Why Black Friday is toxic for startups | by Boris Manhart | November 2022

Avoid the rush and focus on creating a product that provides benefits

Photo/Unsplash

“Black Friday”, “Cyber ​​Monday”, “mid-season sales”.

More and more discount battles are added to the original seasonal sales.

Black Friday can be a great time for some businesses to cut inventory and make a quick buck. But if you’re a start-up, you should avoid rushing and focus on building a product that delivers benefits and instead building a strong brand.

This is why:

Price is crucial for start-ups and directly impacts the perception customers have of your product and brand. Understanding your customer is the most important thing to consider when setting a price; You need to know their needs and what matters most to them in their purchasing decision. If customers don’t see value in what you offer or think it’s too expensive relative to the perceived benefits, good luck converting them into loyal customers!

Surprisingly, pricing is a topic that is usually left out in all the product market fit models and posts. This is even more amazing when you understand the importance of finding the optimal price: it is a powerful lever that defines your brand positioning and acquisition opportunities. For example, if a product sells for less than 2,000 Euros, there is little chance of implementing customer service or outbound marketing. It has to be a self-service offering. You have other options if the price is higher, say $10,000, but you automatically target different customer segments.

As a startup, you want to build a sustainable business with a competitive advantage over all rivals. That means it solves a real problem for real customers. So, you’ll only have achieved product-to-market fit once you know if and how much your customers are willing to pay for your product. Or in other words: once you know that you deliver enough value to your customer. And if you find the optimal price point, you’ll satisfy and keep your customers and maximize your profits.

The best way to determine this is to regularly talk to customers, and more importantly, shake up customers and experiment. In this way, you improve your value proposition instead of keeping the first customers by offering discounts.

It’s a vicious cycle: the more products you discount, the more people will expect discounts in the future. In other words, by offering steeper and steeper discounts on Black Friday, you are reducing the profitability of your business by attracting bargain hunters who are unlikely to repeat purchases or generate word-of-mouth marketing for the brand.

Higher purchase discounts correlate with lower LTV
Patrick Campbell of Profitwell analyzed data from 4,200 e-commerce brands and found that higher purchase discounts correlate with lower LTV. Credit: patrick campbell.

According to Profitwell, discount customers are more likely to regret it and look for a cheaper alternative, leading to a lower lifetime value (LTV). Instead of obsessing over what others are doing, focus on building a customer base that will save for a full-price purchase instead of waiting for the price to drop. If your product is worth it, and if there is demand, customers will pay for it. — customers will pay for it.

The ultimate goal of a startup is to become valuable, which is to build a brand that people trust and pay for. That’s why you should be wary of anything that could damage your brand value by associating it with low prices or discounts.

Take Apple for example: they don’t offer discounts on their products (except education), although they could easily because their products are expensive.

Marking down too much will devalue your product or service in the eyes of consumers, and may even drive them away from your business altogether because they feel like they’re getting nothing out of it.

As a customer, when you buy something, you are not only buying it for yourself but also for your community. And with that in mind, it’s essential to consider sustainability when selling products.

Sustainability has a positive impact on your business. According to a McKinsey study, focusing on sustainability is not only good for our planet and future generations, but also leads to higher profits. Lower business costs, more innovative strategies, a better reputation, and more new customers who value sustainability all contribute to higher profits in the long run.

If your business is trying to impact the world through sustainability initiatives or ethical manufacturing, discounts can send a message of hypocrisy to customers.

Credits: Soeder

But there are ways to use the Black Friday buzz to position yourself against the consumer madness. Brands like Patagonia, Freitag or Soeder boycott the battle of discounts. Patagonia donated 100% of its Black Friday sales to environmental causes in recent years. Soeder calls his customers to refill their soap bottles that day. Johan Olzon, co-founder of Soeder: “We want to inspire our customers to consume consciously. That is extremely important to us! Black Friday promotes a type of consumption that is not in line with our values ​​and harms many, socially, ecologically or economically.

You can use discounts as an experiment to try different price points. For example, if you want to see how users react when the price drops from $9.99 to $7.99, then there is nothing wrong with doing so. If you do, segment the discounts: target only those who need the extra incentive to close the deal, or use it to understand different customer groups and their buying behavior.

You can also use discounts to increase customer engagement and loyalty. Especially, if you ask a customer for something, like sign up for the newsletter or take a survey, you can offer a discount code for their next order; that’s valuable to both parties involved!

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