Feb. 14, 2012 at 7:54 AM ET
February 14th, the day of obligatory romantic gestures otherwise known as Valentine's Day, inspires bad ensemble movies, splashy Victoria’s Secret commercials and gaudy drugstore displays rife with teddy bears. And consumers to plunk down their cash as early as January.
The National Retail Federation predicts that the average person will shell out $126.04 on Valentine's Day this year, up more than 8.5 percent over the $116.21 spent by the average person in 2011 (though the gender breakdown is a bit tougher on the gents’ wallets — men will spend an average of $168.74, versus the women, who’ll spend just $85.76). PriceGrabber’s survey shows more conservative shopping numbers, with 68% of those polled indicating that they’ll spend less than $100, and most preferring to spend between $25 and $50.
Regardless of whether a shopper goes big or sticks to a budget, every man who has clicked on 1-800-FLOWERS.com knows that roses don’t come cheap. Retailers are aware that consumers are scrambling to purchase gifts and book romantic dinner reservations for Valentine’s Day, so who are they to not try to make some sort of profit?
Which begs the question: Do restaurants and retailers risk alienating customers in the long term by gouging them with high prices on Valentine's Day, in the vein that airlines do before Thanksgiving? While they'll want to take advantage of the shopper who'll open up his wallet to romance that new girlfriend or prove to his wife that he's not a cheapskate, is there a certain tipping point where shoppers will say, enough?
Among the experts, reviews are mixed. Alex Chernev, a consumer behavior expert and professor of marketing at Northwestern University’s Kellogg School of Management, says Valentine’s Day pricing strategies really depend on the retailer as well as the consumer. “What a retailer should do is a function of what they are selling and how unique is that product as related to everywhere else,” he said.
Florists or chocolatiers, for example, would be wise not to raise their prices too high in anticipation of the Valentine’s Day rush, and instead should try to undercut competitors’ prices and make up for the margin loss by selling in high volume. “For those commodity products, or flowers, which don’t have very unique loyal customer base, you’ll see a lot of price competition,” Chernev said. (He also noted, on the other hand, that Valentine's Day is "the Black Friday of florists.")
The exception, of course, could be a product that consumers perceive as unique or a brand they’re particularly loyal to — that’s when they may be willing to spend a little more. Raise the price too high, though, and retailers risk disgruntling their customers.
But for a purchase like a romantic dinner for two, restaurants have a little more wiggle room when it comes to charging a bundle, because “it’s the function of capacity constraint, or the anticipation of the capacity constraint,” said Chernev. Translation: There are only a certain number of seats at the waffle house, so if you want one, you’d better be prepared to pay for it. “Airlines do it all the time,” he said.
Other experts say that retailers like florists ought to cement customer loyalty by offering special deals that may encourage a repeat purchase but which still hits margins. Accenture senior analyst Cecilia Nguyen, co-author of the recent book “Contextual Pricing: The Death of the List Price and the New Market Reality,” gave the example of a wholesale florist that offered retailers a discounted bouquet of roses for $75 if they ordered early, versus the regular price of $99.
But convenience is also part of the equation when it comes to retailers’ pricing for Valentine’s Day gifts. Grocery stores will charge even less for Valentine’s Day bouquets in order to capture the time-crunched (or perhaps less romantically-inclined) shopper who is already there to buy something else. “They’ll put the flowers by the register for convenience, so you don’t have to think about them,” said Chernev. “Which is very important to men,” he added. (Because nothing says “I’m thoughtful” like a hastily-purchased grocery store bouquet.)
Restaurants may take a different tack because what they offer is indeed limited in terms of capacity. While they won’t necessarily charge more outright for an a la carte menu item on Valentine’s Day than they will on a regular day, they will offer special Valentine’s Day menus or price fixe deals in which each item is slightly discounted, but the deal makes customer spend more overall than he or she normally would. “They’ll make it special, bundle it, or maybe throw in something extra like wine of flowers, and then price accordingly,” said Ron Paul, president of the food and beverage industry research firm Technomic (not to be confused with the Republican presidential candidate).
But will that work this year, when the economy is still down? “I think it will work just as well this year as it will any year,” he said. (Of note, even fast food restaurant-cum-stoner heaven White Castle takes advantage of the trend by offering a reservation-only Valentine’s Day special that includes table service and free dessert).
Perhaps ITG restaurant analyst Steve West best summed up the spending attitude of consumers -- and thus the inflated pricing of some retailers -- on Valentine’s Day when he said, “Valentine’s Day is one of those days where, if you’re a guy and you have a girlfriend, you’ve got to pony up. You have to spend money in order to make her happy.”
He added, “That’s just one of those occasions where consumers will make it happen whether they have the money or not.”