Study: 'Doing nothing on Black Friday is better than having the wrong strategy'

While some brands, such as bag manufacturer Freitag, are stopping Black Friday sales altogether and others are luring in customers with big discounts, a large proportion of retailers are somewhere between these two extremes. The majority of consumers (85 percent) plan to take part in Black Friday and expect discounts of at least 30 to 50 percent. The most popular categories are electronics, technology and fashion.

"For many retailers, Black Friday is therefore a balancing act between profit and customer expectations," explained Moritz Tybus, partner at the consultancy Kearney. A new study by Kearney and AI pricing provider 7Learnings predicts billions in turnover again this year, but warns that many retailers could lose millions due to incorrect pricing strategies. Artificial intelligence (AI) could help here.

Myth: More sales through Black Friday

The research debunks the myth that Black Friday results in a big increase in turnover. "Of the enormous positive peaks of sometimes 150 to 200 percent in demand and turnover, in reality only about 7 percent more turnover remains," according to Tybus.

Retailers should not only consider the day or week around Black Friday, but also the period before and after. In this regard, things often look poor in terms of sales, as customers postpone and plan their purchases for Black Friday. According to the study, demand drops "significantly" three weeks before and up to two weeks after Black Friday.

Pitfall: Pricing

Tybus predicts a total turnover of 6.4 billion euros in Germany alone for the 2024 sales period - around 10 percent more than last year - but warns of "clumsy and outdated pricing", which, according to the study, will cost the retail sector around 300 million euros in profit.

"A predictive and AI-driven pricing model that responds specifically to customer needs is becoming increasingly important. Precisely because consumers are now buying in a very targeted manner, retailers cannot avoid making the most of Black Friday," Tybus advised.

So far, however, this is still a future mission for the majority of the market - only around 5 percent of retailers use a pricing strategy based on AI. Prices are therefore mainly determined on the basis of the competition. This dominant strategy generated a profit of 625 million euros last year, but according to the study, better discounting and use of marketing expenditure could have resulted in half as much, or 915 million euros.

Retail harms itself through poor pricing decisions

Currently, the majority (95 percent) of retailers are using well-known strategies both online and offline, namely a mix of vouchers, discounts and associated marketing.

“Often, prices and discounts are less based on the actual needs and wishes of customers, but are mainly determined based on competition. This leads to retailers feeling the pressure to get into a price war to remain competitive,” Tybus explained.

For comparison, an AI-based pricing model could have generated up to 740 million euros in additional sales during the last Black Friday, especially in product categories such as cosmetics or sporting goods, where even the smallest price changes have a major impact on demand.

"The fact that retail has often been harmed by poor pricing decisions is also evident from the fact that even doing nothing on Black Friday would be better than the wrong strategy," Tybus concluded.

AI as a solution

The study shows that an individual retail company could double its profits even without a marketing strategy or discount campaigns. However, this is only possible as long as everyone else continues to stimulate demand with discount wars - this is not a future-proof approach. Companies that rely on AI in their pricing strategy could "get the most out of it, on average an additional 158 million euros in profit".

AI can also address the paradox revealed by the consumer survey: Consumers expect high discounts, but often only receive small price reductions. Yet they are satisfied and move the majority of their purchases to this day. "Retailers could leverage this behaviour through AI-optimised pricing to find the right balance between attractive and profitable prices," concluded Felix Hoffmann, co-founder and CEO of 7Learnings.

The full study can be downloaded from the Kearney website.

This article originally appeared on FashionUnited.DE. It was translated to English using an AI tool called Genesis and edited by Rachel Douglass..

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