Some good news for online holiday shoppers: Bargain-hunting binges could drive prices down as Web-based retailers compete to offer bigger discounts, two marketing researchers predict.
First some background:
A recent poll by Shopzilla found that nearly 84 percent of online retailers will have Cyber Monday promotions, up 12 percent from last year.
Cyber Monday (Dec. 1 this year) is the online response to Black Friday, the day after Thanksgiving when stores are traditionally flooded with customers, some of whom camp at the entrances overnight to take advantage of steep discounts.
However, with consumers skittish about spending money in the current economic climate, online retailers have felt pressure to offer sales and discounts even before Black Friday, said marketing researcher Jonathan Bohlmann of North Carolina State University.
But how online retailers decide to offer those big savings isn't a simple matter of trying to attract consumers who are watching their wallets, Bohlmann and his collaborator Cenk Koças of Sabanci University in Istanbul, found in a study of online shopping detailed in the May issue of the Journal of Marketing. Online stores will also pay attention to the deals their competitors are offering, potentially sparking price wars between certain retailers to attract all those potential bargain-hunting customers.
Switchers and loyalists
Online shoppers can be divided into two types, Bohlmann said: "switchers" and "loyals." Switchers compare prices between retailers and go for the cheapest one, while loyals stick to one brand or store — "it almost doesn't matter what price you charge," Bohlmann said.
Web retailers will look at the ratio of switchers to loyals they have in order to decide whether to make markdowns; the more switchers they have, the more they're likely to discount. But retailers don't just look at their own customer breakdown, they also look at the competition.
If one Internet store has a higher percentage of loyals than the competitor, it can afford to keep prices higher. Conversely, if it has a higher ratio, it might want to lower prices.
Of course, switchers may not be looking at every competitor, so as a retailer, "you have to pay attention to who those switchers are looking at," Bohlmann told LiveScience.
So, for example, if you're Amazon.com, and you see that most of your switchers are only comparing you to Barnes & Noble and not smaller retailers — even if those smaller sites are offering deeper discounts — you'll only pay attention to Barnes & Noble's prices.
Even with the seeming rise in switchers, it might not be worth it for every retailer to discount if they still have a relatively large number of loyals; the number of bargain-hunters they could attract wouldn't be worth dropping their prices, Bohlmann said.
But it seems with the current state of the economy more retailers will be discounting, causing prices to drop, Bohlman said, because "they are acting like … a lot of consumers are going to be more price-conscious than they have in the past."
Shop 'til you drop
Meanwhile, while many retailers are expecting lower sales figures this year compared to last, shoppers may still be out in droves, both to real stores and malls and online.
A recent Maritz Poll found 41 percent of respondents in the United States planned to shop on Black Friday, up from 37 percent last year. Some 26 percent said they plan to shop on Cyber Monday, up from 20 percent last year.
The poll of 1,525 adults was conducted Oct. 14–24 and released this week.
Younger people may offer a surprising boost to brick-and-mortar retailers this year. In one Arizona town, as an example, a group of teens and twenty-somethings plans to head to a local mall right after Thanksgiving dinner to camp out overnight in search of deals on electronic gadgets.
The percentage of people planning to shop Black Friday, according to the Maritz Poll:
- Gen Y (born from late 1970's to early 1990's): 53 percent
- Gen X (born from late 1950's to early 1970's): 46 percent
- Baby Boomers: 36 percent
- Older than Boomers: 10 percent
"It’s good news for retailers that Gen Y hasn't lost its penchant for Black Friday," said Tom Krause, director of strategic consulting for Maritz Research Retail Group. "This generation is known for their impulse spending and taste for fashion so they are a great target for retailers this holiday season. Plus, according to the survey, they are the only generation saying they will spend the same as last year ($550), rather than cutting back, which could be attributed to the fact that this particular generation has never really experienced a recession."