What's an economic explanation for why greeting cards are so expensive? [closed]

Question

Greeting cards sell for about $5-6 per card. For what is basically a piece of paper, that's pretty expensive.

Yet, they're not exactly well protected.

• Anyone with photo editting software could design their own cards to sell
• There are no barriers to entry to sell your cards (eg. you don't need a license to create or sell cards)
• You can't copyright a quote or saying so the contents of the card can be easily stolen by competitors
• It can't be a convenience at point of sale thing because it's expensive online too. This card for example sells for $6 (https://www.etsy.com/au/listing/222386949/funny-greeting-card-printable-greeting?ref=related-2)

So from an economic perspective, why is this the case? I would imagine the high price with relative ease of entering the market would create more suppliers forcing the prices down.

Answer 1

Competition, or actually lack of competition, mostly due to a demand curve that has minimal change due to price.

You would buy the equivalent, cheaper option if it was available, but the store has little interest in offering multiple, competing options that would drive their same store revenue down. And the competing stores (Grocery, Department, Drug, Card) have similar overhead costs (floor space, lights, personnel). Most carry the cards for incremental revenue, and observe little advantage to lower price for a card (customers seldom buy more cards due to a lower price). Thus they mark the price to what (most) customers are willing to pay.

You may choose to shop the various stores and find the one that has a (slightly) better pricing for cards, and then stop at that store when you want to buy a card. But many cards are sold as an incremental purchase as part of a larger shopping trip (convenience), as the customer combines trips (reduce the time spent shopping, albeit not reducing the money spent).

Answer 2

Why do people buy them when they would be cheap to make for themselves? Convenience. While you could easily find some pictures and lay them out with a sentiment, buy some card stock, print in colour, trim it, and perhaps glue on some glitter or whatnot, and then find an envelope that fits it, it's likely to take you an hour or more to do so. And you'll invest far more than $6 on your printer and various inventories.

I made cards for my kids- we had construction paper, glitter, coloured markers etc and there was no need for an envelope. But most people will find it quicker and simpler to buy one fully assembled. The cost of the online ones is weird I agree. Perhaps people are also not confident they can compose a good greeting?

Why do stores stock $6 cards that they buy for $3 (retail markup is 50-100% and I'm sure it's closer to 100% for cards) when a different supplier might provide them for $2? Well, even if such a supplier existed, I'm sure the store would be happy to sell for $6 still (see: people buy them) so there would be no consumer impact. A store that sells cards for $5 isn't going to siphon customers from elsewhere because most of us just don't buy cards often enough for it to matter.

Why does nobody become that supplier who will sell them cheaper? Selling stuff is more expensive than making stuff, and getting your product into retail stores is hard. Hard means time and time means money and all of that contributes more to the card price than the ink and paper do. That said, dollar stores sell cards, for a dollar typically, and people do buy them. I find they have less colours and the artwork is cruder. Perhaps you even get what you pay for when it comes to design, layout, printing etc.

Answer 3

I actually have a bit of experience with the supplier side of this. Having worked with other people attempting to get the business launched, I can shed a bit of insight.

The primary reason for the pricing is that there simply isn't enough competition to warrant dropping the price any lower than it already is. Large companies such as Hallmark will typically buy card designs at 5% of the card's selling price. With their existing distribution network, this makes bringing in new and varied designs much easier for large companies that are already well established. Having talked with such designers in the past, someone working full time producing designs makes on average 30-60k annually from this, which is worth it to someone who doesn't want to jump through the hoops of actually getting into the business independently.

The primary issue stifling competition is actually getting your product into stores. There are topics here that I cannot discuss due to NDA, but I can break down the overall outline for you:

• You need to start with a large number of designs, with enough variety that companies think could sell well. If you bring a handful of designs with you, no company is going to take your business venture seriously enough.

• You need to find a company that can stamp out a large production process for you. The company is going to need to be nice enough to take smaller purchase orders on the magnitude of several hundred cards, but also be capable of scaling that production to several hundreds of thousands of cards very quickly.

• For cards specifically, most companies want you to ship custom racks with your cards. Some companies may provide their own racks for stocking your product, but not all of them will. This will also cost a lot of money up front.

• You need to find a buyer for a company you want to sell your product to. This is important, and what killed our original business plans. Think Wal-Mart, Target, or even CVS Pharmacy. These big companies are going to have people who's entire job is to buy new products to put on their shelves. This is where networking is key, you need to find people with connections to these buyers if you're not already well established with them. You will also likely fail several times, either getting outright ignored, or through a broker that can't meet expectations. For example, we had a broker that introduced us to a buyer for a large store chain, and after several months of work we found out that this broker was just pulling our strings.

• Typically a company will want to test your product in a handful of stores to see if it will sell. For example, Target may want to test your product in 100-200 stores over 3 months and expect your product to sell at a minimum rate.

• Finally, you need to be able to scale your production. Suddenly you'll be asked to go from supplying 100 stores to supplying 1,800 stores with a deadline in 2 weeks. Buyers will even turn you down at this point if they don't think you can meet the production.

All of this work takes at least a year, and typically takes several years to go from an initial product to having your product in every store. Without breaking the numbers down too much, we could make a profit of ~$1.60 for every $3 card that sold. That number doesn't cover the cost of racks and other overhead, that's just the per-card profit.

Even then, people are more likely to go view the Hallmark or other big-name cards over your offering. Only when another company becomes a big powerhouse to be competitive will these companies be forced to drop their prices.

Answer 4

We generally speak of the "elasticity of demand". Greeting cards are expensive because they can be. We buy them in a sentimentally weakened state, and we do not buy them by the tonne.

There is also the concept of "Market Segmentation", but not so much. Essentially the price is determined by finding the "point of pain" and winding it back a little.

So people will pay $5 for a card. They will not (generally) pay $5,000 unless there is a good reason (vanity ?). Why sell them for $2 ? The customers who baulk at $5 tend not to even have $2. (Market segmentation again).

In short the price is always going to need to be set before the point where demand rolls off sharply, to maximise profit.

Answer 5

It'll all about the marketing. If you don't get a "real" greeting card for that important birthday or anniversary or whatever, the recipient may thing you're being cheap for using a card you printed out yourself. So you pay $6 for a card because you feel like you have to.

Hallmark advertises with those sappy TV commercials for a very good reason. The margins on the product are sky-high, and they spend a good chunk of that money on marketing the product.

Perfume is the same way: super cheap to make, low barrier to entry, and the popular ones command a high price.

Answer 6

(At least in the UK) a company named Card Factory has been very successful in undercutting the competition using the classic pile 'em high and sell 'em cheap strategy with less glamorous high-street locations than 'traditional' stores. Interestingly it doesn't seem to have spawned either competition at their price point or lowered the general prices for greetings cards even in low-margin businesses like supermarkets. A quick glance at their annual report suggests they're doing reasonably well with this approach.

Answer 7

As one answer points out, people buying greeting cards care little about whether they cost 25 cents or $5. Those are both small amounts of money and it's not something you buy often---also people feel the need to spend money because it's a gift.

On the supplier side, it should be noted that the cost of cards has little to do with the paper they are printed on. There is an expectation that cards are new and unique...something the buyer and recipient have never seen. So they have writers and graphic designers constantly cranking out a large variety of cards and replacing existing cards with new ones, of which only a small number get sold before they move to the next model. Relatively speaking, there is a lot of human effort per thousand cards sold. Then of course there is the real estate they occupy in the store (disproportionate to a bunch of pieces of paper) and other retail, marketing, and distribution costs. I'm not saying margins are particularly thin, but if they were crazy high we probably would see more entry as you suggest.

Answer 8

It cost a lot of money to pay the poet to make wording, designers/photographers to make the post-cards and miscellaneous staff (Executives, HR, shareholders etc.) These cost are thrown onto the buyers.