Why should a piece of paper with a slogan cost $5? The answer starts with classical economics, takes a world tour to China, and ends with you.
This week, I was in a Barnes & Noble shopping for Valentine's Day cards, when I came across this beguiling photo of a cat watching heart-shaped confetti fall around its cross-eyed face.
I turned the page to discover the punchline.
The price tag? $3.29. I'm a reasonable man, but that seemed rather high for a stock photo on a mass-produced paper followed by eight words, at least three of which require no thinking at all. Other greeting cards in the turnstile were selling for closer to $5. It made me wonder: If so many greeting cards are just cheesy photos and easy quips on tradable pulp, why do they cost so much?
The answer starts with classical economics, takes a world tour to China, and ends with you.
Consumers are expected to spend $860 million on about 150 million Valentine's Day cards this year. That suggests an average price of more than $5 per card. One Lincoln greenback won't relegate any loving couple to bankruptcy. But as people move to e-cards, the industry is sensitive to concerns that their product is not sensibly priced.
"Even my own mother sometimes says to me, 'Why have cards gotten so expensive?'" said Kathy Krassner, director of communications at the Greeting Card Association. "But the fact is that they have more bells and whistles, and I don't think that a plain printed card is usually very expensive unless it's a larger size."
PAPER, PEOPLE, AND V-DAY MONOPOLIES
To understand a greeting card's price, start with its most important costs: Paper and people. High-grade paper is necessary to distinguish greeting cards from something you could print from a home computer, and it's getting more expensive. So are people. In China, where greeting cards with "special treatments" (e.g. sound chips) are often produced, wages are rising quickly. In the United States, where Hallmark makes most of its cards, workers are already expensive, creating tension in an industry facing a slow decline in the face of a cultural shift toward paperless greetings. In October last year, Hallmark closed a Kansas City plant and let go of 300 workers. The company declined to comment for this story.
But costs are not the same as prices, and there might a sophisticated psychology lurking in greeting card price tags.
"A higher price for simpler [cards] encourages consumers to substitute up" for more expensive cards, said Agata Kaczanowska, a senior analyst at IBISWorld. To see what she means, imagine a world with two varieties of Hallmark card. A cheap card for $0.99 and a premium card for $7.99. That's a big difference, enough to shock you into rejecting the expensive card as a rip-off. But pricing the typical Hallmark card near $3.99 or $4.99 softens the difference. It makes $7.99 seem relatively affordable.
For decades, greeting card companies haven't seen much downward pressure on prices because there hasn't been much competition. Today, IBISWorld estimates that the two largest greeting card companies, Hallmark and American
Greetings, control more than 90 percent of the market. Their deep relationships with major paper companies and distributors (book stores, drug stores, and the like) ward off start-ups who might compete down the price over time.
Greeting cards "require a fairly high expenditure in advertising and
marketing to acquire clients, " said Mark Deo, author of The Rules of Attraction and CEO of Torrance (Calif.)-based consulting firm SBANetwork.org. "One would need to sell many greeting cards
in order to absorb the required initial marketing, packaging, and
HOW TO MAKE A GREAT VALENTINE'S DAY CARD: IN 11 SIMPLE STEPS
The rise of e-cards has perhaps wreaked most havoc in the middle of the market, forcing card companies to add options at the super-low and super-high end. Hallmark sells a $0.99 "value card" now. Another recent offering from American Greetings had an LCD screen, which could play a 50-photo musical slideshow, The Economist reported. The price was $20.
"Premium brands have fared a little better," said Kaczanowska. I asked the chief executive at Up With Paper, the world's original pop-up card, which sells at Barnes & Noble, World Market, and Papyrus (and not Walmart) what exactly goes into making a premium greeting card? Here is that story.