Black Friday Strategies
first published November 10, 2021, 8:18 am
This article is written for TurboCASH users, omnichannel retailers (OCRs), trade suppliers to OCRs, influencers, and media production companies. An omnichannel retailer (OCR) uses multiple channels to influence the purchasing decision, namely traditional stores, above-the-line media, social media,e-commerce and email. OCRs have a distinct sales advantage over traditional retailers and are thus able to command a bigger margin.
Black Friday is a term coined by American retailers to represent what has become the biggest shopping day of the year. Black Friday is not historically about the selling of slaves, but rather about the Friday following Thanksgiving when workers called in sick after their parties. Black Friday has now evolved into a massive consumer experience.
In tough post Covid19 moments like this, many retailers face the stark reality that whatever cash is taken from the tills at the end of Black Friday, must be enough to sustain the business until Black Friday next year! In Africa, this is akin to the crocodiles in the Masai mara, who must wait one year for the wildebeest to cross the river, but must be ready to gorge the day that they do!
Like traditional retailers, omnichannel retailers (OCRs) are faced with this reality: stand back, with a store full of stock and ignore BF while consumers bleed themselves white in competitors stores, or; take part and give your stock away at outrageous prices.
Associates and Influencers of omnichannel retailers too, have a choice to take part in Black Friday and finish their working year by early Dec, or skip BF and take advantage of the holiday season to improve their golf swings.
TurboCASH users who are running the TCOMNI set of books should be in a position to simply model the risk and margins of participation.
Good luck with your choice.
Consumer surplus is a term in economics to represent the marginal difference between what a consumer would have been willing to pay for a product ans service and the market price. For example if a consumer would actually have been willing to pay R 30 a beer but he is able to buy it at R 10 a beer, he will enjoy a consumer surplus of R 20 on the purchase!
Some stores get it rigth and you exit with your purchase and almost the feeling of shopifting. Those that get it wrong, leave you feeling violated and out of pocket. If you have ever experienced the consumer surplus you will know what a fantastic feeling it is - the best feeling in economics after "making a profit".
The Rostowski is named after its creator Allan Rostowski, the founder of Businessland South Africa. The Rostowski was taught to me and first used in the eighties.
"The first markdown is the final markdown". Rostowski was particularly loyal to his customers, who he saw as more important than his suppliers! "A retailer must clear his stock, otherwise he is not a retailer. I once challenged Rostowski on taking value off the table and delivering it on a plate to the consumers. "So what if you transfer value from your suppliers to your customers? What better way is there to get the customer back than to offer him real value. The aim is to clear the old stock and prepare for the new buy. It is a debit cash, credit stock, debit new stock, credit cash transaction."
It is a valid point. Stock is a current asset. If you are going to carry it from one season to the next, you are going to have to move it out of current assets where it is simply distorting your acid test ratio. The Rostowski is optimised to turn stock into cash.
The rule of thumb in an acid test ratio for an omni channel retailer is to have a ratio of 1:1. Quick assets (cash plus accounts receivable) : liabilities = 1:1.
If you are not running a 1:1 ratio or better you are destined to disappoint.
I am eternally grateful for the Rostowski. In the days when software was sold retail and the margin was 95%, the Rostowski helped me create a business that made me a dollar millionaire before the age of thirty, and allowed me to close my software wholesale business on the 15th of December.
The Rostowski – rest in peace buddy.
The Dutch Auction
For chess players, if the Rostowski is E4, the Dutch Auction is D4, a softer option, the queen's gambit of retail sales.
The Dutch auction takes its name from the Tulip industry in Holland. Farmers put their flowers onto barges and feed them into the auction chain. The flowers are cut and must be delivered to retail on the day of the auction. The equivalent end-user experience is standing in a que in Picadilly as touts sell dwindling numbers of seats for a performance with a one-time-only ticket. We all know what we want.
The Dutch auctioneer only has a limited time and the sheer volume of the barges is oppressive. Every barge must be cleared and cleared quickly. The Auctioneer starts with the highest price and goes to the first offer or eventually to the lowest price! This creates an interesting balance where every customer gains an immense consumer surplus.
Here is the point of a Dutch Auction: Stock that enters the barge does not emerge. Everything is sold! In the event that buying power has been completely depleted final stock will sell for a nominal value.
Black Friday Week
Black Friday Week (BFW) is a template for OCRs played out in three acts. The Flop the Turn and the River.
This is a Black Friday play for an omnichannel retailer that inherits from Dutch Auctions, Black Friday, Cyber Monday, and Ash Wednesday. Cyber Monday is a play that extends the period of the sale. Ash Wednesday is Copeman-speak for a strategy that preempts all the other retailers by launching first – on Wednesday and by taking the cream of the buying and by finishing the following Wednesday with all stock burned! The OCR using the BFW recognizes that Black Friday is not a single day. It starts on Wednesday, two days before Black Friday, and finishes on Ash Wednesday, two days after Cyber Monday.
The OCR divides his stock into that that must go and that stock that will not be included. Put the excluded stock in the warehouse! We will keep it until Black Friday next year! We are going to empty everything in the store!
If you think that there is stock so sacrosanct that it should be kept, read the paragraph on the Rostowski again. If you think that you can keep the stock until those table sales in February and then tap into that consumer that didn't spend her money on black Friday, Christmas, or back to school, read the paragraph on consumer surplus again.
The BFW is particularly suited to OCRs and trade suppliers that have allowed their acid test to fall below 1:1. Holding stock is what is actually killing your acid test. You are putting yourself under pressure to pay creditors while the stock sits on your floor! The BFW strategy brings stock into focus for what it truly is – an arrow in your crossbow or an albatross hanging from the mast. This is not the time to be an ancient mariner. Pull this move any other time of year and people will think you are going out of business. Nail it on BlackFriday and people will think you are a working class hero.
The BFW strategy is designed to give you the optimal cash for your next buy. Trade suppliers and influencers are your partners.
Wednesday to Friday
Everyone from the Chairmans mother to the security guards brother in law is on the retail floor. Richard Branson is delivering records from the back of his roller to Oxford Street.
Its like texas holdem. First is' the flop.
Stock is sold at Markdown One. An absolute snorter for the customer. If this works, We sell out, close the stores and restock.
Typically stock is sold at markdown one at 50% off retail.
"Dear customer. Thank you for you loyalty through the year. We are offering you Black Friday specials as a reward. Stock is prced to go."
Saturday to MondayNow comes the River. Stock is sold at Markdown three, Typically 10% of ten percent of retail! "Dear customer, thank you for your tremendous support over the tumutuos last few days. We have decided to reward your loyalty with an offer of stock at 10% of retail. This is limited to one visit per customer. What does not sell by then can go into the bin. Copeman does not call it Ash Wednesday for nothing!
Now comes the Turn. Nobody outside marketing is told this about this until Saturday.
Stock price is halved again. Stock is now sold at 25% of retail! Those consumers who could not afford Markdown One, now have a ripper at Markdown two. Those customers that purchased on friday are offered a second go – they are the first to be informed of the new markdown to markdown two.
"Dear customer, thankyou for your black friday purchase yesterday. As a mark of our good intention we are halving the price of our black friday offering and giving you first crack at buying it."
Tuesday to Wednesday
Now comes the River.
Stock is sold at Markdown three, Typically 10% of ten percent of retail! "Dear customer, thank you for your tremendous support over the tumultuos last few days. We have decided to reward your loyalty by giving away the rest of the promotion at 10% of retail. You get first dibs. This is limited to one visit per customer. What does not sell by then can go into the bin. Copeman does not call it Ash Wednesday for nothing!
Thursday to Friday
Thursday stores are closed for two days for stock taking. Everyone including the Chairmans Mother is involved in the accounts reconciliation and works in the warehose to fulfill all ecommerce orders.
Friday all trade creditors ánd influencers are settled in full!
Here is the opening pitch from the OCR to the trade supplier. "Hi bud I wanted to give you first crack at our Black Friday promo. We are going big on it this year. Right now from our records I see that we have 100 days of your stock. How about I sell it all by end of November and buy some more from you for Christmas?"
Wait for it, here it comes "What's the catch?"
"The catch is that you must be prepared to accept half price and maybe less if it does not sell. We are going to move the lot. The carrot is that we will reorder your stuff, the stick is that if you don't participate we will be reordering from those that did accept"
"Hey I don't know bru, what happens if it does not sell."
Now for the close, "We are putting millions into the TV campaign and asking you for nothing. We will get the customers there. If they don't buy, we both should probably not be in this business. There is good news. That's not all. If your stuff hasn't sold by Monday, you are welcome to come into the shop and buy it yourself. Like I said we are going to sell it all. Íf you are in you have to deliver all your stock by Monday in the Black Friday week. So are you in or are out?" Then shut up and don't be the first to blink."
The Trade suppliers are spoiled for choice when it comes to Black Friday. They can decide to participate or not with hany functioning OCR. They must know that whatever is placed onto the barge will not come back. Margins between OCR and Supplier are agreed upon upfront. Stock will be sold at Markdown one, then at markdown two then at 10%, where they are effectively given away and you receive R 1 an item.
Why should a trade supplier participate? The OCR is simply a conduit for you to the customers. If you do not clear your stock then you too will face a bleak future buy-in, with a channel filling up with gunge. You have a once-in-a-year opportunity to boost your OCR customer. This is a once-in-a-year chance to connect directly with your customer!
A tip for deciding which retailer to go with. Pick the OCR with the best script. Pick the retailer that is following BFW. Offer him the use of your staff on the floor free for the week. Don't piss off the Chairman's mother. She will be the old lady working on the floor somewhere and has been doing this for 52 years ever since she got the Chairman his first job at the OCR. She has a low tolerance for ambiguity or deviation from the script.
I suggest that you provide stock in two pallets. Pallete number one Stock that opens for sale on Wednesday for R 1! In the business, we call this a loss leader. Consider it your contribution to marketing. "Make it good – give the influencers something to sell. Social media must trend with "Hey I got a microwave at OCR Black Friday for R 1. Hurry Stocks are limited to one per customer."
Pallet number two must be stock that you are happy to receive 25% of retail prices (Assuming a 50% margin for the OCR.), and you are happy to receive 12.5% of Markdown two if the products fail to sell by Friday. And you are prepared to take R 1 for items sold after Monday!
Choose your products carefully. Don't be a schnorrer. When did you last get a chance to pay for your marketing with a retailer with stock! Fixate on the fact that it is your customer that is getting the final benefit!
It is helpful if you and the OCR to have the same goal in mind. One to clear all stock offered, Two to give the customer an unforgettable value for money experience. A true consumer surplus.
The BFW will be most suited to a high-margin wholesaler or trade supplier that has strong product obsolescence. This year's model must make way for next year's model.
Influencers and tokens
The BFW is a wonderful opportunity for influencers to role up their sleeves and make this happen. Driving in the customers using influencers is the advantage an OCR has over the traditional competitors. Understanding the three act nature of the BFW is critical to successful delivery. You need a strong script and and a cast willing to act.
Influencers are salesmen that are not in the floor of the physical OCR stores yet they drive customers towards the BFW. Tokens are a set of codes that allow the final sale to be linked to the influencer.
A series of codes links the final customer to the sale. The influencer is paid a conversion commission. Typically the campaign manager will provide influencers with three tokens. These are codes that allow the OCR to allocate the origination of a sale back to the Influencer. Commissions will range from as little as 1% to as much as 5%. The OCR wants to give you enough incentive to work your ass off promoting the BFW to your community. If the commissions are correctly calculated and the BFW has a strong enough main act, it should be worth the Influencers while to boost the sale to their own base!
The Flop code. Customers get the cream. The influencers code gets the customer primary entrance to the store on Wednesday morning.
The Turn code is issued on Friday night and gives the influencers primary access to the second markdown.
The River code is issued on Monday night and gives the influencers primary access to the Ash Wednesday burn.
Inlfuencer commissions are calcuated on Thursday and Infleuncers are paid on Friday.
The Main Act
What makes an OCR different from a brick/click and mortor chain of stores is the use of multi channels. One of these is above the line media. A cast of actors "Faces of the brand" tells the story that makes the influencers case more credible.
What makes an OCR different to a brick/click and mortor is an army of influencers. We are as much selling to the influencers as to the customers. An influencer sitting on a chair in Rustenburg can get a code and persuade a customer in Durban to buy from the OCR, knowing that the issued sales code will get the influencer a sales commission.
A good script will make or break a BFW campaign. Script writers are rare – find the best one and the best actors and influencers will follow.
The story up to the Flop involves getting awareness. Typically it is a campaign focused on above the line blast media. Getting influencers and influencers getting customers. It is a noisy time black friday – stay focused every message counts.
The Turn - second act starts on the first wednesday, telling people about the token they "Missed"and getting them to come in for Friday. Primarily driven by social media
Saturday the story moves to telling them about the second markdown and the third act the River releases in monday nght and finnishes on is Ash wednesday - telling the customers about the burn.
The BFW play is designed to take on the most vicious of competitors at the most noisy time of the year. There are few barriers to entry and an army is invited to participate. Do so wiht dognoty and honesty and uphold the code of behavior for the OCR.
On the eigth day – He rested.