Why Black Friday Is Toxic for Startups
Skip the rush and focus on building a product that delivers benefits
“Black Friday,” “Cyber Monday,” “mid-season sales.”
More and more discount battles are added to the original seasonal sales.
Black Friday might be an excellent time for some businesses to decrease inventory and make a quick buck. But if you’re a startup, you should skip the rush and focus on building a product that delivers benefits and create a strong brand instead.
Here’s why:
Finding the right price is crucial for startups.
Pricing is crucial for startups and directly impacts customers’ perception of your product and brand. Understanding your customer is the most important thing to consider when setting a price point; You need to know their needs and what they care about most in their purchase decision. If customers see no value in what you offer or think it’s too expensive relative to its perceived benefits — good luck converting them into loyal customers!
Surprisingly pricing is a topic usually left out in all product-market fit models and publications. This is even more surprising when you understand the importance of finding the optimal price: It’s a powerful lever that defines your brand’s positioning and acquisition opportunities. For example, if a product is sold for less than 2000 Euros, there is little possibility 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 euros, but you’re automatically targeting different customer segments.
More value equals higher prices.
As a startup, you want to build a sustainable business with a competitive advantage over all rivals. That means you solve a real problem for real customers. Therefore, you’ve only reached the product-market fit once you know if your customers are willing to pay for your product and how much. Or in other words: Once you know you deliver enough value to your customer. And if you find the optimal price point, you will satisfy and keep your customers and maximize your profits.
The best way to determine this is by regularly talking to customers and, most importantly, churning customers and by experiments. This way, you improve your value proposition instead of keeping early customers by offering discounts.
Refrain from entering the vicious circle of discounts.
It’s a vicious circle: the more products you discount, the more people will expect discounts in the future. In other words, by running steeper and steeper discounts on Black Friday, you’re reducing profitability for your business by attracting bargain hunters who are not likely to make repeat purchases or generate word-of-mouth marketing for the brand.
According to Profitwell, discounted customers are more likely to churn out and look for a cheaper alternative, leading to a lower lifetime value (LTV). Instead of being fixated on what others are doing, focus on building a customer base that will save up for a full-price purchase rather than wait for a price drop. If your product is worth it — and if there’s demand — customers will pay for it. — customers will pay for it.
Start building a solid brand early.
The ultimate goal of a new company is to become valuable, which is to build a brand that people trust and pay for. That’s why you need to be careful about anything that might damage your brand equity by associating it with low prices or discounts.
Take Apple as an example: they don’t offer discounts on their products (except for education), even though they could easily do so because their products are expensive.
Discounting too much will devalue your product or service in the eyes of consumers, and it may even lead them away from your business entirely because they feel they’re getting nothing out of it!
Think sustainably
As a customer, when you buy something, you’re not just 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 contribute to higher long-term profits.
If your business is attempting to impact the world through ethical manufacturing or sustainability initiatives, running discounts might send a message of hypocrisy to customers.
But there are ways to use the Black Friday buzz to position yourself against the consumerist craze. Brands like Patagonia, Freitag or Soeder boycott the discount battle. Patagonia donated 100% of its Black Friday sales to environmental causes in the past years. Soeder calls its customers to refill their soap bottles on 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.”
When to use discounts
You can use discounts as an experiment to test different price points. For example, if you want to see how users react when you lower your price from $9.99 to $7.99, then there’s no harm in 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 purchase behavior.
You can also use discounts for increased customer engagement and loyalty. Especially, If you ask something from a customer, like signing up for the newsletter or taking part in a survey, you can offer a discount code for their next order; that’s valuable for both parties involved!
Conclusion
If you are a startup company, Black Friday is not for you. Focus on what matters most: Getting to product-market fit and understanding what your customers are willing to pay for your product. Or — at a later stage — on building a loyal customer base. This will help increase your business’s valuation and generate future profits.
However, apply discounts as an experimental measure or to reward loyal customers. And you can still use the Black Friday buzz with counterintuitive promotion to position your brand as sustainable and trustworthy.
What’s your take on this topic? We want your thoughts! Please leave me a comment below or send me a message.
