Professor Mike Haynes
In the local high streets and shopping centres store after store have sales on. But it is still several weeks to Christmas when buying at full price is supposed to be at its peak.
You have to ask whether this makes sense? And even if it does do we want another day when we all go crazy and spend even more? That’s the logic of Black Friday. It’s an import from the USA, where some say it has been around for as much as fifty years. But it has only really been massive for the last couple of decades. Asda (Walmart) played a big role in bringing it to the UK a few years ago but it still feels fairly weird despite the free media coverage it generates as we queue and battle to get a bargain.
The problem for the stores is twofold. If people buy in a sale on Black Friday, what happens to shopping on a normal day? That’s right it could go down. Why spend on Monday, Tuesday, Wednesday or Thursday if you can buy it cheaper on Friday?
This takes us to the second problem. It’s what economists call the price elasticity of demand. The idea is quite simple – how much will sales expand or stretch (the elastic bit) if you cut prices? You may not even recoup what you lose by reducing the price of the thing in the sale. It gets even worse if you have to sell near to or even below cost prices!
Surely no shop would do that? Well don’t be too sure. When we study economics and business we are as interested in when the market fails as when it works. And we know that in a situation of an oligopoly - there is a higher chance of this happening. Oligopoly can lead to a death spiral. I cut my prices to beat you, you cut yours and then I have to cut mine again and so on until one of us cracks. Elements of this can be seen in the high street at the moment, especially in the competition of the supermarkets. Having strong sales is no good unless you also have strong profits. Any fool can sell something and make a loss.
Which brings us back the problem of Black Friday. There is a lot of justifiable suspicion as to whether it works. Asda has clearly decided to pull back. But those who work in retail are no fools. Often the logic of the deals is to get us to come into the store and then trick us into buying what we don’t want or buying at higher prices than we imagine.
Black Friday deals are often not what they are cracked up to be. This is deliberate. Just like in universities, those in the business world study human behaviour. They know that people can be seduced and nudged into making bad decisions perhaps more easily than they can be seduced and nudged into making good ones.
So if you manage to go out and get a real bargain then good luck to you. But before you tell everyone how clever you have been just take a moment to think whether you really have the amazing deal you think you have and whether it was worth the effort. And if you give it a miss don’t worry. If things don’t look up in retail (and they are not looking good) then there will be even more bargains to come. You probably will not even have to wait until the January sales to get them.
Mike Haynes is Professor of International Political Economy at the University of Wolverhampton Business School.