Investors see long lines and increased sales on Black Friday and are often left scratching their heads when earnings reports show low earnings figures. Black Friday sales get bigger every year. This is great for consumers, but for some retailers Black Friday is starting to become Red Friday. Bigger sales erode profit margins, and some retailers struggle to even drive the top line given the fierce competition.
Who came out ahead from this year’s Black Friday? It may not be the stores with the longest lines or those who brought in the most customers. The key to driving success with door busters is what happens after the customers walk in the door. Retailers need to avoid two scenarios:
1) Customers walk in, buy the door buster deal, and walk out
2) The promotions and deals only bring in existing customers who were planning to shop anyway
Retailers need to leverage detailed basket and customer data to understand how to optimize promotions to drive higher attachment rates, larger baskets, incremental trips, and more new customers. Using Big Data, there are four steps to determine whether a retailer was a Black Friday winner:
- Determine which promotions drove profitable transactions and which were cherry-picked
For each promoted product, calculate the average basket size and total basket profitability. Determine which products had large, profitable transactions and which were cherry-picked and had smaller than average basket profitability. Next, find out what was common about the types of products that responded best. Perhaps high priced, medium selling products in Department A drove higher attachment rates and more profitable transactions. Winning retailers focused Black Friday promotions these types of products and will continue to focus on them through the rest of the holiday season.
- Identify what tended to sell well with a particular promoted product
The best retailers find ways to encourage attachment of high margin products when a customer shops a promotion. For example, let’s say an electronics retailer put a particular camera on sale. Examining prior transactions with that camera show that customers tended to prefer a particular brand of camera case and memory card. These accessories should have been prominently featured near the camera with plenty of inventory available. Additionally, customers buying those types of higher end cameras were also more likely to purchase a higher end computer monitor. Moving some computer monitors to this section of the store could have encouraged these attached sales.
- Finally, evaluate which customers responded to Black Friday promotions and follow their subsequent purchases
The best retailers succeed in using promotions to change customer behavior. Find the Black Friday promotions that appealed to new customers, in particular when the new customers also came back again. When existing customers bought a promoted product, continue tracking their shopping after Black Friday to see whether they merely shifted a planned trip to take advantage of the promotion or actually transacted more frequently as a result. The winning retailers will be able to convert new customers and / or increase frequency with existing customers.
The retailers that did the best on Black Friday are not necessarily those who had the longest lines. Providing huge discounts without using analytics to understand basket & customer dynamics is like spinning a roulette wheel and hoping for the best. The winners used big data to drive basket profitability, high attachment rates, new customer conversion, and additional trips from existing customers. Now it is time to see who did this the best and start crunching the numbers to maximize performance over the rest of the holiday season.