Dirty Little Secrets of Cyber Monday
Happy Cyber Monday friends, the largest online shopping day of the year outside of Alibaba’s 'Singles Day'. In 2018, Cyber Monday generated $7.9B in sales in the US alone and is set to beat that again this year. Last year Amazon reported it was their largest day in retail, ever.
Brief History of Cyber Monday
The shopping holiday originated in 2005 to encourage shoppers to shop online on Monday after Black Friday weekend. Coined by Ellen Davis from National Retail Federation after noticing a trend of online traffic spike on the Monday following the Black Friday weekend, it has since become the largest US shopping day of the year. By coupling the catchy phrase with sales and promotions, Cyber Monday has since served to push sales up and boost increased online shopping throughout the holiday season.
How the 'Discount' Model Works
Retailers have good reason to get excited about Cyber Monday since the online traffic spike could help them grow their businesses if they are able to capture some of the eyeballs with enticing sales and promotions. In order to fund these magnificent discounts that we all know, love and have become accustomed to, retailers frantically work to negotiate deals with brands and manufacturers to sell more product while maintaining their profit margins (retail price - cost of goods). This usually happens one of three ways:
- Retailers plan in advance to discount their product on Cyber Monday. All. Year. Long. It's built into their profit margin model so that they can make money at full-price (no discounts) and on sale (with discounts). This HiLo game can help them drive new customers, win with existing customers, and still make money.
- Retailers look at their 'overstocked' product. Effectively this means they look at what they have made too much of that isn’t selling and use Cyber Monday as a one-day opportunity to capitalize on the extra traffic on site to sell more product at a discount. In this case they may/may not make money on the sales, but at least they're getting rid of some of their warehousing expenses by having old product lying around.
- Brands and retailers go to manufacturers and make 'special make-up' products (SMUs) whereby they will manufacture a cheaper product that they can offer at a cheaper price while still maintaining a healthy profit margin.
Inside Scoop of a Big-Box Retailer on Cyber Monday.
Both of our co-founders worked for big retailers for many years. Cyber Monday was the single-most important day contributing to their year-end sales goals. If they had a bad Cyber Monday, they’d be hard-pressed to make up for it somewhere else throughout the year. Planning for this year-end holiday often starts as early as March, where they need to start negotiating with brands to develop Cyber Monday promotional plans.
On the inside of a traditional retailer, there is so much pressure to take advantage of this uber holiday. Our co-founders would plan for months in advance, setting margin and sales goals, and be online from midnight of Cyber Monday to watch the sales trickle in. As the day wore on they would continue to update leadership on how they were 'tracking' to sales goals. If things weren't looking great by mid-afternoon, they would perhaps need to increase a discount, send more marketing messages or pull some other retail tricks to drive more sales.
The Public Habit Point-of-view
We have an odd relationship with this holiday now that we’ve launched and are looking to build and grow a profitable business that requires customers. We’re still part of the retail system and have to promote our brand and products like any other business to gain traction. That being said, we don't discount our products because we believe that this model of 'HiLo' pricing is inefficient and an annoying game that retailers and brands play to trick customers into thinking they're getting a great deal.
Instead, we try to offer the best value we can to customers and suppliers every day. Not because we think we're too good for discounts but because it's inefficient to manage, a crappy experience for customers, suppliers and frankly, for the retailer as well. Here's to less heartburn and, hopefully, more meaningful interactions between brands and customers.