Excellent business models require excellent margins. On this Black Friday 2010, it makes me wonder if $4 toasters are good for business models or bad for business models? Please join the conversation and vote above. The answer to the question is probably “Yes and No.” That is, Black Friday is both good and bad for business.

Let’s lay out the pros and cons of Black Friday Deals

Pros

• Drives large dollar volume of sales, albeit at very low margins.
• Generates goodwill.
• Defensive move to drive customer’s money into Store X’s coffers vs. their competitors.
• Drives more profitable add-on sales (although many 3am shoppers buy only the blowout deals).

Cons

• Drives large dollar volume of sales, albeit at very low margins. This generates much organizational effort for very little profit. After all, activities generate cost, not sales. Black Friday is the perfect example of “trading dollars.”
• May not generate goodwill at all as customers get frustrated over limited quantities of 32 inch televisions
• Courts the most cost conscious and least loyal customers
• Adds unnecessary stress to managers and employees stuck staffing stores at 2am.
• Cannibalizes profitable sales by emptying customers’ wallets on low margin purchases.
• Opens up company to potential lawsuits (injured customers, perceived injustice for lost deals).

I’ll bet that if we could secretly poll the large retailers, they would love to collude and collectively cancel Black Friday. This new American tradition props up sales, but at too great a cost. I look forward to hearing your opinions.