Perfecting the Price: Tips for a Successful Black Friday

[00:00:07] You're listening to Retail Disrupted, a podcast that explores the latest industry developments and the trends that will shape how we shop in the future. I'm your host, Natalie Berg.

[00:00:19] And welcome to another episode of Retail Disrupted. Today's episode is all about pricing. We're going to be talking about Black Friday, e-commerce pricing strategies, and something I know a lot of our listeners will be interested in, which is dynamic pricing.

[00:00:44] To help us with this, Sander Rosa, CEO and founder of Omnia Retail, joins me on the podcast today. Sander, it's great to see you and thanks for coming on the show.

[00:00:53] Yeah, thanks for having me.

[00:00:54] So let's start out with some intros before we dive into our conversation. Can you tell us a little bit more about yourself and Omnia Retail?

[00:01:01] Yeah, so Sander, founder and CEO of Omnia. So Omnia Retail, I founded it 12 years ago.

[00:01:08] And Omnia Retail helps retailers and brands to unlock value from pricing by delivering dynamic pricing software, as well as the competitive pricing data that you need as input for such a system.

[00:01:21] So basically, our customers can automate any pricing strategy they can think of.

[00:01:27] So it can be very simple business rules like I want to follow a competitor, but it can also be more advanced algorithms to enable them to reach their objectives.

[00:01:37] And objectives could be winning market share or improving the bottom line or any other key commercial objective that's important for them.

[00:01:45] So our headquarters is based in Amsterdam. We've also got an office in Germany, but we serve retailers and brands across the globe.

[00:01:53] Yeah. And so you're speaking to retailers around the globe, and I imagine you're doing that pretty regularly.

[00:01:58] So what are they telling you when it comes to pricing?

[00:02:02] What are the trends that they're seeing or the challenges that they're facing?

[00:02:06] And would you say they're pretty consistent around the globe?

[00:02:08] Yeah, I think one of the biggest trends in pricing across the globe, of course, has been the huge inflation resulting from the COVID period.

[00:02:19] And that has been a struggle over the years and continues to be a struggle that is putting pressure, of course, on the margins of retailers.

[00:02:27] So I think pricing has always been important, but I see an ever increasing importance on pricing to absorb the inflation hits and to make sure that they can maintain reasonable profitability.

[00:02:43] So I think that is really top of mind, the boards of major retailers.

[00:02:47] Let's talk about Black Friday now, because we are in peak trading season.

[00:02:52] The next eight weeks, as we know, are crucial for retailers. Black Friday is a big deal.

[00:02:57] It was once limited to US retail, but it's now a permanent fixture on the European retail calendar.

[00:03:03] And here in the UK, we've been calling it Black November for a while now, because every year the discounts seem to start earlier and earlier.

[00:03:10] I personally think that Black Friday can be a little overwhelming and tricky to navigate.

[00:03:16] And I think that's true from both a retailer and a shopper perspective.

[00:03:21] You know, are the discounts real or are retailers creating the illusion of discounts?

[00:03:27] Does Black Friday drive sales or does it just pull spending forward?

[00:03:32] Does the fear of missing out make shoppers want to loosen their purse strings?

[00:03:35] Or does buyer's remorse kick in and shoppers end up returning the items that they bought so impulsively?

[00:03:41] So, you know, there's a lot to consider.

[00:03:43] And I think some retailers would love to put that genie back in the bottle.

[00:03:47] And we know that's not going to happen.

[00:03:49] Black Friday is here to stay.

[00:03:50] So with all of that in mind, Sandra, I'd love to get your view on Black Friday.

[00:03:55] How important is it for retailers to take part and capitalize on the consumer's increased propensity to spend?

[00:04:02] Indeed, it's very important, as you say, and it depends a bit on the category.

[00:04:06] But there's many categories there.

[00:04:07] For example, the Black Friday period represents almost a quarter of the total annual sale.

[00:04:12] So you can realize that it's really crucial to get it right during this period.

[00:04:18] So our consultants analyzed the pricing data from the years 2018 until 2023, so last year.

[00:04:27] And they selected about 200,000 products in the sports and electronics category across Germany and the Netherlands.

[00:04:36] So to mature markets within Europe.

[00:04:40] And as you were alluding to, what we saw indeed is that Black Friday promotions start earlier and earlier.

[00:04:45] So typically, we see that already 10 days prior to Black Friday, prices begin to increase.

[00:04:53] And then typically on Black Friday, Cyber Monday, they get more extreme.

[00:04:57] So that's an interesting trend as well, where in the past, promotions were steep, but typically fixed.

[00:05:05] Now we see more and more that promotions are becoming dynamic in itself.

[00:05:09] So if a competitor is responding to your promotion, you might want to go even deeper.

[00:05:14] And that's what we see.

[00:05:15] So typically around Cyber Weekend, as they call it, prices become even deeper.

[00:05:19] And then after Cyber Monday, they go up again against prior levels.

[00:05:26] And then around Christmas, there's another dip, of course.

[00:05:30] And then they bounce back to normal in January.

[00:05:33] Very interesting other finding is around whether or not retailers increase prices just before the Black Friday period.

[00:05:43] So that's also something that the press has written about a lot.

[00:05:47] And there's different conflicting perspectives that I've heard.

[00:05:50] What we saw in our data is that that actually happens in many of the years.

[00:05:56] But in Europe, there's the omnibus ruling applied a couple of years ago.

[00:06:02] What it basically means is that your strike-through price cannot be higher than your lowest price point in the last 30 days prior to the promotion you run.

[00:06:11] That's hard EU regulation that has been translated to all the individual markets within Europe.

[00:06:17] And what we see indeed that in 23, where the omnibus ruling was effective, that the increase of the prices no longer happens, which makes sense because it is illegal.

[00:06:28] So that is, I think, a benefit also for consumers now.

[00:06:32] The promotions really seem to be promotions and they can basically trust the strike-through prices.

[00:06:38] So that was one of the other topics I think you were alluding to in your introduction.

[00:06:43] Yeah, it's so interesting.

[00:06:44] And it's been interesting as an observer, as an American observer.

[00:06:48] You know, I grew up with Black Friday.

[00:06:50] I've been living in the UK for 20 years, so I kind of have dual perspective.

[00:06:53] But it's just been so interesting to see how popular it's become and how, I'd say at least here in the UK, the start of November, you know, the discounts begin.

[00:07:02] And it really goes through right until Cyber Monday.

[00:07:06] And are we reaching a point where there's a little bit of Black Friday fatigue?

[00:07:10] Are we a little bit, as you said, you know, shoppers are skeptical about the promotions.

[00:07:15] I guess the point here is around transparency, right?

[00:07:17] Because there's so much price transparency for consumers that you do have to be honest and respond to those pricing fluctuations, as you say.

[00:07:25] So would you say, because technology is enabling retailers to be more agile and responsive, is this impacting their strategies when it comes to Black Friday?

[00:07:37] Yeah, so I think traditionally, we serve as retailers and brands more with dynamic pricing on regular prices.

[00:07:44] So making sure that at any moment in time, you have a competitive price versus all of the other shops offering the products you are offering.

[00:07:52] And promotions were typically planned more manually still.

[00:07:56] So choosing a certain week, maybe negotiating some backfunding with the suppliers of the products you are going to put in promotion.

[00:08:04] But what we see now is because of the increase in technology and the increase in competitiveness, the dynamic promotions that I was just referring to are becoming more and more common.

[00:08:15] So you simply can't afford to stay at your original promotional price point that you thought of before planning a promotion if there's competitors responding.

[00:08:26] Because you simply need to sell through, of course, the extra inventory that you brought in to run those promotions.

[00:08:34] So I think that is something that I clearly see that the promotions are becoming more and more dynamic.

[00:08:40] Would you recommend that retailers cap the number of units being sold at very deep discounts during Black Friday?

[00:08:48] And do you think that there's a risk that this kind of limited appeal might...

[00:08:54] Well, I don't know. I guess it could go one of two ways.

[00:08:56] It can either alienate the consumer or probably more likely it would create a sense of urgency to get it while it lasts.

[00:09:03] Is that something that you're seeing in the market?

[00:09:04] Yeah.

[00:09:05] Yeah, I would say that you need at least significant...

[00:09:09] So if you have like a very modest stock and you have a deep promotion, but you have to say no to a lot of shoppers with the intention to give a price signal, I don't think that is wise.

[00:09:20] Because you're saying no to a lot of consumers who have a poor experience with your brand, whether you're a retailer or a brand.

[00:09:28] So I would definitely not suggest that. I think that's a short-sighted tactic.

[00:09:33] But we saw something interesting in the types of products that are typically put on promotion.

[00:09:40] If we, when we looked at the data and that is that typically end of life products are mainly promoted.

[00:09:48] And that makes sense because it is the promotions that you want to offer.

[00:09:53] So you will most likely not see the newest iPhone 16s on Black Friday offers as they've been recently introduced.

[00:10:00] But it's typically more the end of life stock that gets heavily discounted.

[00:10:05] So it also in a sense has a use case.

[00:10:07] So for consumers, it's interesting because they can indeed score deep discounts.

[00:10:12] But for retailers, it's also a way to get rid of end of life stock.

[00:10:17] So in that sense, it's a nice clean up of the inventory that has to run out.

[00:10:23] Yeah, to clear out that stock, right?

[00:10:23] So it's really something we saw when looking at what types of products were actually promoted.

[00:10:29] Yeah, yeah, that's really interesting.

[00:10:31] And it's so important for retailers to be lean with their inventory this time of year and ensure that, you know, they've got the right products on the shelves at the right time.

[00:10:38] I want to ask you a question about whether you think that Black Friday can, if not managed well, can become a race to the bottom and potentially really damage your margins in what is the most critical trading period for retailers.

[00:10:55] How can retailers avoid this as well as avoiding an all out price war with their competitors?

[00:11:01] The risk indeed is that products or volume that you would have otherwise sold against regular price points, you now sell against deep discounts.

[00:11:10] That is like only a net loss.

[00:11:14] I think there's ways to do it smart.

[00:11:17] So if you can use Black Friday, for example, to drive penetration for your formats and get repeat visitors of those Black Friday shoppers, that will be net positive.

[00:11:30] The end of life products that I was just referring to, that makes a lot of sense.

[00:11:34] But it's, I think, very important to think strategically about what type of products, what type of categories may be beforehand and then within the category, what type of products to offer.

[00:11:45] Because there's typically products that can really be penetration drivers for your formats.

[00:11:51] But it could be very strategically relevant to put those kinds of products in motion.

[00:11:56] So, and then you're thinking more from a customer lifetime perspective than only sort of maximizing the direct sales and contribution margin of the cyber weekend period.

[00:12:07] That's a really good point.

[00:12:08] And I think the word strategic is really key here because to me, it felt like, and again, I'm speaking from a UK perspective, perhaps it was a little bit different in the Netherlands or Germany and elsewhere in Europe.

[00:12:19] But I think for a long time, Black Friday felt very frantic and reactive.

[00:12:25] And that, you know, retailers would see that their competitors were engaging in Black Friday, they were offering very deep discounts, 60, 70% off.

[00:12:34] And then it was like, oh, I need to do, you know, blanket discounts, 30% off everything just to, you know, keep up with the competition and capitalize on the fact that shoppers are out there on the high street.

[00:12:44] So, yeah, the fact that now it's becoming more planned and more strategic, I think is really a sign of where we are today.

[00:12:52] Yeah.

[00:12:52] And that's another very practical example that you're just raising, like the 30% on everything in this category, for example.

[00:12:59] We've seen various examples at our customers that a blanket mechanism like that can be very value-destroying.

[00:13:06] While if you are more choiceful and say, okay, the promotion is up to 30%, but you are more deliberate in what kind of discounts you put on various products, that can make a huge difference in terms of the profitability of the overall promotions.

[00:13:20] I want to ask you kind of a layman's question here because we hear a lot about dynamic pricing.

[00:13:26] And I think, you know, based on previous conversations that we've had, I think you're probably keen to dispel some of the myths around dynamic pricing because sometimes it gets mixed up with what you refer to as surge pricing.

[00:13:39] So, do you want to just take a moment here and share with our listeners the difference between dynamic and surge pricing?

[00:13:44] Yeah, I'm glad that you raised that because I think there's a lot of press recently.

[00:13:49] And I think it was initially triggered by how Ticketmaster applied his sale of Oasis tickets.

[00:13:56] And I think it was the Guardian that first picked it up and I think it went viral, even so that certain governments are now considering making surge pricing illegal.

[00:14:08] And what I noticed is that in a lot of the articles that surge pricing for services is equated to dynamic pricing in retail.

[00:14:15] Well, I think the two are fundamentally different concepts and different approaches.

[00:14:20] So, there is, of course, one commonality because it's technology applies to pricing, but that's also almost where it stops.

[00:14:28] So, if I zoom into the Oasis situation, I think it's very understandable that there's such a negative backlash.

[00:14:37] So, if you look at that situation, there's only one vendor offering the tickets.

[00:14:43] So, that's Ticketmaster.

[00:14:45] Search prices mean that there is a base price, but prices can only go up and they can never go down and become more attractive.

[00:14:53] And shoppers don't have a choice.

[00:14:55] And on top of that, I think in the particular execution of Ticketmaster here, there were also a lot of what you call dark patterns applied,

[00:15:02] which are sort of psychological or design patterns used to put pressure on consumers and forcing them into a quick decision.

[00:15:11] And maybe a decision that they wouldn't have made if they had the time to consider it.

[00:15:17] And in this case, for example, like a counter and giving them a couple of seconds to make a decision.

[00:15:22] And the journalists, I think, felt forced to buy the tickets at three times the normal price because the normal tickets were sold out within seconds.

[00:15:32] These are not decent and ethical patterns.

[00:15:35] But if you look at the fundamentals that I was just discussing, so in the pricing and retail, there's also something different than personalized pricing.

[00:15:43] Just to make it a little bit more complicated.

[00:15:46] Yeah, just to make it a little bit more complicated.

[00:15:48] It means basically that prices can fluctuate.

[00:15:51] They can go up, but they also can go down.

[00:15:55] And in many cases, they do go down as well.

[00:15:58] So you are not forced to buy with retailer A, because typically you can also buy the same product at various other retailers.

[00:16:07] There's almost complete price transparency via comparison shopping engines like Google Shopping, etc.

[00:16:13] You always have a good reference for what is the value of this product and you have the time to decide.

[00:16:20] So what we see basically is that dynamic pricing in retail basically makes the market mechanism work better, more efficiently.

[00:16:30] It's basically the market on steroids and that ultimately benefits consumers and society as a whole.

[00:16:35] So I think the two are very different.

[00:16:40] And I think it's important to make that distinction.

[00:16:43] It's so interesting, isn't it?

[00:16:45] Because I think when we book a flight or we buy tickets to a show, we accept that prices will fluctuate.

[00:16:51] And I don't think we ever really think about how much the person sitting next to us has paid for that ticket.

[00:16:56] But it's so different in a retail setting, isn't it?

[00:16:59] You know, there's just so, so much transparency around pricing and so much pressure on retailers to offer customers the lowest possible price in many settings, not everywhere, of course.

[00:17:09] But I think that is the challenge.

[00:17:12] And consumers being armed with technology, as you just said, they can easily check prices and see who's the cheapest.

[00:17:17] Yeah, the transparency is also, I think, a key concept here.

[00:17:21] I think it was before the Oasis controversy.

[00:17:24] I think there was the controversy of a pop chain in UK, in your country that wants to do sort of surge pricing during happy hours.

[00:17:33] I think in principle, it could make sense.

[00:17:35] But I think it's very hard to do that in a very transparent way where everyone really understands what they're paying if it's like a very busy, busy, happy hour.

[00:17:45] Yeah. And it is a really difficult balance, isn't it?

[00:17:49] Because it can be used very positively.

[00:17:52] Like, you know, it can be a great way to reward loyalty.

[00:17:54] And we're definitely seeing a move towards real time, personalized discounts while you're in the store or in an online setting.

[00:18:02] And that seems to be generally a little bit more accepted.

[00:18:05] But when it comes to personalized pricing, I feel like we still have a little ways to go to kind of get over that, the sort of misconceptions that you touched on.

[00:18:15] But it can be very positive.

[00:18:16] You know, in a grocery setting, it can help to cut down on food waste.

[00:18:19] And retailers are, you know, retailers have been pursuing these kinds of strategies for a while.

[00:18:24] It's just how much further can we go with technology and bringing the consumer along with us, I suppose, is a big piece of that.

[00:18:31] So, Sander, I'd like to end with some advice for the retailers that are tuning into the episode.

[00:18:37] When it comes to pricing, what is the single most important thing that they need to do to ensure that they're optimizing their pricing strategy?

[00:18:46] Yeah, I think they need to look at pricing both strategically and tactically.

[00:18:53] I still see that there's retailers that are too blunt with pricing strategies.

[00:18:58] So, if you just always want to be the cheapest in the market, that is most likely it will actually erode value.

[00:19:06] So, it's really important to think about what is my overall commercial proposition?

[00:19:13] What role does pricing play in that?

[00:19:14] So, if you are more a service-oriented format, there's also a certain premium you should be able to command.

[00:19:20] So, it all results from your overall commercial proposition.

[00:19:23] What is your pricing strategy?

[00:19:26] Then, when thinking about applying the prices strategy, I think it's very important to think about pricing objectives.

[00:19:35] Starting with the pricing objective, what pricing strategies results from that.

[00:19:39] And then finally, the last piece is then indeed also in execution.

[00:19:44] I think we were just referring to the simple difference between a 30% discount on everything versus up to 30% where you think about nuances.

[00:19:53] So, it really needs to cascade down from your overall proposition down to the tactics and you can't skip a level.

[00:20:02] It's too easy to think, okay, I'm going to automate pricing and let's just choose a simple business rule.

[00:20:08] I think that could work in the past in not so competitive categories, but the world has gotten much more competitive.

[00:20:15] So, you need to go more nuanced.

[00:20:18] And I think the interesting thing is that the technology that is here now and that is more and more also enabled by AI allows us to go so granular at such a scale,

[00:20:30] which was previously simply impossible if you had to do and make all those nuanced strategies manually.

[00:20:37] So, I think it is on one side, it's tough as a marketer getting more and more competitive.

[00:20:43] You need to go more granular.

[00:20:45] But on the other hand, we do get the powerful technology now in order to make that step and to make it manageable basically.

[00:20:52] Sander, it's been wonderful to have you on the podcast.

[00:20:54] Thanks for coming on and hope to catch up with you again soon.

[00:20:56] Thank you very much.

[00:21:03] Thank you for listening to Retail Disrupted.

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