CAPE TOWN – Black Friday and Cyber Monday are a consumer sensation in South Africa with businesses giving enormous discounts.
Through this, they induce a weekend where there is a fever-pitched spending frenzy across shopping centres and online platforms countrywide. For businesses to benefit from these two days, there are certain considerations that must be made.
Black Friday and Cyber Monday have, since 2014, been a trend that is on an accelerated rise in South Africa. On these two days, the average spend per South African taking part is R1 600, with clothing; electronics; and entertainment making up a bulk of the purchases each year.
“What is important for businesses to consider at this time is that a sale is essentially a trade-off between volume and value. A business can increase sales by either selling more at the same price or by selling the same amount at a higher price. Therefore, the basic formula applied during Black Friday and Cyber Monday is the reduction of price to make up the deficit through increased volumes,” says Dr Yudhvir Seetharam, Head of Analytics at FNB Business.
Seetharam says that any form of promotional discounting should only be considered under the following circumstances:
When a business wants to increase its brand awareness
Black Friday and Cyber Monday have the capacity to launch brands to the public that may have never heard of them before. This affords a brand the opportunity to use the promotional period to grow the number of people that are not aware of the existence of that brand.
When a business needs to increase customer traffic to either their store or website
Promotional periods allow a business to use price differentiation to interest a customer to visit their store or website. Dr Seetharam is also clear on that this may not result in a purchase, however, it means that the business has an opportunity to place itself in a space where it is considered by a greater number of possible customers.
When a business needs to free up storage space for new products
Sales by nature mean that there are price reductions, the knock-on effect is that you have a customer base that is more willing to buy as they feel that they are benefiting from a lower price for goods and services. The impact is that you sell out much faster and create room in your business storage for new product lines.
Dr Seetharam, however, cautions that businesses should be cautious about the potential risk of lower revenues, and lower lifetime values from their customers.
“Before taking part in Black Friday, a business must examine its profit margins and ensure that it is able to forecast sales. You can use promotional mechanics to forecast, however, this should only be done if the profit margins are healthy. Put simply, promotions should be used to drive abnormal growth on margins over a limited period, as opposed to using promotions to catch up to your forecast,” said Dr Seetharam.
Content supplied by FNB Business.