Why Shops Hold Sales

The economics behind seasonal sales, festival discounts and events like Black Friday, including price discrimination over time and clearing stock.

From Diwali and Black Friday discounts to end-of-season clearance, sales are a regular part of shopping. Why do businesses cut prices at certain times instead of simply charging lower prices all year?

Price discrimination over time

One reason is price discrimination: charging different customers different prices based on their willingness to pay. Sales let businesses do this over time. Eager customers who want a new product immediately pay full price. Price-sensitive customers wait for the sale. The shop earns more overall than it would with a single price.

Clearing stock

Fashion, electronics and seasonal goods lose value over time. Winter coats are hard to sell in spring, and last year’s phone model competes with the new one. Clearance sales turn unsold stock into cash and free up space for new products.

Attracting customers

Some shops sell a few popular items very cheaply, sometimes below cost, to attract shoppers who will then buy other, more profitable items. These are called loss leaders. Supermarkets might discount milk or bread for this reason.

Big sale events

Events like Black Friday in the United States, Singles’ Day on 11 November in China, and festival sales around Diwali in India have become huge retail moments. Online retailers in India, such as Amazon and Flipkart, hold major festival sales that account for a large share of their annual sales. These events create urgency and excitement, and concentrate spending into a few days.

Is the discount real?

A shop advertises a television "50 percent off, was 60,000 rupees, now 30,000 rupees". But if the television was rarely sold at 60,000, the discount may be exaggerated. Studies and consumer investigations have found some retailers raise "original" prices before sales to make discounts look larger. Checking price history helps judge whether a deal is genuine.

The psychology of sales

Sales tap into emotions: fear of missing out, the pleasure of a bargain, and time pressure from countdown clocks. These can lead people to buy things they did not plan to buy. A purchase at 40 percent off is not a saving if you did not need the item.

Thinking you save money every time you buy on sale

You only save money if you were going to buy the item anyway. Buying something you did not need because it was discounted means spending, not saving. The discount percentage is less important than whether the purchase fits your plans.

Key takeaways

Sales let shops charge eager buyers more and price-sensitive buyers less, a form of price discrimination.
Clearance sales turn ageing stock into cash.
Loss leaders attract shoppers who then buy profitable items.
Sale events create urgency, so it helps to check whether discounts are real and purchases needed.