 item for $150.
So how come, when retailers started these sales on Thursday, we didn’t see the same chaos happen a day earlier?
It’s because they left the window open through Friday. By increasing the amount of time that the discounts are available, retailers destroyed the perception of scarcity. No doubt they thought that there would be some disruption to scarcity, but that expected this to be offset by increases in the over number of patrons. Instead, it looks in retrospect as if scarcity has a tipping point. When the window was only a few hours wide, consumers would plan their whole day around getting into the store to get the deal. Now, with over 24 hours at their disposal, maybe they’ll pick up the item they wanted on their way to doing something else. It’s okay; there’s time enough to go grab the thing.
Imagine the horror of U.S. retail executives when our Black Friday ended up being a busy but fundamentally civil experience rather than the bloody, hair-pulling, bystander-trampling reality show they were hoping for.
As we mentioned before, it’s the availability of a certain deal that’s scarce, not the item itself. The concept of supply and demand tells us that demand increases when there’s not enough of a certain item to satisfy all potential consumers. But in this case, there is enough of that item. Retailers create artificial shortages with limited-time offers to stir up demand that would be otherwise placid. Sometimes it’s in the form of a limited time price. Other times it’s a seasonal offering like the famous McDonalds McRib or Shamrock Shake. If these items were available year round, people would certainly have more opportunity to buy them. But by limiting their availability, the resulting demand increase creates more overall sales than would the year-round availability of the product.
One final point on economics. Classical economic theory holds that you can increase or decrease demand through changes in price, although some goods and services are more elastic in this regard than others. But here we see an anomaly: the same price level creates two different levels of demand. Last year, price-drop x created a certain level of demand. This year, the same price drop created less demand than last year. That’s not supposed to happen in classical economic theory. If people are always acting in their rational self-interest, the demand created by price-drop x should have been similar in both years. It wasn’t until Behavioral Economics was introduced by Daniel Kahneman and Richard Thaler that irrational decision-making factors became a part of economics. Consumers under classical economic theory cannot be “stirred-up,” even though we know in practice that they can.