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Posted at 01:32 PM ET, 11/10/2011

Daily deals and the demise of Black Friday


Businessmen and shoppers walk along Madison Avenue, one of Manhattan's premier shopping and residential streets on November 1, 2011 in New York City. (Spencer Platt - GETTY IMAGES)
Retailers gearing up for Black Friday — the biggest shopping day of the year — have a new challenge: What do you do when every day has become Black Friday?

It’s hard to make Black Friday deals stand out when other businesses are offering massive markdowns as high as 80-90 percent off every Friday. Luxury goods that never used to go on sale, now go on sale every day at 12 noon for Gilt members.

Until the popularity of these daily deal sites, retailers were able to stomach steep discounts for one day a year during the holiday season, since these amazing bargains were essentially loss-leaders — they got people through the door to shop for regular-priced items after they finished scooping up $99 big-screen TV sets. The deals were so attractive and rare that people lined up in a cold parking lot at 4 a.m. to take part.

But it looks like those days are coming to an end.

This, like most developments of this nature, can be traced back to psychology. Behavioral economists must be champing at the bit for the chance to measure how people are changing their pricing expectations. Just as expectations of future inflation or future deflation impact our purchasing decisions today, so should expectations of future price cuts. Why crawl out of bed at 3:00 a.m. on Black Friday when you know that better deals are available every day of the holiday shopping season — at least in theory?

The problem is particularly acute this year, when consumers have a thinner wallet and a smaller budget. Not to mention, if you were to draw a Venn Diagram of Black Friday shoppers and Internet daily deal shoppers, there would be nearly a complete overlap.

One might expect a "race to the bottom" as retailers fall all over themselves to offer progressively larger discounts on goods they can’t afford to discount. Obviously, this scenario would benefit consumers (at least the 99%-ers) in the short term. But does Groupon really want to see retailers take crushing losses on goods offered for sale on its daily deal sites?

It’s a safe bet they don’t, since those losses will inevitably come back to bite them as their customer base evaporates.

Black Friday has always been about celebrating the irrational, impulse buy for the season’s must-have items. Black Friday was always the one day when it was okay to camp out in front of a big-box retailer in the hopes of getting an unheard-of bargain. The daily deal mentality, though, is eroding this irrationality. With Groupon’s huge IPO looming in the background, 2011 may mark the first year that the irrational expectations of Black Friday are replaced with the rational expectations of a daily deal.

Read more news and ideas on Innovations:

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By  |  01:32 PM ET, 11/10/2011

Categories:  Dominic Basulto, Business

 
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