A Scientific Approach to a Successful Black Friday
Strategic Analysis on Discounting & Promotions
It’s that time of year again when many companies start wrestling with the core questions surrounding their Black Friday strategies. What should be promoted? How much of a discount should be offered? How long should promotions be available? What impact should be expected to count the strategy as a success?
Twenty to fifty percent of promotions generate no noticeable sales lift or actually destroy value when accounting for margin erosion and long-term brand damage1. But the promotions that work can drive 100-300% sales increases while building customer loyalty.
The core problems with any discounting are clear: discount too little and you miss the opportunity to capture new customers and drive sales; discount too much or too long and you train customers to never pay full price again. Pick the wrong products to discount, and you simply pull forward future full-margin sales that would have happened anyway, thus destroying value.
Notwithstanding the fact that many companies take a broad and insufficiently varied approach to their Black Friday promotion strategy (just think about how many companies simply have a 30% off sitewide approach), decades of academic research and real-world case studies show that a systematic approach to answering four key questions can greatly increase a company’s chances of getting it right. Here’s our framework for how to approach discounting generally.
Decision 1: Which Products to Discount
Most companies debate whether to discount bestselling products to drive traffic and conversion or to discount slow movers to clear inventory. Research is clear on this one: do both, but strategically.
First, popular items work as traffic magnets. When you discount popular products, you create a powerful halo effect–for every unit of promotional lift, studies show customers buy an additional 0.16 units of other products2. Studies have shown that only about 25% of Black Friday shoppers buy only the promoted items. So, driving traffic either in-store or online with select popular products can be expected to provide overall lift beyond those products alone. This value gets enhanced with proper bundling promotions.
Second, and more problematically, companies frequently discount too many of their best products that would likely sell at full margin over time. Particularly in the case of durable vs. consumable goods, promotions on products that are already meeting targets just pull forward demand at lower contribution values. McKinsey estimates this effect destroys between 400 and 800 basis points of value3. Discounting these products is just giving money to consumers to do today what they are likely to do tomorrow. If you are not increasing lifetime value, you are essentially generating a temporary sugar high that will necessarily be followed by a trough.
The key is to balance the two. Allocate 20-30% of your promotional budget to popular items during major events like Black Friday to drive traffic and maximize new customer acquisition, plus the halo effect of spillover purchases, while using the majority of the promotional plan for continuous, margin-optimized clearance of underperformers.
Worth noting that studies also show that price promotions alone massively underperform a combination of price and non-price promotions. Coupling price promotions with display advertising and push campaigns can increase lift by 8x over price promotion alone.
Decision 2: How Deep to Discount
A study of 28,000 pushed promotional text messages via Shopify found that 50% discounts were the most commonly used by companies, but counterintuitively, 15% discounts drove the most conversions4. Classic supply and demand curves would lead anyone to believe that quantities should go up as prices go down, but in promotions, often the profile of the shopper shifts as the discount steepens. Very large discounts tend to attract the marginal shopper, who lacks the same level of purchase conviction and is less likely to buy spillover products driven by the halo effect.
By contrast, modest discounts can incentivize more traffic from higher-purchase-intent customers who may switch brands or stores with a marginal push. To the extent that the promotion pulls demand forward, the contribution impact is lessened, thus increasing the overall economic value of the promotion. Further, steep discounting tends to create suspicion in customers as to why a product is being sold at such a low level, indicating low desirability.
Another good study showed a U-shaped curve on discounting: reductions of less than 5% tend to make no difference. Discounts of 5% to 35% move the needle and can actually generate brand loyalty (particularly when coupled with promotions that wrap the offer in a reward for loyalty), whereas discounts over 35% reduce conversions, as they signal negative desirability for the products4. The punchline: focus most discounting in the 15-25% range, reserving higher discounts for very select promotions that are not seen as repeating, or given only to select customers.
Decision 3: How to Present Discounts
The above discussion on discount levels focused entirely on percentages, but discounts can be presented or offered in many ways, from percentage off to dollars off to buy-one-get-one structures to free months in subscriptions. Here’s a bit about what we know about how customers perceive value.
Dollar discounts outperform percentage discounts for products over $100, while percentage discounts work better below that threshold – a pattern driven not by rational calculation but by cognitive shortcuts that make consumers focus on whichever number appears larger. This finding, validated across dozens of empirical studies spanning three decades, reveals that perceived discount magnitude matters far more than actual savings, with real-world retailers achieving 12-16% revenue lifts simply by optimizing how they frame identical discounts.
A $50 discount on a $200 laptop feels more compelling than “25% off” despite being mathematically equivalent, while “25% off” dominates “$5 off” on a $20 t-shirt. This pattern stems from consumers’ reliance on absolute numerical magnitude rather than calculated value, a cognitive heuristic that marketers can leverage once they understand the psychological mechanisms at play.
First, the numerosity effect makes people focus on absolute numerical magnitude while ignoring units. Attribute differences appear larger on scales with higher unit counts (e.g., 84 months sounds longer than seven years). Second, cognitive fluency powerfully influences discount perception through ease of mental processing. Consumers incorrectly judge discount magnitude to be smaller when computations are difficult (e.g., $4.97 – $3.96) compared to when they’re easy (e.g., $5.00 – $4.00), even when the actual difference is nearly identical.
Pick your presentation methods to maximize perceived value. Those who do this carefully will certainly sell more at the same discount level vs. those who do not.
Decision 4: How Long Before You Reset Prices
Studies show that promotional effects can persist for approximately 5-8 months before becoming permanent reference price changes5. After this threshold, consumers start viewing your “sale price” as the real price6. Essentially, anchoring creates a sense of reference pricing that promotions can reset. Running limited-time, limited-discount, or limited-quantity promotions has a lesser impact. Very high discounts at unlimited quantities for an extended period reset the anchor and cause consumers to build the expectation that buying at full price is wasteful.
Black Friday sets up for a short-burst promotion, relieving the problem of extended discounting, but prices need to reset quickly, or you risk moving your reference price levels. As the holiday selling season has expanded from just Black Friday to an extended period of promotions starting weeks before Thanksgiving and running through post-Christmas sales, the risk of price referencing and brand damage has increased. Don’t talk yourself into thinking you are just running a short-term sale if you start your discounting at Halloween…
Black Friday Strategy: Promotions That Offer Lasting Value
Black Friday discounting and promotional tactics can be powerful but must be done strategically. The right mix of methods can increase new customer conversion, raise brand visibility and push slow moving products in need of a boost. On the other hand, broad promotions like “sitewide 20% off” sales that last for weeks mostly pull forward demand that would happen anyway, and retrain your customers to expect to pay less, eroding long term value. Pick products carefully to drive traffic, maximize the halo effect, and maximize retention. Do so on a limited-time frame basis. Being deliberate across these points distinguishes those who will win with promotions vs. those who are simply driving sugar highs.
About Peter Harris & RAF
Peter Harris, Senior Vice President & Chief Operating Officer, works closely with leadership teams to drive growth, overcome operational challenges, and realize strategic objectives, as well as sourcing and executing new portfolio opportunities.
RAF was founded 45+ years ago and acquires control positions in middle-market companies across a diverse set of industries. We maintain a long-term strategy focused on investing in businesses with strong management teams, a demonstrated history of growth, and potential for acceleration, with EBITDA of $5-20 million.
References
- Gauri, D.K., et al. “Promotions in Retailing.” In Retailing in the 21st Century: Current and Future Trends. ResearchGate. https://www.researchgate.net/publication/226860793_Sales_Promotion
- Ailawadi, K.L., Gedenk, K., Neslin, S.A., and Leeflang, P.S.H. (2007). “Decomposition of the Sales Impact of Promotion-Induced Stockpiling.” Journal of Marketing Research. Dartmouth Faculty Publications. https://faculty.tuck.dartmouth.edu/images/uploads/faculty/kusum-ailawadi/Decomposition_of_Stockpiling_JMR_2007.pdf
- McKinsey & Company. “Hitting the Mark: Why Markdowns Matter More Than Ever.” McKinsey Retail Insights. https://www.mckinsey.com/industries/retail/our-insights/hitting-the-mark-why-markdowns-matter-more-than-ever
- Aampe. “Which discount percentage drives the highest conversion rate?” Aampe Blog. https://aampe.com/blog/which-discount-percentage-drives-the-highest-conversion-rate
- Mela, C.F., Jedidi, K., and Bowman, D. (1998). “The Long-Term Impact of Promotions on Consumer Stockpiling Behavior.” Journal of Marketing Research. Columbia Business School. https://business.columbia.edu/sites/default/files-efs/pubfiles/3048/jedidi.pdf,,slow-movinglong-term
- Mela, C.F., Gupta, S., and Lehmann, D.R. “The Long-Term Impact of Promotion and Advertising on Consumer Brand Choice.” Cited in Mela et al., Columbia Business School.
