Amazon want Keith to run Black Friday promotions. But will he benefit from taking part, or are Amazon just squeezing him to give lower prices?
I’ve been selling sports and fitness items online for five years through Amazon, eBay, Walmart and my own store.
For the last month, Amazon have been hounding me to set up big discounts on some of my products for Black Friday deals. They want me to knock my prices down by at least 20% for these deals, which is going to make my margins very low.
What I want to know is whether Black Friday deals are worth it. Am I likely to get a large increase in sales volume that means it will still be profitable? Will I get a knock-on effect after Black Friday because the increased sales will bump up my search rank? Or should I ignore it because the whole thing is just Amazon squeezing me to give lower prices?
– Keith T., Maryland
You’re right, it’s finally here. Black Friday, Cyber Monday, Q4 madness, peak trading or whatever you may call it… IT’S HERE!
It’s the time of year where we should all be looking forward to spending time with family and friends, enjoying our lives at a slower pace. Nah, just kidding. It’s the time of year where sellers all need to panic about selling our stuff for the best margin at the highest volume without our systems collapsing. Or, for consumers, we need to panic about buying stuff at the best possible prices before the deal runs out, or we get punched in the mouth.
It’s peak panic time.
Is it worth it?
We can hopefully agree the question is a tad loaded for me to answer. “Worth” is a matter of subjectivity of course.
As I’ve blathered on about in posts over the course of the year, it’s always in the best interest of sellers to focus on selling 10 units for $20 net margin, than 100 units for $2 margin. It’s less work, boxes, tape, labels, refunds, customer service, sweat and tears for the same final value.
However at this time of year, we all tend to focus on volume. We’re all led to believe we need to drop pricing and be competitive because the competition will otherwise steal all the traffic with their rock-bottom prices. We all race to the bottom, allowing buyers to digitally surf and save on pennies.
So, “worth” is a little up to you right now. It’s all about goals…
Is your goal to sell all of these units? It is for a lot of sellers, who source for this time of year specifically and don’t want the nightmare of having excess stock taking up warehouse space in January. There’s also the cash flow implications of having stock sitting around. In some industries, a limited shelf life makes this even more worrying. No seller wants to contact liquidators. If you need to make sure your stock is gone by the time the consumer madness ends, low margins may need to be a part of the strategy.
But, if these are continuity lines you sell all year, maybe not? There’s no sense in devaluing a product for the purposes of riding a peak madness wave, when the item is selling well throughout the year for a healthier margin. Not unless you sourced excess stock for this purpose, in which case it is!
I think it’s common knowledge for any seller who’s gone through a few of these peak-nuts times of year, but just so we all can share on this point, the answer is yes. The extra traffic will benefit all sellers, even the ones who don’t drop their prices. Your undiscounted lines should see a boost. That doesn’t mean all your slow sellers will suddenly sell, but the average seller need not touch their pricing to see a increase over the coming days and weeks.
However, just to point out, profitability should not need huge volume. If you are operating on a formula where turning a profit requires a big boost in volume, you’re in the business of gambling. What if the volume doesn’t happen? Does this mean you operated at a loss? That’s a business model you should plan to move away from.
It’s all “worth it” in the right context. If you planned for the volume, or need the volume for specific reasons around warehousing costs, space or general cash flow, it’s worth it. If this is to get more history on new lines you plan to sell over the course of the next year, it’s worth it. If this is because your calculations showed that X amount of extra volume for Y drop in margin equated to an extra Z of total profit, it’s worth it.
But is it worth it because everyone else is doing it? That’s harder to say. If your competitors are selling the same items for a lower price, you have no choice but to try and compete. But if it’s your own branded goods, it’s more of a debate.
It’s never worth it simply because Amazon said so, or because it’s now a routine, or simply… “because”. Make sure you have a goal or reason. “Worth”, in this situation, needs context.
The squeeze myth
What is Amazon’s end goal? To bring as much traffic as possible to Amazon.
How do they do that? Simple, they get you sellers to drop pricing with prominent positions on deal pages and banners.
Amazon makes their 10-15% either way. Amazon wins so long as loads of customers come along and buy product. It’s good to remember that. They do sometimes lower their selling fees to help you of course, but they win no matter what you decide to do.
For the frenzy and madness to be whipped up as high as possible, they need to advertise insanely good-looking deals to buyers. I didn’t say insanely good deals. I said good-looking. Like, if a deal was a person, we’re talking about, Zac Efron or Jennifer Lawrence-looking deals. Who cares if they can’t act, or that the script was shambolic. They are easy on the eyes, and for online conversion, that’s half the battle won already. Plus, Jennifer can act too. I’d love to eat pizza with her… Wait, what am I talking about?
So, herein lies a bit of a myth. The media by now has bought into all this. News outlets, magazines, TV anchors, business analysts, etc, are all busy getting ready to cover these events. They have the onscreen banners lined up and made, sometimes just a copy from last year’s graphics.
Reporters are ready to video fist fights between fathers and mothers over the newest flat screen TV at Walmart, or cover this year’s biggest-selling items and categories. Everything is already being discussed, or on standby, to begin the self-fulling engine of coverage = traffic = more coverage = more traffic. A giant ecommerce snake chasing its tail begins.
And like a freight train traveling down a hill, the media will frenzy buyers to “act now” while “stock lasts” because it’s all for a “limited time only” and the capitalist gods will cry tears of anguish if you “miss out” on what is, of course, the “deal of a lifetime”.
Cyber-Black reality peaking
Last year, I read an interesting series of articles. I won’t name names, but there are many on this from different sources a quick Google away. Guess what sellers were caught doing on websites, marketplaces and even in retail stores. Guess!
Some raised prices on Black Friday. And Cyber Monday.
GASP! OH THE HORROR! The indignity of it all! Oh, what a world, what a world! The sky has fallen! The end is near! We’re doomed, I tell you, DOOMED!
Despite the risk of buyer fallout, complaints and refunds, some sellers saw an advantage in the frenzy. I can’t call them evil geniuses, because it was simply a smart idea. They saw the situation for what it was.
Peak trading does have some legitimate reasons for an increase in traffic: Christmas and New Year create a need to buy extra things that you don’t the rest of the year. We all have that family member who is impossible to buy for, and many of us middle aged men get a fresh injection of socks that we strive to lose during the following year.
However, those reasons are being eclipsed by the self-fulfilling new, modern frenzy which 24-hour news cycles, social media and the general proliferation of online markets have created. We buy more stuff this time of year, because we’re told there are great deals and that we should – it’s not more complex than that.
So, some savvy sellers realized that high traffic was going to happen regardless of the “deals”. It wouldn’t matter if their items were at their best-ever price or not, during this peak season. Buyers were already convinced it must be the case. Most weren’t going to check, and many don’t even know how to.
Like the sheep that we are, the common mentality herds us to buy more stuff because it’s what everyone else is doing. I say that knowing full well I’ll be one of them. I’ll be checking websites for deals. I’ll buy stuff. I know I will. I can’t help myself. The buying drug is in the air this time of year. The first “Christmas” we get is actually all those web orders arriving at our doorstep. What we do with them, and who gets to reopen them, is the second and original Christmas.
Anyways Keith, let me get back on topic before falling into a philosophical black hole on consumerism and the loss of magic in receiving a single good gift, over a volume of many great-priced gifts.
Approach this peak-trading chaos with goals and a strategy. Likely, you need to lower prices and I suspect some Amazon Lightning Deals are worth considering for some products. I am sure there is value and merit in engaging in this, but have clear strategies.
In general, don’t get caught up in it too much. The extra traffic is coming no matter what you do. The more you do to leverage it, the better. Make sure everything is listed and accurate. Make sure it’s optimized. Get some cross-selling and bundles ready for the gift-buying mentality. And where you have a solid goal, need or strategy in mind, lower pricing and engage in deals. Just don’t go nuts blindly, is all I’m really saying.
Also, Jennifer, inbox me for our pizza date.