Retail: Is entering the ‘Black Friday Battle’ a good move for your business?By AJ Lockington on November 19, 2018
With Black Friday fast approaching, UK retailers look set for yet another record-breaking year. We’ve estimated that Black Friday and Cyber Monday have added an extra £800 million to November spending in the UK since 2012, with £325 million (41%) of that being spent online.
With stats like these, you may think that following the industry’s leading players (think Amazon, Argos et al) into ‘Black Friday battle’ is a must for retailers – but is this actually the case?
You might be surprised to hear that, despite its ever-growing impact, each year we are seeing more and more businesses rejecting the notion of Black Friday. This year, B&Q has said it will not be offering any special Black Friday deals – following in the footsteps of the likes of Ikea, Homebase and Next.
Is this because they have run the numbers and seen that Black Friday doesn’t make commercial sense for them? Or is it because their customers do not commonly buy into the ‘holiday’? For many businesses, following the trend of Black Friday in the hope of intense top line sales growth is just too much to resist.
We wanted to ask you – the retailer – five questions around Black Friday to see if it’s worth your business getting involved…
Is Black Friday high-risk for my yearly target?
It’s quite easy to get fixated on the four-day target you have for Black Friday. In fact, this may have been extended to a couple of weeks, as the trend of a Black Friday period over one or two weeks is becoming more popular.
Consider looking at your total revenue growth for the quarter, year-on-year (YoY), with your Black Friday period removed. If you have too much of a reliance on the weekend, it could become a risk. Just like an investor, you want to diversify and spread the risk as much as possible across Q4.
As a benchmark, we looked at the monthly growth rates for non-seasonally adjusted quantity brought in via UK online retail. Data from the Office for National Statistics (ONS) shows that the distribution of growth rates between November and December is strikingly different, with November showing a steady growth trend and December falling since 2012. It’s important to check how your historical performance stacks up against these trends.
Monthly growth rates for non-seasonally adjusted quantity brought in via UK online retail across November and December
Should you be acquiring new customers in the Black Friday weekend?
Acquiring customers across the most competitive weekend of the year can be an expensive strategy. Even if you optimise your retargeting lists, get the best affiliate deals and develop cost-effective lookalike audiences for your cost-per-click, the cost-per-acquisition can still be significantly higher than those periods outside the Black Friday weekend.
Have a look at last year’s new recruits during this period. Consider what their purchase frequency was in the last year, and ultimately what their lifetime value was to you. Then, compare this to the customer acquisition cost (CAC) during the Black Friday period. This will give you enough information on whether ploughing all that additional spend into PPC campaigns is a good idea or not!
Some examples of what your graphs may look like:
It may be the case that you find your Black Friday customer lifetime value is lower than outside that period
Your CAC may be higher during the competitive times of your trading year
The CAC:LTV ratio is a useful metric to understand when is the best time to acquire customers
If you are going to go down the customer acquisition route, then make sure the products and offers you’re providing on Black Friday recoup your CAC in one purchase. Then, any subsequent purchases will make your lifetime value (LTV) to CAC ratio look a lot healthier through further secondary purchase and cross-sell campaigns, for example.
What does my existing customer base think of Black Friday?
Your existing customer base are an extremely important group of people to keep happy. Of this group, there may be a specific segment which will more than likely provide the majority of your revenues (this is what’s known as the Pareto Principle). You need to look at how these people are purchasing from you to determine how they will feel around potential Black Friday offers. If they’ve never bought a sale product from you, for instance, how will they feel seeing Black Friday banners sprawled across your site or receiving sales-heavy emails?
Look at the churn rate of these VIPs; how many of them never buy again after Black Friday and/or how many of these customers never buy full priced products again? You will be losing precious margin from this transition, so be sure to provide a business case to review whether it was worth running Black Friday promotions in the first place, from a profit perspective.
Sentiment surveys after Black Friday will also allow you to see how the period resonated with your customers. This will give you a complete picture of how your customers are feeling and reacting to the promo weekend.
What does your performance look like without Black Friday?
From a commercial strategy perspective, consider what your top and bottom line would look like if you stopped doing Black Friday. And no, this isn’t as simple as saying “in a year’s time we will have £X less in revenues and profit.”
Instead, look at the LTV of customers and the margin they are buying at. Your margin and returns rate will be healthier without the Black Friday sales, so your profits won’t take too much of a dramatic turn for the worse. Run the analysis across the next 3-5 years to try and gauge the long-term commercial impact.
The results of this can then be crossed with how much internal time, effort and stress goes into pulling off Black Friday – and whether, if given the time, how productive that resource could be used across other focus areas.
Are you sending different deals to different segments?
If you have modelled the outcomes, and Black Friday is a mainstay within your business, you need to ensure you are matching personalised offers with specific customers and providing them offers that will be of interest to them.
Hyper-personalisation within your existing database could lead to increased top line sales whilst preserving your margin. Sending the right message to the right person at the right time might not sound particularly groundbreaking, but it can lead to dramatic increases in revenues and profits.
An example would be normally offering 30% off to all of your customers as a blanket discount across a set amount of items. However, if you split up the discounts by different segments through some propensity to buy analysis, your top and bottom line could improve dramatically.
In summary, while Black Friday is a crucial time for some businesses, that isn’t necessarily the case for all – and it’s vital to do the research before you dive in with slashed prices and heavy promotion. While the prospect of a ‘quick fix’ of increased top-line sales will undoubtedly be alluring, look closely into the figures and take our questions above into consideration before you enter the battlefield.
To chat further about how artificial intelligence could help to improve all kinds of aspects of your retail business over the Black Friday period and the rest of the year, don’t be afraid to drop us a line.