How Dynamic Pricing Can Optimize Your Black Friday Pricing Strategy
The best way for retailers to maximise their benefits on Black Friday is to optimize their pricing. Here, you’ll find practical tips about price setting and pricing strategy, including high-impact dynamic pricing solutions based on machine learning technology.
How customers shop on Black Friday
Black Friday and Cyber Monday hail from the USA, but they have since made their way to Germany, offering shoppers the best deals of the entire year. Black Friday takes place on the Friday after Thanksgiving, meaning that in 2020, it will take place on November 27th. Cyber Monday will take place the following Monday.
Both days are particularly important for online stores. In fact, in a 2019 survey from Periscope By McKinsey, more than 70% of consumers stated that they regularly take part in Black Friday and Cyber Monday by shopping for deals. The majority of this shopping takes place online. In the past few years, revenue for these two days alone has increased to an estimated 3 billion euros or more in Germany.
The vast majority of respondents (77%) researched potential purchases and special offers up to one month in advance. However, 23% simply surfed the internet seeking to get inspired. With the right pricing strategy, both customer groups can be effectively targeted.
Best practices for Black Friday
1. Start preparation in time
Retailers who want to profit from discount battles need an effective, well-thought-out pricing strategy, and that means that it’s good to get started a few weeks in advance.
2. Set goals
- What are your revenue, sales and profit goals?
- Are you trying to sell off certain categories or products?
- Is there a strategic goal: for example, to lower prices in order to improve your price image or to win new customers?
3. Think about possible scenarios
- What levels of revenue, profit, and sales can be achieved through which pricing strategy. This is where pricing software can help.
- What effects might high sales rates have in the weeks following Black Friday? Will it perhaps just generate a shift in demand?
- Could high sales within a short period of time lead to supply shortages?
4. Coordinate marketing and pricing activities
- Promote your offer the day before as well as on Black Friday across your social media channels like Facebook or Instagram.
- Employ targeted online advertising (on Facebook, for example) and use Google Ads to place advertisements.
- Integrate email marketing into your strategy. Send an email to your customers a few days in advance to inform them about Black Friday and Cyber Monday discounts and top deals.
5. Generate special offers
- Create a landing page specifically for Black Friday so that your visitors get an overview of your offer. This doesn’t just help with SEO, but makes it easier for customers to search for your company and products.
- Reward loyal customers the evening before Black Friday with discounted items. Direct them to a personalized landing page with special “loyal customer” discounts.
- Send customers a reminder if they have abandoned their shopping cart, ideally with a rebate code.
- Offer an extended return policy: on Black Friday and Cyber Monday, many customers buy Christmas gifts. Offering returns after Christmas is therefore particularly appealing to customers.
Banners and pop-up reminders on your website like “Almost sold out!” Or “Only one left” convey urgency, so we definitely recommend using these on Black Friday.
6. Use coupons and discounts effectively
- High discounts of 20%, 30% or 50% are exactly what customers are expecting on Black Friday. A discount can be easily implemented, adjusted quickly, and communicated clearly through your website or via email. However, flat-rate discounts don’t work across the board when it comes to turnover or profit, even on Black Friday. Customers react differently to price changes depending on the product, so it’s important to set differentiated discounts on articles based on their price elasticity. For example, items with high price elasticity should be given higher discounts. Your best bet is to discount items that have a high profit margin.
- Coupons are an excellent tool for attracting certain kinds of customers to your website. However, a pricing strategy based exclusively on coupons is not recommended. Instead, use coupons in combination with discounts.
„The best offers are overstocked bestsellers with a somewhat modest discount and discontinued products with a better discount. It all has to fit with your branding strategy and focus on acquiring new customers and rewarding existing customers. Flat discounts seem lazy and desperate, which will hurt your brand perception.” Matthew Dean, VP Digital, Worldwide at HUGO BOSS
And last but not least: avoid price increases directly before Black Friday. Targeted price changes at this critical time can be off-putting for customers. If you need to increase your prices, do so in October.
How machine learning and dynamic pricing can help you optimize your pricing strategy
Retailers who want to stay ahead in terms of sales and profits on Black Friday need to leverage the full potential of their data to optimize pricing. A deep understanding of customers’ price elasticity is critical, and that’s exactly where advanced pricing software can support retailers with dynamic pricing. This software measures the price disposition of customers and automatically suggests the optimal discount for each product. This way, retailers can ensure that their pricing strategy exploits their full margin potential.
With advanced pricing software, you can simulate various price scenarios for individual categories, forecasting revenue, sales and profit outcomes for your respective targets. Pricing software also makes it possible to employ different strategies for selected categories which are expected to sell out quickly, for example.
Advanced pricing software uses machine learning so that retailers can capture unique customer behavior and thus improve their pricing. The machine learning algorithms are used to calculate products’ price elasticity based on data gathered from past sales activities, such as those from Black Friday in 2019. In other words: sales volume and all the relevant influencing parameters that go into achieving them – from the competitors’ prices to weather and seasonality – are all factored in by the software when calculating optimal prices. Compared to the more traditional rule-based pricing, dynamic pricing offers highly accurate predictions and enables differentiated, smart price setting, which in turn leads to higher revenue and profits for retailers.
At 7Learnings, we have helped some of the leading online retailers, such as ABOUT YOU, improve their pricing processes. We excel in measuring price elasticities, even from very sparse data. Interested? Let us introduce our software with a product demo.
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The best way for retailers to maximise their benefits on Black Friday is to optimize their pricing. Here, you’ll find practical tips about price setting and
Every retail store assortment is made up of a vast selection of products. Some are considered “hit” products and others are naturally less popular. Many