Black Friday and Cyber Monday are just around the corner, and if you’re a retailer, you’re likely preparing for the year’s biggest shopping event. According to the National Retail Federation, a record 200.4 million shoppers took part in Black Friday and Cyber Monday sales in 2023. Cyber Monday alone generated over $12 billion in online sales.
Every year businesses cut prices to attract shoppers who are on the hunt for the best deals. The big question is: how low should you go with your discounts?
While deep discounts can drive traffic and increase sales, there’s a fine line between attracting customers and sacrificing too much margin. Let’s explore how you can strategically set your Black Friday and Cyber Monday pricing to strike the perfect balance.
1. Understand Your Margins
Before you start slashing prices, it’s essential to understand your profit margins. Not every product can handle a 50% markdown without hurting your bottom line.
- Know Your Cost Structure: Calculate the total cost of each product, including production, shipping, marketing, and any overhead expenses. You need to be clear on how much you can discount without going into the red.
- Tiered Discounts: If some products have slimmer margins, offer a tiered discount strategy. High-margin products can carry heavier discounts, while low-margin items get a modest cut. This way, you’re offering a range of deals without jeopardizing profitability.
2. Leverage Loss Leaders
A loss leader is a product sold at a low or even below-cost price to attract customers to your store, with the hope that they’ll buy other, more profitable items.
- Draw in the Crowd: Offer deep discounts on popular products to drive traffic. Once they’re on your site or in your store, the goal is to upsell or cross-sell higher-margin items.
- Bundle Products: Create bundles that include the loss leader with other items to increase the overall order value and protect your profit margin.
3. Consider Psychological Pricing
Consumers don’t just respond to the price, they also respond to how the price makes them feel. This is where psychological pricing can come into play.
- Strike-Through Pricing: Present higher original prices alongside the discounted ones to show significant savings. Customers often perceive greater value when they feel like they’re getting a massive deal.
- Odd-Even Pricing: Prices ending in .99 or .95 tend to perform better than rounded numbers. For example, $49.99 feels significantly cheaper than $50, even though the difference is minimal.
4. Time-Limited Flash Sales
A sense of urgency can create excitement and drive conversions. Time-sensitive deals make customers feel like they’re getting exclusive, fleeting opportunities. But how low should you go in these cases?
- Steeper, Short-Term Discounts: Offering aggressive, short-term discounts (e.g., 40-50% off for a few hours) can incentivize impulse buying. Make these discounts time-bound to create a sense of urgency, but limit them to avoid too many sales at unsustainable prices.
- FOMO (Fear of Missing Out): Advertise flash sales ahead of time through email and social media to build anticipation. Once live, make sure customers know the clock is ticking—this encourages quick action.
5. Leverage AI Tools, Including Spresso’s Pricing Intelligence
During Cyber Week 2023, AI contributed to $51 billion in global online sales by offering recommendations, personalized promotions and chat support. This year, Spresso’s Pricing Intelligence will be added to that list.
If you’re unsure about the perfect discount rate, Spresso can help. Deploy Spresso’s real-time pricing agents on different discount prices to find a balance of healthy margins and conversion during the promotional period.
- Protect Your Margins: Instead of relying on blanket percentage cuts that sacrifice margin, Spresso’s pricing agents will explore different discount prices allowing you to sell through inventory and maximize your earnings.
- Real-Time Price Adjustments: Based on your defined price range and goals, Spresso’s pricing agents determine which products can support deeper discounts and which should remain closer to their original price—automatically adjusting prices in real time.
Conclusion: Finding the Sweet Spot
There’s no one-size-fits-all approach for Black Friday and Cyber Monday. The key is to find the sweet spot between offering a compelling promotion that drives traffic and preserving enough profit margin to make the event worthwhile. Start by knowing your costs and margins, then tailor your strategy to your product assortment, customer base, and competition.
The question of "How low do you need to go?" depends on your specific goals—whether you’re looking to acquire new customers, clear out excess inventory, or simply boost sales. By incorporating tools like Spresso’s Pricing Intelligence into your strategy, you can optimize discounts, protect your margins, and dynamically adjust prices as needed. With a smart pricing approach and effective marketing, you can make this Black Friday and Cyber Monday your most profitable yet.
Interested in learning more about Spresso? Contact us to book a demo!
