Across the U.S., retailers launched massive ad campaigns for the day after Thanksgiving, a.k.a Black Friday. The biggest shopping day of the year offers retailers a major challenge: how to get people into THEIR store, because once there the customers may spend a good part of their holiday gift budget. While most of the stores use the unsubtle approach of marking a small number of items down to ruinously low prices, there’s certainly some psychology at work too.
We know that our brain’s pain centers are activated when we have to shell out money for something, and that this activation is strongest if the price seems too high based on our experience. So, the stores seem to be working several angles that are consistent with neuromarketing and neuroeconomics research: very low prices (often with very limited quantities) and payment plans that minimize current cash outflow.
Fantastic Prices! Almost none available! A staple of Black Friday promotions is the limited quantity loss leader item. It’s an item that is desirable, and that many consumers have some familiarity with. It’s advertised at an amazingly low price. And, most importantly, the fine print reads something like “At least 5000 available chain-wide!” In reality, this may mean that the store you go to may have just a few of these bargains available. For example, the store gets a deal on a few thousand of a slightly out-of-date plasma TV, marks them down to a price a few hundred dollars below what consumers expect to pay for that size television, and puts it on the front page of their Black Friday ad. This pitch is neuroeconomic perfection: consumers see the product, and are shocked by the amazingly low price. At the same time, neuroeconomics research tells us that people aren’t good at translating odds and percentages into real-life probabilities. 5,000 plasma TVs sounds like a LOT of televisions, and most consumers wouldn’t have a clue that a particular chain might have, say, a thousand stores. And, if every store gets just a few units, the chance of actually being able to buy one is very low. Still, many make the trek into the store early on Black Friday hoping to do just that.
Of course, there are customer satisfaction issues involved with luring people into your store with the promise of bargains and then disappointing them. Stores have adopted policies like voucher distribution to waiting customers to create a perception of fairness and ensure orderly distribution. And many of the advertised bargains are present in numbers large enough to satisfy the day’s shoppers.
The additional benefit of these limited-supply offers is the creation of an atmosphere of savings. If people are lining up at 4 AM to buy stuff, the prices must be incredible, right? This savings frenzy may carry over to other products and even infect shoppers not pursuing the limited-supply items.
No Payment, No Pain. The other brain-based technique used not just on Black Friday but throughout the season is financing that minimizes current cash outflow. “No Payments Until July!” “No Interest for Five Years!” and similiar pitches abound. In each case, the possibility of immediate gratification with very little in the way of “paying pain” will no doubt close more deals. (The mere enabling factor of these offers is important, too; some consumers simply can’t pay for the product in full.) One furniture store ad I saw offered payment terms through 2013! Do you really want to be making payments on a six-year old couch? Will they send out a repo man after five years if your payments falter? (“Get the dog off the couch, ma’am, we’re taking it back.” ) Some of these financing offers make sub-prime mortgage lenders look downright sensible and cautious.