Today is Valentine’s day. The day where people celebrate their love for each other and restaurants, chocolatiers, jewelers, and florists rub their hands, waiting for lovebirds to walk into their web of seemingly attractive “Valentine’s Deals”.
The deal with the Valentine’s Deal
While the celebration of this holiday may differ between couples, typically it would involve going out to a fancy restaurant and giving each other presents such as chocolate, roses or maybe even jewelery. And the prices are incredibly high.
Restaurants are fully booked and to maximize their profit per table by introducing a Valentine’s Deal that allows them to charge much higher prices, disguised as a bundle that may include a glass of champagne and an extra piece of chocolate for dessert. In other words, they have a limited supply of seats to satisfy the high demand, which makes them charge higher prices. For restaurants and theaters supply & demand is definitely a factor behind the high-priced Valentine’s Deals. But in most cases, this is not the answer.
What the florist isn't telling you...
The typical answer you’ll find to why you have to pay 50% or even 100% more for a box of chocolate or a bouquet of roses concerns supply & demand. But think about it: supply & demand implies that rose farmers are the ones behind this price increase; however, roses are homogenous and the market structure of the floral industry simply doesn’t allow for such substantial price increases. So whatever your local florist might tell you, it’s not the price they pay their supplier that’s the primary reason you pay $50 for a dozen roses. It’s all about your willingness-to-pay.
One of the primary functions of your local florist is to decommoditize the roses through personalized service, arranging them into neatly decorated bouquets and selling them in a nice, cozy environment where you can even smell just how fresh the flowers are. Then, they’re no longer selling a commodity and thus, they gain pricing power that allows the to increase the price to match your willingness-to-pay and exploit the fact that you need to get those roses today for them to be valuable. You don't want to show up empty-handed for your Valentine's date, do you?
Happy Valentine’s Day!