FEELING THE COST

JOEL ELSON

Value pricing is the greeting card industry's response to escalating retails. Retailers say it has somewhat helped to ease the squeeze put on shoppers' pocketbooks.

The supermarket industry generally considers value-priced greeting cards as those cards priced under $1. However, suppliers have gone to specially marked multipacks; cards sold with an added incentive, such as free cellophane tape; the addition of a value-priced tier to the general offerings; and lower-priced cards merchandised in targeted segments, such as juvenile.

Over the last three years retailers have witnessed shelf prices climb above the $2 range in their core offering of cards that traditionally sold from $1.50 to $2.

As a result of the higher retails, caused partly by increased paper costs, unit volume of greeting cards has been flat over the last three years. According to the Greeting Card Association, Washington, units hovered at 7.4 billion from 1994 to 1996.

Charles Yahn, vice president of general merchandise for Associated Wholesalers' nonfood division based in York, Pa., reported that greeting card prices have advanced an average of 6% a year for the past few years.

Yahn, who serves this year as chairman of the General Merchandise Distributors Council, Colorado Springs, Colo., noted other factors besides rising paper costs contributing to higher retails.

"Greeting card manufacturers have gotten themselves involved in bidding wars," he said. "They've upscaled their cards and display fixtures, and the money they're paying up front for [retail store] space has increased. These costs have to come from somewhere," said Yahn.

However, of late he has seen retail prices level. This has happened "as suppliers introduced value-priced lines that move in addition to other selections."

On the supplier side, manufacturers faced by rising paper and marketing expenses, "have had to pass these [costs] on in higher card prices, which have flattened sales somewhat," agreed Patti Coates, greeting card buyer at Star Market Co., Cambridge, Mass.

With its card sales somewhat flat during the past year, Star views value cards as a way to boost card department shelf turns.

"Our card sections haven't grown according to our projections, and have increased very minimally. We want to see what value cards can do for us," said Coates.

Value cards also offer vendors a chance to prop up sales of their higher=priced card lines, as well as gain some market share, Coates added.

"Value cards do well in the stores that have added them," said Gary Schloss, vice president of general merchandise at Carr Gottstein Foods, Anchorage, Alaska. "But I'm sure that higher greeting card prices are in line with the increased paper costs a while back."

Card suppliers confirmed that such costs have combined to impact greeting card prices. "Higher business expenses have resulted in greeting card retails moving to the $2 to $2.50 range over the past three years," said Don French, general manager of seasonal cards at Gibson Greetings, Cincinnati.

"As an industry, we've crossed that $2 barrier. And every time you cross a pricing barrier, there seems to be some resistance," French said. Prices per card have moved from an average of about $1.90 to over the $2 mark, he noted.

At American Greetings, Cleveland, "many costs of doing business have gone up, causing some shifting in card prices," agreed Pat Papesh, senior vice president of marketing.

She said that American Greetings' three-tiered pricing strategy, introduced about three years ago, is working well to counter the higher costs.

The supplier's tiered pricing provides retailers with value-, core- and premium-priced birthday and everyday cards, and gift wraps. Included are value multipacks of six to eight cards priced as low as 30 cents to 66 cents per card for seasonal and everyday occasions. American Greetings will promote its value products this Christmas with a free holiday pin with the purchase of three cards, free foil seals with boxed cards and free adhesive tape with gift wrap purchases.

As card suppliers pump out value cards priced below $1, Papesh pointed out that 99-cent cards don't necessarily increase sales because "value products appeal primarily to consumers aged 60 and over."

Core cards continue to be "the heart and soul of the business," she said, representing about 65% of greeting card volume. And cards that used to sell for between $1.50 to $2.50 now retail for $2 to $3.

While there may be shopper resistance to some card retails, premium products priced up to $6 and $7 remain strong sellers, said Papesh.

"These are $3 to $7 cards for a wife, sweetheart, mother or an important occasion like a wedding, anniversary or Mother's Day. All continue to move well," she said.

At Harps Food Stores, Springdale, Ark., customer resistance to higher greeting card pricing has flattened the chain's greeting card sales, said Art Bundy, nonfood director.

"Our card price increases have been substantial and some cards have come through with as many as four different retail prices over the past year or so," said Bundy.

He has found shopper resistance to higher prices begins to build around the $2.50 mark and in lower-income areas at the $1.50 level.

Value cards, which Harps offers at stores in low-income areas, are selling. But Bundy noted the retailer doesn't have a good read on how value-priced cards are selling chainwide. When rising prices in the greeting card industry first started to surface a few years ago, "it became evident this would hurt long-term growth, and we focused on slowing down price increases to keep the category healthy," said Brad VanAuken, director of brand management and marketing at Ambassador Cards, Kansas City, Mo.

As card suppliers "raised prices pretty significantly," Ambassador opted instead to moderate its price increases to no more than the consumer price index, said VanAuken. The supplier's three major brands -- Hallmark, Ambassador and Expressions From Hallmark -- are priced overall from 60 cents to $6.95.

VanAuken said the average price paid for an Ambassador card in the line's core selection is $2.08, and many cards retail below $2. VanAuken reported that the percentage of cards priced below $2 among the company's three brands breaks down as follows: 65% of Hallmark cards; 52% of Expressions From Hallmark and 47% of Ambassador.

Ambassador's 500 value-added everyday cards and several hundred holiday selections priced at 99 cents, "do extremely well in boosting unit sales," he added.

Suppliers have pursued several tactics when it comes to merchandising value cards. Ambassador has both integrated and segregated them on card racks.

Gibson's French said, "Value cards work displayed with juvenile titles and minor titles, where people buy extra cards. This has extended the market somewhat."

American Greetings has both integrated value cards and displayed them separately. "We found integration works better," said Papesh.