Whenever they call a day “black”, you know something bad is going to happen. On the Friday after Thanksgiving, I wanted to vomit. Not because I ate too much, but because of the destruction done to the U.S. economy. As a purveyor of value creation, I find Black Friday repugnant. Even if you are not a retailer, there are lessons here for all of those fighting off commoditization.

U.S. retailing used to be the Pareto Principle in action, with as much as 75%-80% of profits being realized in the 4^th quarter. The holiday season has turned into a race of who can open the earliest, and sell the cheapest flat screen TV (you could have bought a 42 inch flat screen at Best Buy for $199).

Last year I was talking to a corporate Vice President who was quite happy with herself after doing all of her Christmas shopping on a single day (I believe 4 AM is still the middle of the night if you want to get technical). I asked her, “how many items did you buy”, “17” she said. “How many were on sale” I asked- “17” she replied.  The defense rests.

Retailers work on “blended margin”, the ability to attract customers with lower priced goods, only to flip them to higher margin products.  In grocery stores, staples such as milk which are very low margin are at the back of the store, and higher margin produce and deli at the front in the “traffic pattern”.  Black Friday represents the destruction of 100 years of merchandising evolution, and creates a frenzy of deep discounts (one shopper in Porter Ranch, CA used pepper spray on another over an Xbox).

Some may argue that the “strategy” is to win shoppers for future trips and control market share. That may work for the low price leader (WalMart), but it doesn’t work for other retailers and boutiques. Those are the retailers trying to train their customers to realize the value of their service, knowledge, and unique offerings, and may only have one or two shots at the buying crazed mother with three kids.

Here is the single most important and basic business principle one could ever communicate in a business blog: prices should be high when demand is high, and prices low when demand is low. The destruction of the industry is inevitable if retailers continue to discount the deepest when demand is high. The shame, the shame!

Here is a prime illustration of how deeply this perverse thinking has infiltrated the industry. Recently I was shopping at Macy’s, selected a garment and brought it to the register, clearly marked with the price I was willing to pay. The cashier pulls out a coupon and says, I can give you another 25% off.  The defense moves for an immediate verdict your honor.

Defenders will say that the competition made me do it. What competition? China, WalMart, Best Buy? The true answer is Amazon and other online retailers who have changed the game forever, and this year kicked in free shipping to make their offer more compelling (online purchases are predicted to rise another 17% this year). So the real problem is not some evil empire. We have seen the enemy and it is us.

In order to fend off deep discounting:

1. Find products that can co-exist with online purchases. How can your products compliment the deeply discounted products? An iPad offers very little margin to the retailer, but accessories such as head phones and adapters are very high margin and offer the opportunity for repeat business.
2. Reinvent your model so that you are purposeful in selling complimentary goods. If you are going to sell them a gun at cost, you had better have the staff, expertise, merchandising and inventory to sell them some bullets as well.
3. Teach your employees the profit formula. Most of your employees think you are making a ton of margin on those handguns, so you need to teach and incent based on your objective of selling more ammo (I would have picked a more pleasant example but I am feeling like a curmudgeon after all of this discounting).
4. Provide the ultimate in-store experience that rivals or beats the online experience. Perhaps customers can see, touch and feel products that are shipped to them later, or to their loved ones.
5. Select targets (product, location, etc.) that are less vulnerable to price attacks from discounters and online retailers.

Let the treasure hunters go to the competition; they are the least loyal of shoppers and you can’t make any money selling to them anyway.

With the sluggish selling season will be plenty of opportunities for deep discounts. Deep discounting marginalizes a business (unless you are the low cost leader). Retailers may need to offer products at cost, but should do so with a clear pricing strategy built on balancing market share and profit.

At the current rate of job growth, it would take 20 years to return to the level of employment before the downturn[i].  Over 2% of Americans have been out of work for a year or more, and with the gradual elimination of their unemployment benefits, their future looks bleak. It is believed that another 10% of the U.S. workforce is “underemployed”, surviving on part time work, and under the table side jobs. Unlike past recessions, it is not only the factory workers and retail employees who have been cut back, vast numbers of white collar (skilled) people, find themselves seemingly unvalued. What a tragedy.

Things are not much easier for the fully employed. They have been bludgeoned over the last two years, as their salaries, overtime, and pensions have been cut. A recent study revealed that amongst employers, “work life balance” slid from 4^th to 16^th in a ranking of employer workforce priorities. Measuring workforce performance rose from 9^th to 4^th (don’t ask me how it was ever 9^th) reflected the move to more bottom line business results. American employers have a bit of a hangover, as 28% predict further salary reductions and 52% expect lower retirement plan contributions to continue. [ii]

As the promise of lower costs is now flowing through to the bottom line, many business owners are returning to prosperity.  We all need to be mindful of the sacrifices made by our employees. Lost in the health care debate is the fact that health care inflation is rising twice as fast as wages. It has been a two year grind, and people who have not taken vacations and are fighting pay check to pay check are becoming physically and emotionally exhausted.

At the very least, employers should consider reinstating lost benefits and being more proactive in completing performance reviews and the like. Just because business is sluggish is not a good reason to stop giving feedback and honoring the work of people who have given themselves to their employers.

In fact, if your business has only posted modest results, the very best thing you can do is to communicate with employees. They know business is bad, and their fear is often worse than the reality.  Exuding confidence is extremely important, and asking for employees to participate in the success of a company creates unity and teamwork. As business improves, sharing the fruits of your labor with the people who got you there is just good business.

[ii] New Priorities for Employers-Bloomberg Business week September 13^th, 2010

When the Internet was first thrust upon us, we didn’t know what to make of it. Nor did we know which of the entrants of the budding new market would win the beauty contest.  Our intuition was that someone (such as AOL, Netscape, Microsoft, Google, and Yahoo) would, and that the technology would be a game changer.

There are times when a technology is bigger than the first-to-market entrant who introduces it to us.  A current case in point is Toyota, a company who has been vilified in light of their massive quality and public relations problems. Yet Toyota has my attention, as they are braced to create disruption.

I recently bought a Lexus hybrid. I didn’t really buy it for environmental reasons, although reducing my carbon footprint was certainly a bonus. I bought it because I wanted all the toys, Lexus service and quality and was intrigued by the concept of 35 miles to the gallon (in a volatile world where the price of oil is at risk).

At its core, strategy is about managing trade-offs, and this technology provides the potential for consumers to gain the most, and give up the least.  I believe hybrid technology will emerge as a breakthrough, cross-over technology adopted by the majority of drivers in the U.S. in the next 5-7 years.  Electric cars are novel, yet inconvenient.  Americans are not going to adapt to sitting at charging stations for 2 hours, nor will they settle for a lack of power.  U.S. oil producers will not support any material shift to hydrogen, or corn, or recycled Twinkies, or whatever.  While the Prius was perceived as small and sluggish, the Lexus (a Toyota brand) is neither, and proves that the underlying technology can appeal to the masses. Toyota is way ahead of the pack in hybrid technology and I believe the day will come when it will provide a significant competitive advantage.

Of course this post is not about hybrids at all, it is about identifying breakthrough technologies that can disrupt an industry. Often, fortunes are made by the purveyor of a technology, as well as others who create alliances or business that can feed off it.

There are entire cottage industries being built to support such technologies, including the myriad of developers creating apps for The App Exchange (SalesForce) and Apple App Store.

Will Apple beat Microsoft in business computing (the answer is already clear in consumer products)?  Will cloud computing completely alter the technology landscape in ways we can’t even comprehend? Which mobile technologies will change the way we work and live?

What changes in health care technologies will revolutionize the way we care for the sick?  What emerging technologies could reshape your industry? What new delivery systems will improve the way your customers do business (or consume products)?  The answer will come based on who can create the best balance of trade-offs and win the beauty contest.