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December 2, 2013

Black Friday Hype: A Conversation with Marketing Professor Pradeep Chintagunta

By Jackie Klein '15  |  december, 2013, Issue 1
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(CC Image courtesy of freefotouk of Flickr)

 

Black Friday, the kickoff to the holiday shopping season, has long been synonymous with "door-busting" deals, frenzied shoppers and crazy crowds. With the National Retail Federation estimating a $600 billion consumer spending this holiday season and the shortened window between Thanksgiving and Christmas, it comes as no surprise that retailers offered extreme discounts and promotions to compete for customers last Friday.

These killer deals try to evoke what Pradeep Chintagunta, Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing, refer to as the "smart shopper effect" – that good feeling that consumers get from scoring a discount.

As Prof. Chintagunta explains - because Black Friday restricts promotional offers to one day at nearly every store, it is a particularly advantageous day to offer those discounts: "If this notion of discounting is temporarily localized to Black Friday, it helps prevent the perpetual association of the retailer with discounting." Retailers can win over customers by offering flash sales and still operate profitably over the season.

But, are those Black Friday deals actually so-called "loss leaders" – items sold at a loss to drive other high-margin items? Probably not. The reality is retailers often work backwards with their suppliers to ensure profit margins even at those rock bottom promotional prices. That $99 flat screen TV was never intended to sell for the $199 starting price.

Why go out in the cold when the same deals can be snagged online from the comfort of our living rooms? Shoppers love the thrill of the hunt, the annual ritual of Black Friday shopping, and in particular, the instant gratification offered by in store purchases.

In fact, the increasing use of mobile technology and online retailing now allows brick and mortar retailers to benefit from what Prof. Chintagunta refers to as "reverse show-rooming." Rather than acting like a "showroom" for lower priced online merchants, big box stores are fighting back by offering price match guarantees. The reasoning is simple: welcome customers to easily check prices online, and then sell the product at the same price, providing that instant gratification customers crave.

Low price guarantees, traditionally thought of as a method of price discrimination and even a mechanism to sustain collusion among retailers, also communicate a low price promise to high-information cost customers, in effect increasing demand (Moorthy & Winter, Rand 2006). Prof. Chintagunta explained, "consumers who are otherwise unaware of prices can now shop with confidence at the store since even if they ended up paying a higher price, the store promises to make good on the difference."

With customers busting doors for hot ticket items and retailers clamoring for every additional holiday sale, it is easy to get caught up in the holiday hype. Be aware of retailer tactics but don't worry too much about being tricked, no matter how you decide to shop this season. "Importantly, retailers have begun to figure out that they need to be available and accessible to consumers – online or offline." The customer is key.

Last Updated 12/1/13
Last Updated 12/1/13