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Black Friday – a case of marketing FOMO?

Companies and customers alike are gearing up for Black Friday. But the infamous shopping holiday has little significance to companies' bottom line, according to researchers at Stockholm School of Economics.

In the past decade, Black Friday has grown exponentially to emerge as Sweden's second largest shopping holiday – just trailing Christmas. According to the Swedish Trade Federation, half of the eCommerce merchants believe that Black Friday is the most important period for their sales in Sweden, with the average Swede set to spend around SEK 2,900 during Black Friday. But according to researchers Fredrik Lange and Angelica Blom at Center for Retailing, it's much ado about nothing – at least for companies.

Sales dips and returns

"Black Friday isn't that important, actually. Not if we look at the bottom line. There is too much focus on sales, not on profits," Fredrik Lange says.

It sounds paradoxical, that the year's most intense shopping bacchanal shouldn't have a significant impact on the retail industry's bottom line. Last year sales increased by 10 percent, to a tune of billions of Swedish krona. But the numbers fail to take into account a number of important factors, Fredrik Lange explains.

First and foremost, research shows that just before and after a big sales promotion, there is a notable deceleration in consumption. Not to mention the fact that there is a spike in returns in the following days and weeks, when some shoppers regret their, perhaps slightly unnecessary, impulse buys. The returns are not only an additional cost for the companies, but they have a negative impact on the environment.

"If you just focus on Black Friday and don't take into account what you lose before and after a sales bump you are evaluating the effects in the wrong way," says Fredrik Lange. "Our shopping behavior might be accelerated on this day, but the long-term effect is marginal."

Drowning in the noise

You also need to take into account that while you promote one product at a lower price, you might sell more of it – but sales will decrease on similar non-discounted products, he explains. It's not even that effective when it comes to branding. When everybody's fighting to attract companies, nobody stands out. And brand loyalty is all too often trumped by a better deal.

Now for the billion SEK question: why do so many companies still participate? You could say it's about FOMO – fear of missing out:

"It's a marketing event and everybody's doing it. So companies hesitate to drop out because they fear they might lose sales to competitors," Fredrik Lange explains. "It's important for defensive purposes. Not to be left behind."

But Fredrik Lange and Angelica Blom are seeing a slow shift in how companies approach Black Friday. A trend towards tailored offers might see a more sustainable shopping experience – for all involved.

"Today, most retailers lower prices on items you think are attractive but you're not basing it on what the individual shopper is interested in," says Angelica Blom. "We're trying to understand how we can make promotions more relevant to shoppers, based on their behavior."

Tailored offers – a move towards sustainability?

Tailoring offers to suit customers' individual likes and needs might be a way to reduce impulse buys and returns. While generic promotions often mean buying the cheapest version, regardless of its social and environmental impact, tailored promotions might be a way to steer customers towards more ethically and sustainably produced versions of their preferred items.

But the promotions as such won't disappear, according to Fredrik Lange and Angelica Blom.

"Most shoppers still want to have a store environment with promotions. Everybody loves making a good deal," concludes Fredrik Lange.

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