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Valentine’s Day Represents a Retail and CPG Opportunity in 2021

AI, Offer Management Platform, Maximize Margins

by Nick DeStefano January 20, 2021

If holiday shopping trends taught us anything in 2020, it was to expect the unexpected. Approximately one year ago, the U.S. began instituting COVID-19 lockdown orders, which drastically altered expectations for brands throughout the year. Valentine’s Day represents an interesting test case for brands in 2021, as it may signal how retailers can temper expectations a year into a pandemic economy.

In 2020, forecasts for Valentine’s Day were strong, culminating year-over-year growth in consumer spending starting in 2016; numbers that jumped from $18.2 billion in 2017 to $27.4 billion in 2020 according to Statista. How consumers spend in 2021 will surely be impacted by external factors in the new COVID-19 age, with unemployment hovering at nearly twice pre-pandemic levels.

Still, in this new frontier, there is still opportunity, particularly on the retail and CPG side of the market. Unfortunately, however, these gains may come at the expense of restaurants. In 2020, breakdowns of how Valentine’s dollars were spent roughly translated to 50 percent of respondents spending on candy, 40 percent on greeting cards, 30 percent on a night out, 40 percent on flowers, and 20 percent on jewelry.

Within that 30 percent spending on a night out lies an opportunity of more than $4 billion to be made up in other arenas. Of course, there will be ordering meals in, yet many consumers will be transitioning those funds towards grocery purchases or other Valentine’s Day gifts, if 2021 spending trends hold close to 2020 numbers.

Another interesting note is how spending on pets for Valentine’s Day has increased in recent years. In 2020, spending on pets nearly doubled over the previous year’s projections. As more people have taken on pets this year given the new work from home reality, it’s entirely possible that 2021 could see a boom in that sector.

How Should Retailers Be Responding This Valentine’s Day?

After a year of shaky numbers and difficult-to-predict sales outcomes, many brands will turn to large-scale discounts in order to maximize revenue for Valentine’s Day. Unfortunately, this mentality will wind up cutting into margins unnecessarily. By instituting a more optimized promotion system that targets customers willing to purchase goods without the added deep discount incentive, brands are able to increase margins without losing sales, and without relying on volume to reach sales quotas.

In 2020, 36 percent of shoppers did their purchasing at department stores. This year, that number will likely be migrated almost exclusively to online purchases. By optimizing promotions based on predictive analytics as opposed to blanket demographic information, retailers are better positioned with their ad spends to identify customers who are motivated to purchase, and maybe most importantly, at which price point they’re most likely to make that purchase. It’s against a retailer’s interest to offer a blanket 20 percent discount to all customers when there are customers willing to purchase goods with a 10 percent discount, or no discount at all. Particularly when we look at big-ticket items like jewelry that make up $5.8 billion dollars in Valentine’s Day sales, the margins lost on those promotions can be staggering for retailers.

While the impulse to offer customers mass discount and promotions strategies may seem enticing from the perspective of overall sales, the reality is the loss of margins dilutes the campaign’s overall performance. In the short term, the numbers may seem like they justify the discount, but in the long term, customers are conditioned to only value the lowest prices irrespective of brand. By implementing an AI-enabled dynamic promotion tool like RevTrax’s Offer Management Platform, brands are able to optimize discounts for specific customers, which not only maximizes margins surrounding holidays like Valentine’s Day, but works to build brand loyalty over time.

Love what you’re hearing about dynamic promotion strategies? Learn how RevTrax's solutions can help your brand maximize margins for Valentine’s Day and beyond by speaking with a specialist today.

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