December 2019 | 

Black Friday Needs to Go — Analytics Proves It

Black Friday Needs to Go — Analytics Proves It

Did you stand in line (or jump online) last week so you could grab a Black Friday deal? Americans spent over $717 billion on the day after Thanksgiving last year. That’s over $1,000 per person and an increase of more than $35 billion from 2017. It’s a great day for retailers, right?

Wrong, according to Wharton Marketing professor Peter Fader, who is leading the charge to get rid of the super sale day. “Enticing customers who never enter your store on any other day is a waste of time and energy,” he says. “Retailers should instead focus their efforts on recruiting and rewarding good customers instead of incentivizing the short term.”

Fader, co-author of The Customer Centricity Playbook, says Black Friday is “a bad thing on all dimensions. Companies hate it. The idea that you make all of your money for the year on one day — or one or two weeks — is not smart. If you can’t sustain yourself through the year what does that say about your business model?”

But it’s not just about sustainable business practices. Those stores that open at midnight are fully staffed with employees that didn’t get the holiday off, and limited quantities of “doorbuster” sale items encourage bad behavior (think stampeding mobs). Every year, typical injuries include broken bones and concussions, and at least 10 deaths have been attributed to Black Friday shopping.

Why then does it continue? Fader says companies feel pressured by investors. “They’re not aware of an alternative. But I am working to help change that narrative.” He explains the real problem: Black Friday sales entice the customers retailers should not be targeting. “Currently, product development, supply chain cycles, and even strategy revolve around that time of year. They’re making this huge effort to reach the wrong people once a year.”

Instead, demand for products should reflect genuine consumer interest. “The more companies gin up sales with crazy promotions,” says Fader, “the less effectively they are operating. It provides a misleading read on who your customers are and what they want.”

One way to diminish the emphasis on Black Friday is to focus consumer attention somewhere else. Fader suggests January 1, when customers are focused on making changes large and small through New Year’s resolutions. He says the shift would be “a win for the overall analytics mindset.”

“Black Friday is public enemy number one for anyone who has analytical perspective. It is a symbol of what analytics should be able to cure. Businesses should be more than just selling as much as they can as cheaply as possible. Analytics gets us past the surface. It helps companies be smarter, more forward looking, and in alignment with what is best for the long run. It helps us understand the true drivers of demand and find ways to leverage them. Wiping out Black Friday would be a victory for analytics.”

Using Analytics for Corporate Valuation

Fader was the co-founder of predictive analytics firm Zodiac, which was sold to Nike in 2018, and is now director and co-founder of Theta Equity Partners. The new firm helps companies, investors, and private equity firms to more effectively estimate corporate value.

“By projecting how many customers a firm will acquire, how long they will stay, and how much they will buy, we can give potential buyers a much more accurate prediction of future revenue,” says Fader. “We’re not trying to change Wall Street’s current models with customer-based corporate valuation (CBCV), but we can augment them. Valuation is more effective when you are able to include customer behavior.”

He says the CBCV models are the same ones he uses with marketers when explaining how Black Friday works against them to attract the wrong customers. “When I show these models to participants in Executive Education programs, there is a different level of interest than there was five years ago. That’s also true of analytics in general — there’s a growing demand for it. They see what they can do with something like CBCV, and then they start looking at other challenges their organizations are facing that can be solved with analytics.”

Would you like to learn more about customer analytics? Wharton Executive Education offers Customer Analytics for Growth Using Machine Learning, AI, and Big Data to sharpen your analytics mindset and teach you how to select the right tools for predicting future customer behavior.