Analysis of the Greeting Card Industry

Attached are reference material on the competitors.

Determine the strength of each industry force in the current greeting card industry.
Identify and explain which industry forces most significantly influence a firm's profitability.
Include analysis of how competitors interact.

Industry Overview
During the past decade, the growth rate in the greeting card industry has slowed. Although this rate has been close to 9 percent annually, recent trends identify a 3.8 percent compound annual growth rate. Industry analysts expect this sluggishness to continue and predict an annual growth rate of 2.7 percent each year for the next five years. Despite slow growth, industry profitability is $334 million with an average margin of 12 percent.
The lack of growth in the industry may be attributed to the shift from seasonal to everyday card giving. Although there are various theories about the reason for the shift, its mere existence is of greatest importance.

COMPANY INFORMATION
Hercules Cards
Revenue: $1.6 billion
Estimated profitability: $192 million
Employees: 8,000 (500 artists)
Profile
The largest card manufacturer in the United States, Hercules is famous for its flowery, poetic sentiments and watercolor designs. Founded in 1946 as the first national greeting card company, Hercules has a large following of loyal clients, primarily female, who appreciate the familiarity of the cards. Hercules consumers expect the strong sentimental messages printed inside the cards.
As the market leader in the greeting card industry, Hercules has a strong distribution channel, an extensive distribution of retail outlets, and efficient production and strong brand recognition. Hercules employees personally stock the shelves at supermarket and mass-market retail sites. In addition, Hercules has a chain of freestanding stores that sell Hercules products exclusively.
There are rumors that Hercules is preparing to release a high-end line of cards. A few of our retailers have told company salespeople that they have been approached by Hercules representatives and asked if Shomei has an exclusive license to distribute cards at their stores. In addition, Hercules continues to struggle with Atlas for control of the supermarket and drug store chains.
Challenges
Hercules is facing major challenges that may be contributing to its decline in profitability. As recently as 10 years ago, Hercules dominated the market with more than 20 percent profitability. Today that profitability has dwindled to 12 percent, which is well below the industry average. Some speculate that recent price competition has narrowed Hercules' margins or reduced the advantages it gets from its economies of scale.
Because of the growth of the Internet, Hercules has been struggling to maintain its talent pool. It has been forced to raise the salaries of those artists who are willing to remain, further compromising the company's profitability.
Evidence of Hercules' declining market power is exemplified in its failure in the high-end (greater than $5) card market. Hercules has had trouble attracting and retaining talented artists to create designs for these cards. The country's top creative designers have flocked to energetic, young companies such as Shomei Cards and avoided conventional card companies like Hercules.
Target market
Hercules has traditionally dominated the market of 40- to 60-year-old women-those who manage households and purchase cards for the entire family to give and receive. These women generally purchase cards while doing their grocery shopping. Hercules' expansion to the Internet is an attempt to reach yet another market: the nation's growing population of young professionals.
Product line
Hercules produces traditional cards for a variety of occasions, including religious and ethnic holidays, Valentine's Day, Mother's Day/Father's Day, anniversaries, birthdays, and graduation cards, as well as sympathy/get-well, and congratulation/thank you cards.
The company's lines include the following offerings:
Traditional cards for seasonal and everyday occasions. These cards range in price from $.99 to $3.99 and are printed on standard card stock, which is purchased from several major paper suppliers.
A new line of $.50 cards printed on recycled paper with lower-quality ink.
A collection of cards for all occasions, accompanied by prestamped envelopes. These cards are sold singly and in boxed sets, which are available for $15 per box of 10 cards.
Materials
Hercules was the first card manufacturer to use "overlays" on its cards-for example, paper lace coverings on its Valentine's greetings and tissue or foil coverings on its Mother's Day cards and Christmas greetings. It was also the first company to offer boxed greetings during the Christmas season.
The company holds an exclusive licensing agreement with Brite-Star Pictures to use its animated characters on Hercules cards, gift wrap, and other supplies. These items are sold in the company's exclusive gift shops, along with stationery, invitations, Christmas ornaments, and other trinkets.
Retail locations
Hercules has secured its strong market position by contracting with large supermarkets and mass-market stores. Hercules' size, coupled with consumer demand for the company's product, has made it difficult for competitors to gain a position in the same mass market. Hercules employs an army of representatives to stock these stores by hand. Hercules was able to secure its position in these mass-market retail outlets by offering to purchase, place, and restock the card racks, which the company owns. Atlas Cards is the only other card company that has been able to break into the mass market. Although some retailers are willing to sign exclusive agreements with one card vendor in exchange for better prices, many prefer to sell to multiple vendors so that they can offer their consumers more variety.
In addition to retail outlets, Hercules operates a highly trafficked website. Consumers can select from the artwork of 12 graphic artists and send free electronic Hercules greetings to friends and family. Hercules has been able to generate significant revenue through banner advertisements and e-commerce opportunities on the site.

Atlas Cards
Revenue: $800 million
Estimated profitability: $80 million
Employees: 13,000 (100 photographers, 125 artists)
Profile
The greatest threat to greeting card giant Hercules Cards is Atlas Cards. Atlas targets the same consumer market as Hercules and has been able to rise to the top through carefully executed acquisitions. Most recently, Atlas bought out No. 2 card manufacturer Moya Cards several years ago, catapulting itself to its current position of second-largest card maker in the nation.
Atlas is able to compete with Hercules thanks to its acquisitions, management team, and exclusive licensing rights. As it has grown in scale, Atlas has successfully engaged Hercules in price wars, which may have contributed to Hercules' decline in profitability. Atlas has used its cash reserves to acquire companies, which its management team has successfully integrated into the company's culture. The management team has secured Atlas' position in the market by focusing on key themes for the company's greeting cards. To ensure competitive advantage, the team has engaged in exclusive contracts for the rights to certain logos.
Challenges
Atlas' acquisitions and its rapid expansion into new markets has affected the company's profitability. Last year Atlas had an estimated profitability of 10 percent, well below its previous average of 13 percent. The company's strategic move into sports-theme greeting cards and cards with audio messages may turn out to be a wise long-term move, despite disappointing short-run revenues, which are barely covering costs.
To address their web-savvy, young professionals, Atlas launched a website where consumers can purchase hard copies of Atlas cards found in stores as well as send electronic greetings. Although Atlas is likely to benefit from a web presence, its website is not improving its market share or profitability at this time.
Target market
Though its traditional card consumers have been women, Atlas has successfully targeted and attracted a new card consumer through its sports specialty sector: men. Today more men are giving their girlfriends and sisters cards, such as those depicting famous female sports stars. Increased public interest in professional female sports, such as volleyball and soccer, has contributed to record-breaking card sales for Atlas.
Product line
To differentiate Atlas' offerings from Hercules', the company has designed several lines targeting key consumers. These lines include the "Girlfriend" collection, generational cards that focus on women from their 20s through their 50s; special cards targeted toward teenage girls; and a unique collection for men, which features classic sports scenes and sports stars appealing to men between the ages of 18 to 35. Atlas' ability to focus its product lines on niche markets has enabled it to compete effectively with Hercules.
The full line of Atlas cards includes the following collections:
The "Sports Starlet" series, a collection that features photos of female sports sensations
A collection of cards depicting photos and illustrations of couples in athletic settings
Traditional cards for the following occasions and circumstances:
Religious/ethnic holiday
Graduation
Anniversary
Get well/sympathy
Thank you
Congratulations
Mother's/Father's Day
Inspirational cards featuring sports heroes who have rebounded from injuries
Cards featuring photos of college athletic stars
A series of cards targeted toward grandparents
The "Girlfriend" collection for women between the ages of 20 and 50
A collection of cards for teenage girls
All of Atlas' cards are printed on standard card stock. The cards range in price from $.99 to $4.50.
Materials
The card company has acquired exclusive rights to license Olympics-related cards and cards from other major international sporting events, such as the World Cup and the World Series. In addition, Atlas has arrangements with 75 percent of U.S. universities to design cards using school teams with school sports themes on them. The cards are sold in university bookstores and grocery stores throughout the country. The company also sells its cards at collegiate and professional football games.
Just last year the company decided to add sound to its greeting cards. By pressing a button on the back of the card, the consumer can listen to a school's fight song, its alma mater, or the sound of an audience cheering.
Retail locations
Like Hercules cards, Atlas greeting cards are sold in grocery stores, drug stores, and other major mass-retail outlets throughout the country. After acquiring Moya Cards, Atlas also gained a presence in discount stores, where it is vying with Hercules for volume and space. Most recently, the company developed an exclusive arrangement with major sporting-goods stores to stock its cards at their checkout counters. All shelf stocking and reordering of inventory is handled by college students, most of whom work part-time. Atlas offers free electronic greetings on the web and sells cards online. Since 1995, it has had an exclusive relationship with several Internet service providers to offer e-greetings on their sites.

Snapadoo Cards
Revenue: $114 million
Estimated profitability: $16 million
Employees: 1,200 (90 photographers)
Profile
Snapadoo Cards satisfies a niche that few other greeting card companies can rival: The company uses photographs to convey sentiments. Snapadoo holds exclusive licenses for classic pictures from well-known photographers such as Andy Whitner. The themes of the photos vary from dramatic natural scenery to historical events to emotional images.
Snapadoo secured the fourth-largest market share in the greeting card industry by capturing exclusive licensing rights and targeting a loyal consumer market. Snapadoo's exclusive contracts for the majority of "classic" photographs ensure a monopoly in this segment of the greeting card market. Its management appears to have discovered the magic formula for gaining loyalty among high school and college-aged students and young professional consumers.
Challenges
The Internet has significantly affected Snapadoo, reducing its profit margin from the traditional 16 percent to 14 percent. In particular, the introduction of digital cameras and the ability of consumers to download pictures from the Internet has weakened Snapadoo's competitive advantages. Furthermore, Shomei Cards' success in the artisan market has damaged Snapadoo's monopoly on artisan appeal. Unlike Shomei, Snapadoo has been unable to retain much of its artistic talent; many of Snapadoo's photographers are leaving the company to seek jobs in the Internet world.
Target market
Snapadoo cards are extremely popular among high school and college-aged students, artsy individuals, and photography enthusiasts. Snapadoo has also been extremely successful in marketing to a young professional audience. Snapadoo appears well-positioned to capitalize on the growing popularity of greeting cards among this demographic group.
Product line
Snapadoo carries the following lines:
Black-and-white and sepia images depicting romantic scenes of couples in love, babies and their mothers, and young children
Black-and-white images of still lifes, such as city street scenes, architecture, and cars
Slim Shots-postcard-size missives that customers can send or collect
Materials
Snapadoo has made a substantial investment in its photographers. Although the company has printing rights to many famous photographs, it contracts with photographers to create original shots. Contracting with photographers allows Snapadoo to achieve its 14 percent margins. Thanks to the nature of its cards and the total automation of its systems, Snapadoo has the potential to be a formidable competitor on the Internet.
Retail locations
In addition to Snapadoo's small booths located in upscale malls and shopping centers, the company's cards are sold in photo-development shops, camera equipment stores, museum shops, and major bookstores. The company even markets its cards in the backs of photography and art magazines. Snapadoo is planning to place its cards in photography studios and college bookstores in the near future.
Snapadoo's sales force is responsible for the sales distribution of the product. Salespeople must order their cards at least seven days in advance and are rewarded for condensing their orders. Generous incentives for the sales force ensures that Snapadoo cards are rarely out of stock.
One of the company's most successful marketing moves was establishing small booths on busy street corners in major cities. Customers like the convenience and the "artistic feel" of buying a card from a street-corner artist. Snapadoo was the first greeting card company to market its cards in this way.
Art students and photography students flock to work for Snapadoo with the hope of seeing their work displayed on the company's popular cards. Snapadoo does not offer its artwork on the web, although it has reportedly been approached by many companies to develop an online presence.

Felicita Cards
Revenue: $57 million
Estimated profitability: $5 million
Employees: 280 (50 artists and translators)
Profile
Felicita Cards established its position in the greeting card market by offering foreign language cards. The company uses standard greeting card formats and prints its cards in Spanish, Japanese, and Chinese. By offering an entirely new product, Felicita has been able to capture the No. 5 spot in the greeting card market.
Felicita, the newcomer to the greeting card market, is growing rapidly. The company has distinguished itself through its multilingual and multicultural offerings, which target a fast-growing sector of the U.S. population. Because ethnically focused retailers are eager to stock Felicita cards, they are willing to take responsibility for ordering the cards. When Felicita takes an order, the retail outlet is billed for the entire order, which is then shipped through the U.S. Postal Service. Most other card companies are paid only when consumers purchase the cards.
Challenges
Despite Felicita's unique offering, the company has been challenged by retail space. It has successfully placed cards in small businesses, bookstores, and venues that cater to niche markets, but has been struggling to maintain its profitability within this widely fragmented retail market. Because artistry is not Felicita's selling point, it has not been significantly affected by the shift in available talent from traditional greeting card companies to the Internet.
Target market
Felicita targets Spanish-, Japanese-, and Chinese-speaking consumers in the United States. These consumers are more interested in finding a traditional card in their native language than in satisfying a need for an artistic sentiment.
Product line
Felicita carries the following card lines:
Basic U.S.-style greeting cards written in various foreign languages
Ethnically specific cards created for ethnic holidays or to convey a special sentiment
Materials
Felicita uses standard greeting card paper. The designs are stored in the company's database and printed in large runs. Part of the reason for the company's profitability decline has been attributed to deep discounts on overstock of holiday-specific cards. To offset this problem, Felicita has had to downgrade the quality of its ink to reduce costs.
Retail locations
Felicita sells cards to small businesses, bookstores, and ethnically focused venues. Felicita does little marketing and is often approached by storeowners who want to carry the company's products. Consumers spread the company's message through word of mouth. There is a general consensus in the foreign-language community that if Felicita's business is adequately supported it will spawn other language-specific products.
Estimated Margins and Profitability of Selected Competitors
The information in this table is as accurate as our sources could locate; therefore, it should be used as a guide, rather than an absolute, for determining cost and margins for competitors.
Excluding the retail selling price, the remaining data in this table have been normalized to reflect known differences in accounting practices.

*Hercules and Snapadoo are privately held. Financial information for these companies is estimated.
**The cost to retailer is equivalent to the revenue to card manufacturer.
***This includes the content creation and royalty payment costs.

Industry Force Type Industry Force
Strength
(strong, weak, or neutral) Reason for the Strength of Each Force
Competitor Rivalry

Supplier Power

Buyer Power

New Entrants

Substitutes

Complements

The Forces that Influence Profitability Most Significantly