[THE VIEW]Social Issues of Black Friday Sales

From Discounts to Extended Returns and Refunds
$15 Trillion Spent in Just Five Days in the U.S.
Side Effects Include Overconsumption and Rising Waste

Every year, the last Thursday of November is Thanksgiving Day in the United States. Thanksgiving is a kind of holiday where family and friends gather to share a hearty dinner. Then, starting from the next day, Friday, large-scale bargain sales take place across the U.S. throughout the weekend. This is called Black Friday. Koreans might be more familiar with the Black Friday sales than with Thanksgiving itself. Nowadays, with overseas direct purchasing (direct import) becoming easier, Korean consumers can also directly enjoy Black Friday sales.

On Black Friday, all stores and brands we know, such as Amazon, Walmart, Microsoft, Dell, Polo, and Nike, hold discount events. Sometimes all products are sold at half price uniformly, sometimes only clearance items are discounted, and sometimes only the most popular products are on sale. There are also various forms of discounts, such as buy one get one free or gift certificates. For example, the department store brand Saks Fifth Avenue held a sale this year where customers received a $75 gift certificate when purchasing $150.

Besides low prices, there is another benefit consumers can enjoy during Black Friday: the return and exchange period is temporarily extended. For consumers who buy Christmas gifts during Black Friday, the exchange and refund period usually lasts about 50 days until mid-January. Because of these benefits, American consumers spend enormous amounts during Black Friday every year. This year, about 15 trillion won (1.1 billion dollars) in spending occurred within just 4 to 5 days.

It is obvious that consumers benefit, but do companies also profit from these discount events? If you look at each sale item individually, they incur losses. Even if they do not sell below cost, compared to the regular price without discounts, they obviously lose money. However, overall, companies profit from these sales, which is why they hold them. How do they profit? First, losses on discounted items can be offset by other non-sale items. For example, selling laptops at very low prices can be compensated by making large margins on accessories like laptop bags and mice, and by selling extended warranties to increase sales. Also, sales can increase brand affinity, which helps profitability in the long term.

Second, companies can earn greater profits through price discrimination. Price discrimination is a strategy that takes advantage of the fact that different people are willing to pay different amounts for the same product. For example, imagine two people want to buy a TV. One is a student with limited funds willing to pay $500. The other is a wealthy but busy investment banker who values Thanksgiving as a precious holiday to spend with family and is willing to pay $1,000 for the same TV. The company can implement the following price discrimination strategy: set the TV’s regular price at $1,000, but sell it for $500 to customers who visit the store at 5 a.m. on Black Friday. The key is that receiving the discount requires effort and inconvenience, which helps distinguish between the two customers with different willingness to pay.

Another type of price discrimination is also possible. Electronics companies, including Apple, generally discount the previous version (a kind of clearance item) before releasing a new version on Black Friday. The new version has better features but is expensive, while the old version may lag slightly in features but is cheaper, thus ‘discriminating’ between two groups with different willingness to pay through price. This kind of price discrimination significantly contributes to increasing company sales.

Third, companies can promote inventory clearance and turnover. By selling off items that have accumulated as unsold stock at low prices, companies can secure space and capacity to stock popular or new products.

In this way, Black Friday sales benefit both consumers and companies. However, there are social issues such as encouraging overconsumption and generating excessive pollution and waste like fast fashion. Therefore, from the perspective of overall social utility, it might be better not to hold such sales too frequently.

Seo Boyoung, Professor at Indiana State University, USA