Black Friday and The Philosophy of a “Deal”
Let me try to define a few terms first as I flesh out this idea of the philosophy of a deal.
– A deal is when an objectively better product is offered for a limited time at a lower than normal price
– A price war is when subjectively different products compete on price
As I was reading much of the news from the past week an interesting thought occurred to me. If you follow much of what I write, I attempt to articulate how the mature consumer shopping mentality is not solely interested in the cheapest products out there. I try to articulate this because many in the media and investment community continually make a big deal of the price of certain electronics and often assume the cheapest products always win. I believe Black Friday teaches us a valuable lesson where the search or desire for a deal is more interesting to consumers than simply the cheapest product at any given time.
To dig into that deeper, the key to this understanding revolves around how different consumers perceive value. It is also key to understand how certain products, especially computing devices, add an experiential element that is an intangible yet valuable part of the product. This is fundamentally why some product categories price is what matters most and in others price is not as important.
What Black Friday should teach us is that consumers are more interested in deals than in cheap products, again especially in personal electronics. For example, today Apple is discounting the iPad 2 by $41 and the MacBook Air by $101. Both those products are among some of the hottest selling products on the market and I expect Apple to move a ton today during this black Friday deal. This is an example of a deal, there are still cheaper tablets and PCs on sale today but due to the demand and consumer desire of an iPad, $41 off is a deal.
I am convinced that price matters less in personal electronics due to the personal nature of things like notebooks, smartphones and tablets, primarily due to the experiential nature of those products. This is why something like a TV, that is less personal and the experience is much more subjective, is easier to argue the importance of lower price. This is also why an iPad competitor can undercut the iPad by $200 or more and still not sell anywhere near iPad volumes. The difference between an iPad and every other tablet is objectively better. The difference between TVs and HD picture quality is subjective. This is key to understanding the philosophy of a “deal.”
In many cases consumers have done their homework prior on all products of interest. Black Friday presents retailers with an opportunity to push a limited time deal which makes the item of interest that much desirable for a limited time. This I would argue is the more compelling lure of Black Friday.
After studying consumer psychology as an ever-present theme in my analysis over the past 11 years, I am convinced consumers don’t want cheap, they want valuable. Black Friday presents an opportunity for consumers to find valuable deals not cheap products.
Some products are fit to compete on price, generally those are ones with subjective differences. Other products are fit to compete with features of value, generally those are the products with objective differences.
I would appreciate intelligent comments on this as I am fleshing this philosophy out in mind, in public, as I go.
Lastly a small bit of perspective. Black Friday generally brings in around 10 billion dollars in one single day. For about that same numeric amount we can bring clean water to every person on the planet for a year.