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What is the lowest possible price on "Black Friday"? Sellers will try to make this unpredictable. However, there are certain price strategies that any rational seller should apply. This can give you hints about the likelihood of obtaining a lower price on Black Friday, Cyber Monday and similar.
Why having price cuts at all? Normally, any producer or seller would want to have the highest gain from the products it sales, therefore a higher price is desirable. However, selling more many pieces of a product might bring higher gain than the loss from the price cut. Also, a product that is not sold brings no revenue, while selling slightly over the acquiring price still brings some money, improving cash flow.
What are the reasons for doing price cuts?
Before Christmas, the client's "pockets" are way bigger than usual, most of the people allocating a significant budget for gifts. They will probably spend all this money on gifts, more or less. The sellers and producers goes into a race to convince as many people as possible to give them a higher percentage of this gift budget - "share of wallet" is a suggestive marketing term.
After the gift budget is spent, it is unlikely to convince someone to allocate more money to buy products, especially expensive ones. Actually, after Christmas, many sales goes even lower than their yearly average. Companies that could not sell enough before Christmas might go into serious cash problems as they need to continue to pay people and even pay yearly bonuses. Therefore, all companies try to gain enough cash before Christmas.
First conclusion is that, it's logical for producers and sellers to apply "price cuts" to convince people to give them more money from their gift budgets, and not to the competition. Especially high price products (like phones, tablets, TVs) are likely to be bought in this period, because the Christmas budget is often high enough for such products.
However, most people will only have budget for one expensive object. For example, once someone decided to buy a phone from a certain producer, all other competitors lose any chance to sell a phone to him, and even other similarly high price products like TVs, laptops, etc.
When should you expect "price cuts"?
For Christmas gifts, it's reasonable to give incentives to buyers with enough time before Christmas. Actually, it's reasonable to do it early, so buyers will not deplete their budget on products from competition. On the other hand, you don't want to sell all the products on the lowest possible price, as you will "leave too much money on the table".
It is reasonable to start the most aggressive price cuts close to the last paycheck before Christmas, when likely most of the people allocate the money for gifts. This brings us close to the start of December for monthly paying. Even if there is another pay after two weeks, it might get too close to Christmas.
So, before the start of December is the most logical period to start fishing for the big gift budgets, and "Black Friday' is the perfect opportunity for this.
Why not doing price cuts all the time?
Any producer or seller tries to maximize it's gain from the products they sale (price_gain * number_of_products). The established price is already adjusted to optimize the gain in a regular period: the highest price allowing to sell enough products.
December is a bit different, because you can sell way more products than usual, if only you can convince the customers to choose you and not the competition. Therefore, you can lower a bit the price_gain in the hope that you can sell a significantly higher number_of_products, so your gain (price_gain * number_of_products) will be even higher this way.
There is a limited time before Christmas to convince your potential clients to give you their money and not to the competition.
Even a lower price will include a certain gain for the seller and producer, just that they will give back some of the gain for each product, in order to have a higher gain, overall, from more products that are sold.
Mature products gets higher price cuts
Usually, when you sell more products, your "production price" decreases, so your gain increases. The initial price includes a percent to repay the research investment, distributed to a conservative number of sold units. After enough products were sold, the research is already payed and the research part of the price becomes real gain. Therefore, after some time it is feasible to sell products way lower than initially and still have higher gain than initially.
Also, high technology products (like phones) becomes rapidly obsoleted, so you want to sell as many units as possible while they are not get too old.
Phones and tablets have a high cost of software maintenance. Keeping the units on the market requires additional spending on supporting the units, at least for the warranty period. Therefore, units that are couple of years old might get significant price cuts, however they might get rapidly obsolete after the software support is cut.
False price cuts
Many producers keep the prices higher than optimal before Black Friday, to make their price cuts look more appealing. If a product has a long periods of "price cut", probably the cut price is the normal price and you should expect an even lower price on Black Friday
Some producers might decide to increase their "share of wallet" by keeping the high price and adding a "gift" instead of a price cut. Even if the gain decreases this way, the producer can accumulate a higher overall revenue. This not only help with the cash flow, but it can also help the producer/seller to drain the resources of the competition, as there will be less money left to go there.
The lowest price
An important goal of any seller is to not disclose it's lowest price in a period. Otherwise, all people would buy at that lower price, reducing the potential (price_gain * number_of_products).
It is reasonable for the seller to start with lower cuts, evaluate the selling rate increase, then to lower the price a bit more. Most sellers knows how they are situated against competition: if they don't have the best product, they will try to compete on a lower price. Even with the best product, they still compete on the buyer "wallet" with other products that are potential gifts, so they will still want to give incentives to buyers. However, price cuts should be higher for a product that is "challenger".
One cue about the expected price cut is to observe the product price over the year. Normally, The Black Friday price should get a little lower than the lowest price in the current year. There might be an even bigger cut when the product is getting closer its "end of life", for example when the new version appears.
The price cuts are not guarantied. Any seller wants to maximize its profit. If the seller can keep the price high without losing too much sales, they will. This is especially true for premium products that don't have too much competition. For example, many people will upgrade their iPhone regardless of the price. Still, the producers will try to offer a certain "Black Friday" price cut, at least for the public image.
Some producers will set the price of the older product higher than the new version, just to create an anchor to appreciate more the new product. Combined with a little confusion around the merits of each product, this can create unexpected gains for the producer: inexperienced people will buy the old product at higher than normal price (because it looks more valuable), and more knowledgeable buyers will buy the new product at the normal price, believing they made a great bargain. This slightly immoral tactic is used very often recently. It works especially when the seller don't have a big stock of old products so the seller affords to wait for people that can be fooled like this.
Other reasons for price cuts
Need of cash - sometimes companies need money to stay on track, so they just sell anything that can be sold to stay afloat. This can happen anytime in the year, however they are more likely before long periods with low sales : after new year, after the vacation period, etc. This is probably the only reason for a company to lower the price close or below the production price (if the law allows).
Need financial results - at the end of the quarter, some companies (read CEOs) try to do a selling sprint to reach a certain revenue target. Therefore, before the end of their fiscal quarters they might throw significant price cuts to burst their sells artificially.
Before competition launches
If a way better product approaches, most producers will lower the price before buyers can go to the competition's product.
Conclusions
- expect "Black Friday" price cuts on products that can be used as Christmas gift, especially big investments for personal satisfaction (phones, tablets, TVs, audio)
- "Black Friday" price should be normally lower than the average price before December
- price cuts is often limited to the short period when people have high gift budgets - for example after the last paycheck that can be used for Christmas shopping
- beware of old products priced higher than newer versions, just to fool less knowledgeable buyers
- if the sells are not satisfactory, an even lower price might be offered. However, this is often avoided by big companies, because it creates image problems and other tactical issues - people might return the product to buy it at the lower price.
- some old products might get very big discounts just because sellers try to reduce the space in deposits. However, it is more reasonable to expect such sells before and after the buying gifts period, as customers might settle to the lower price product instead of the premium product that has a higher gain.
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