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 advertising expenditures."
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.
This season's new Valentine's Day cards began with a brainstorm 11 months ago.
The month after last year's Valentine's Day, a clutch of designers, engineers and executives from Up With Paper gathered in a room in the company's Creative office in Connecticut to game plan. Whereas some card companies, like American Greetings, often begin by brainstorming clever slogans inside the turn, Up With Paper begins with a concept, said George White, the company's President & COO.
"Is it a cat?" he said, mimicking the conversation for the card shown below. "Okay, what's he doing? Is he coming out of the back wall of the pop-up or is he part of the pop-up?"
That's step one. There are at least 10 more before the card hits the shelves of specialty stores.
(2) Once they've settled on a concept, an artist renders the cat -- and the tree, the hearts, the birds, the house, the flowers.
(3) When the art work is completed, it comes to the office for approval--and any needed adjustments.
(4) The art goes out to a paper engineer, who builds a model of the card on cheap white paper, and sends it back into the office for review (tweaking to fit the artwork) and approval.
(5) The model card is printed along with the art work on a plotter, and the pieces are assembled by hand in the Connecticut.
(6) For mass production, the whole set is sent to factories in China to be hand-made in assembly.
(7) The Chinese factory makes a pre-production sample and sends it to to the office for final approval.
(8) If White and his team give the okay, thousands of cards are assembled on long tables back in China with 30 Chinese workers attending to every fold, insertion, and pop-up feature. "Some of our cards require more than 50 hand operations," White said. "That means one person doing one thing by hand on a card to make it work," whether it's adding glitter, or gluing a spot, or adding a ribbon, and passing the card along to the next person for the next operation. "There has to be a sequence on it. Otherwise the pop-up doesn't work."
(9) The finished cards are shipped to Up With Paper's warehouse in Ohio.
(10) The cards are shipped out to shops, like Papyrus, Barnes & Noble, and independent specialty stores around the world.
The final price? "5.99 for our square pop-ups" like the one pictured above, White said. But once you add in extra features -- a sound chip that plays cat sounds, for example -- the price goes up to $8.99.
"People complain about the cost," White said. "I think people would be shocked to learn how long it takes to make a card, how many different people are touching it, how long it takes to assemble these things. I'm the president of the company and the first time I went to China I was amazed."
THE LOVE MARGIN
For all the grief you might give greeting cards for conveying saccharine messages at relatively high prices, the fact is that they can fetch higher prices *precisely* because they convey saccharine messages. Consumers are least sensitive to prices on dates and special occasions when we're trying to send an emotional message.
This Valentine's Day, Americans will spend $20 billion on jewelry, clothes, flowers, and candy (not to mention restaurants and trips). Only about 4% of that money will go to the greeting cards that adorn those gifts. Compared to composing a four-line poem on printer paper from your office, greeting cards might be pricey. But the more relevant comparison might be to the other $120 the typical American will spend on loved ones this season. That makes a $5 embellishment feel like an incidental fee.
So yes, you can blame the cost of paper and the cost of people. You can cite lack of industry competition, the games of price discrimination, and the complex assembly of increasingly complex cards. Don't don't forget, it all starts with you and the spirit of romance. You are paying $5 for a piece of paper because you want to.