KNOWLEDGE LINK
Leone examines retailers' Black Friday tactics

This year’s Black Friday featured a 6 percent jump in sales over previous years, due in part to retailers that slashed prices to new lows on a small quantity of coveted items and opened their doors in the wee-hours of the morning. However, Robert P. Leone, the Berry Chair of New Technologies in Marketing, comments on the long-term pay-off to the retail sector as big box stores pushed the limits of customer loyalty by creating an e-bay environment of limited supply and high demand. Leone shared his observations on the retailer’s new strategy with Knowledge Link.

KL: What was the rationale behind the strategy for early store openings on Black Friday this year?

Leone: I think that everybody is always looking for some kind of a competitive advantage and the issue is how do you do it without lowering price. Certainly, trying to be the first store to open after Thanksgiving is one way to get people to come to your store - but I think this is just a variation of early-bird times where stores would open at 5 a.m. Suddenly, some retailers are saying if they will show up at 5 o’clock in the morning, why won’t they show up at midnight.

KL: One retailer this year made it known through advertisements that they were cutting prices to start the shopping season. How did that affect the rest of the market?

Leone: Wal-Mart announced they would have the most aggressive price reductions in the history of the company during this time period. That signaled very clearly that if consumers were interested in getting good value at a low price, Wal-Mart was going to have a huge variety of items at prices that nobody could beat. As a result of Wal-Mart’s early announcement, many retailers responded with their own price cuts, as well as changing their hours of operation.

KL: Has technology and Internet fed the frenzy?

Leone: Yes, the Web has created all sorts of outlets to find information and there are even Web sites that leak the ads in advance and this is an interesting thing. They’re like the internet encyclopedia, Wikipedia, where the site owner doesn’t post the information, the site is there for you to post information that you might have about sales that are coming at various retailers.

KL: Consumers are always camping out and lining-up hours in advance to earn the right to purchase an item, has the time a person is willing to spend in line just as big of a factor as the price tag?

Leone: It’s almost an e-bay like environment and your bidding on it, but with the time you are willing to wait in line. If you really want it and you’re trying to determine the best price and whether it is worth the investment of your time waiting outside the store. Here it’s a limited quality again, but they are showing you the price. If that’s a price that suddenly pulls you into the market then it’s not the money your bidding. It’s your time and the risk of not being able to purchase it at a later point in time at that low price.

KL: How does this strategy of waiting in line, earlier store openings and limited quantity translate into loyalty?

Leone: I think this strategy flies in the face of loyalty. I mean this is all about price and searching out that hard to get item that you can get for a heavy discount. If a consumer was in the market or even remotely thinking about getting an LCD television and their price point is $1,000, but there’s a chance they could get it for $400, they would drive a 100 miles to be one of the individuals that scored one of the lucky tickets to buy that set. I think that this doesn’t create any loyalty at all. It does pull shoppers into Wal-Mart that wouldn’t normally shop there so it could ultimately create a new customer based on their exposure to the store. It is really not about loyalty, it’s about how to disrupt loyalty.

KL: Can this cause loyal customers to become upset?

Leone: Certainly there are individuals that can’t afford to wait in line for hours to take advantage of the sale, so I am sure some feel a bit cheated. This also extends to the people that waited in line thinking they were going to purchase a hot item only to find it's not available. If that individual was a loyal customer their frustration might be so high that they would have negative feelings about the store.

KL: Is it possible for retailers to create the buzz they want, but provide a fair solution to consumers?

Leone: Not with the pattern they have now. There is a limited win-win situation. The retailers win based on the numbers that came out for the sales and the customers that got the hot deals win too. However, it definitely wasn’t a win for all the retailers with Wal-Mart having a strong price advantage over the first few days of the shopping season. Those dollars came at someone else’s expense. For the consumers that were fortunate to purchase the coveted items that everyone lined up for, they were able to benefit. Unfortunately there were far more that didn’t have the opportunity to walk away with those items.

KL: With the holiday shopping season starting earlier, how will that affect the latter part of the season?

Leone: It probably creates a little bit less frenzy depending on the retailer. If you can shift the volume forward from December to late November and get a pretty good early read on what your sales are going to be over the holiday period it can be an advantage strategically to know what you need to do over the three or four weeks that are left in the holiday session to make your numbers. If you did well on Friday and Saturday, retailers might not have to be as nearly as aggressive with their pricing discounts for the rest of the holiday period. The losers in the pricing battle will have to re-evaluate their strategy over the weeks to come. So it may be more of frenzy for the retailers that fell behind.

KL: Do you see a scenario where retailers would attempt to duplicate the frenzy of the first few days of the holiday shopping season at other points throughout the year?

Leone: It’s almost engrained in the culture here in the U.S. that Thanksgiving is about being with family, eating turkey and shopping the day after. It probably would be hard to duplicate outside of the holiday season.