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SIDDHARTHA PILLUTLA PGCBM-22 2224058 The Economics of Valentines Day Prof. Vishwa Ballabh Hughes, Begumpet - Hyderabad

Siddhartha Pillutla

The Economics of Valentines Day

SMS ID - 2224058

The Economics of Valentines Day

Abstract
Traditionally, the demand for flowers, sweets and cards in India is on the high during the festive season, which begins on the last day of the Shravana maasam in and around August to Kumbha maasam in and around February. Many vendors make a living through sale of these commodities during this period. Ramesh was one such vendor who inherited this from his forefathers, who were also flower vendors. India being a free market, this year, there were more such sellers who entered the market causing Ramesh to just earn enough to have a comfortable living. It was November already and the question that was bothering Ramesh was, as to how he will be able to sustain and have a comfortable living for the remaining of the five months, between March and August, when he will have little or probably no earning. What will he do in the next festive season? He had some savings but, he wanted to invest it wisely and not use it all up for day to day expenses. He definitely needed to do something different for some additional income, which will take him through the remaining months. He also needed to think big. The hope was Valentines Day. Ramesh needed to learn the kind of demand for flowers, especially roses during the Valentines season and what other complementary goods he could also sell that will increase his overall income. He began his market research.

Valentines Day in India

Saint Valentine's Day, extensively popular as Valentine's Day, is celebrated on February 14 to commemorate the bond and spirit of love. The enthusiasm of celebration is seen much among the youths who consider it to be a wonderful moment to express their love. Founded in 496 A.D by Pope Gelasius I to pay homage to one or more early Christian martyrs named Saint Valentine has had mixed legacy. Valentine's Day in celebrated across the world in a traditional fashion by sending Valentine wishes, flowers, chocolates/sweets, greeting cards and gifts. In India, Valentines Day was becoming more and more popular and so was the demand for flowers, especially red roses, chocolates, gifts and greeting cards increasing. Such was this February 14 fervor that domestic business was becoming far more attractive than the export market for Indian floriculturists.

Market Demand
Ramesh noted that the domestic demand of cut flowers in India, of which roses account for almost 90%, was growing at 25% in the past few years. Over 15 million roses stems were sold in the domestic market and around 5 millions stems were exported. Ramesh was more interested in the domestic market which he could quickly enter due his current industry knowledge and also since cost of logistic seemed to be higher in exports.

Siddhartha Pillutla

The Economics of Valentines Day

SMS ID - 2224058

Figure 1: Shift in demand of roses during normal days and Valentines Day Ramesh also learnt that during this peak season in February, there is a shift in the demand for roses to the right (see Figure 1). It means this days requirement of roses increases and ranges between 200,000 stems to 250,000 stems, just in Hyderabad, which on normal days ranges between 75,000 stems to 100,000 stems. This causes the price of a Valentines rose to rise to between Rs. 20 and Rs 30 per stem which on a normal day costs between Rs. 5 and Rs 10 per stem.

Market Supply
After further studying the market in Hyderabad, Ramesh realized that the current supply of roses to the market on a normal day was being met and was between 75,000 stems to 100,000 stems but, the demand on Valentines Day could not be met and was falling short by 25,000 stems [see Figure 2] in February the previous year.

Figure 2: Shortage in supply of roses in February the previous year

Siddhartha Pillutla

The Economics of Valentines Day

SMS ID - 2224058

Ramesh also anticipated the demand for roses to increase by 25% since it was the trend the last few years. This will increase and shift the demand for roses by 50,000 to 60,000 stems. This would mean an additional supply requirement of 70,000 stems to 80,000 stems including the shortage in supply. The price of roses would also increase owing to this shortage and increase in demand.

Competition
Ramesh realized that apart from direct competition from existing vendors, he would also face competition from street vendors who had started selling around traffic signals. They would be some competition since buying from them was cheaper for the car owners and also convenient. To deal with this, Ramesh decided to sell his roses as both bouquet and lose. He was also planning to offer other products like small gifts and chocolates along with the bouquets which would motivate buyers, especially youngsters to come to him.

The Path Forward

These statistics from the past of India flora market was enough to motivate Ramesh and he decided to invest his savings into this new proposition. Apart from the explicit cost he would also incur an implicit opportunity cost of interest he would normally have earned for his savings in the bank. He could also lose the entire savings and be left with nothing at the end of this. He understood that people face tradeoffs and cost of something is what you give up to get. This was a risk he was ready to take. Ramesh looked at the demand and supply curves [see Figure 3] , he had prepared with statistics from previous year, again to understand if he was missing anything.

Figure 3: Demand, supply and shortage of previous year and requirements of this year He decided to supply the shortfall of 25,000 rose stems and additional 25,000 from the new demand. He realized Trade can make everyone better off and decided to share this with his friend Suresh, whos from a small town away from the hustle and bustle of Hyderabad. Suresh was a florist and specialized in marigold and roses. He used to however, grow more of marigold since there was high local demand for them. The demand for roses was far less and so grew less. He used to sell the roses for Rs. 5 per stem

Siddhartha Pillutla

The Economics of Valentines Day

SMS ID - 2224058

during festive season. He was also looking for an alternate source of income as he will also be affected like Ramesh at the end of festive season in February. Suresh liked Rameshs idea and was ready to begin growing roses immediately and supply the 50,000 stems needed by Ramesh. Ramesh in return was ready to share 50% of the profit he makes by selling the 50,000 roses stems, which Suresh produces, at average price of Rs. 30 per stem in Hyderabad. It was February 14 The Day of the Valentines the future is open!

Conclusion
Understanding of the demand and supply in a market and its various trends such as shift in demand, shortage, surplus etc. play a very important role in success of a business and economy as a whole. The floriculture industry has emerged and blossomed into a $230 million business and Ramesh and Suresh went on to becoming one of the largest suppliers of cut-flowers not only to the domestic market in India but, also to the world. They learnt to become well aware of the Principles of Economics, which plays a very vital role in success of a business when it involves the economy as a whole. Trade does make everyone better off!!

Bibliography
http://www.ibef.org/download/Floriculture_271108.pdf http://ibnlive.in.com/news/india-number-2-supplier-of-flowers-on-vday-alibaba/230126-11.html http://en.wikipedia.org/wiki/Valentine%27s_Day

Siddhartha Pillutla

The Economics of Valentines Day

SMS ID - 2224058