Here is how it works – #BlackFriday Discount Pricing

A simple and clean explanation of how stores price for Black Friday from WSJ,

Here’s how it works, according to one industry consultant describing an actual sweater sold at a major retailer. A supplier sells the sweater to a retailer for roughly $14.50. The suggested retail price is $50, which gives the retailer a roughly 70% markup. A few sweaters sell at that price, but more sell at the first markdown of $44.99, and the bulk sell at the final discount price of $21.99. That produces an average unit retail price of $28 and gives the store about a 45% gross margin on the product.

So if you wonder what happens to the sweater for its price to go down from $50 to $21.99 at 6AM Friday after Thanks Giving and then back up to $30, the answer is nothing. It is the customer mix that changes helping retailers price discriminate (legally) and maximize their profit.

One such way (to price discriminate legally) is changing the buying experience. Create enough pain in the buying experience , like asking them to skip sleep, wake up early and schlep to the store at 6AM, such that most (if not all) in the 60 to 100 range will find it not worth it, just for getting additional consumer surplus. That is why there is a 6AM deal.

Most in the 30 to 59 range will likely do that sacrifice to score the sweater at lower price.

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