It can never be a surprise how the tradition of Black Friday has been turned into The Hunger Games. I have seen videos all over social media and the news of how shoppers fight over unusually discounted products. At the end of the day, only those who intended on buying something and so happened to get it on discount through Black Friday are the real winners. And the rest of us? I hate to say it, but we've lost!
Businesses have spent money and time trying to understand customers’ desires in an attempt to drive them wild. We can all agree that we have once had FOMO (the fear of mission out) when it came to these Black Friday deals. The fear of missing out plays a pivotal role in how we make decisions. In the short run, we have the tendency to regret our actions, and we often regret what we did not do. We either regret not buying something, or we regret actually making a purchase.
But what is the REAL deal with the craze over Black Friday?
In the days leading up to Black Friday, social media (and my personal cell!) is flooded with bargain deals and stores get so much attention from the media. The media overload exerts great influence over consumers which further creates an impression of a pivotal social event and developing the fear of missing out which can be likened to the concept of loss aversion.
Loss aversion is the tendency for people to avoid loses. On average, we feel losses twice as strongly as we feel gains of the same magnitude. Kahneman and Tversky coined up the phrase “losses loom larger than gains” to describe in simple terms what loss aversion means*. Individuals experience the pain of loss more powerfully than that of gaining, which simply means that people may be more willing to risk in order to avoid loss than to acquire a gain. In simple terms, it is better not to lose on that Black Friday TV deal than to win a TV.
The effect of loss aversion on Black Friday spending
In our daily lives, loss aversion is common when we are faced with making financial decisions. This is particularly true when it’s that GREAT Friday, where you and I tend to prepare for it from early in the year. We fear that if we miss the Black Friday deals, we would have incurred a huge loss. We are less likely to buy certain products or appliances if we think it’s a risk that would potentially result in losing money, even though there may be an increased reward potential. So, we avoid buying certain products during the year because they are expensive. According to consumer research, purchasing a product at a price lower than what the customer was willing to pay, or lower than the normal price, is gratifying.** Even if the customer does not necessarily need it. The promotional deal itself is satisfying.
I have come to realise that the deals on Black Friday are not particularly different to the sales that I see over the course of the year. The only difference is probably how it is marketed or positioned to the consumer. Emmie Martins details how she has been shopping for good deals on Black Friday the past 10 years. Amongst the tips that she mentioned, I actually realised why I never go shopping on Black Friday - I always make a list but end up with more than what was on the list! Which is not such a wise move.
* Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263-291.
** Robert M. Schindler (1989),"The Excitement of Getting a Bargain: Some Hypotheses Concerning the Origins and Effects of Smart-Shopper Feelings", in NA - Advances in Consumer Research Volume 16, eds. Thomas K. Srull, Provo, UT: Association for Consumer Research, Pages: 447-453.
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