Selling Emotions

GUEST COLUMN : TORCH-LIGHT

With the festival season having commenced, there are several sectors that gear up for a spurt in sales. Several companies cash in on the sudden increase in consumer demand during this period.

Last week, while getting ready for a CNBC television show, I struck up a conversation with a senior personnel of a television manufacturing company.

He said festival offers are very popular and generally lapped up, left, right and centre by consumers who otherwise tend to defer their purchases.

He said there is no reason why these offers could not be made in another month, say July or even April, though he had some doubts about the kind of consumer response they would elicit in those months.

Customers' purses get filled on account of festival bonuses. This creates the crucial feel-good factor, which in turn, loosens purse-strings. This is what makes these offers tick during the festival season.

The greeting cards segment merits mention here. What started as a fringe sector in the early 1980s has today boomed into a Rs 300 crore plus organised industry.

There is also a thriving unorganised sector which boosts the size of this segment in aggregate terms. The greeting cards industry in its totality is estimated at Rs 450 crore in terms of revenues and 500 million in terms of volumes with the bulk of the cards coming from Mumbai, Delhi and Bangalore in that order.

The industry is estimated to be growing at 40 per cent in the birthday, season/festival and occasional cards segments.

The two leading players in the organised segment are Archies and Vintage (Hallmark). Other players are Wilson, Vakil, Meena and Ambassador besides regional or local players. Smaller unorganised players in the market compete on the price front.

There are also a few social and non-profit organisations like CRY, HelpAge India (an arm of Archies Greetings), etc. The latest player on the block is the ITC group.

The group, which seems keen to shake off the tag of being seen solely as a tobacco manufacturer, has entered the market with new and innovative ideas of selling greeting cards in India with its brand, Gold Flake Expressions.

Initially greeting cards competed for consumers' attention only on a few select occasions such as new year, Diwali and Christmas.

Today, the sector has shifted focus to try and transcend has beyond the festival barrier by positioning itself as an 'emotion industry'.

A few years ago, a top executive of one of the leading companies in the segment told me there would be demand for greeting cards as long as there were emotions to be expressed!

The pioneers in the domestic industry, such as Archies and Hallmark, did their bit to usher in the concept of Valentine's Day and other days of its ilk. The onset of globalisation in the early 1990s did the rest.

Satellite music channels and their western culture-oriented programming have contributed to the popularisation of some special days, which in turn has benefited greeting card companies.

Greeting cards reflect the changes in lifestyle India has witnessed post-liberalisation. The current generation has more expendable income, thanks to ballooning salaries and professional fees.

Furthermore, westernisation has led to a greater willingness to express feelings more openly.

As a trend-setter in India, Archies commenced production of cards and stationery products with Disney characters under license from Walt Disney.

The company thereafter tied up with card manufacturers such as Gibson Greetings Corp and American Greetings Corp of the US and Kingsley of the UK to produce an exclusive range of greeting cards in India.

Soon, the first Archies gallery was inaugurated in Delhi. The gallery sought to showcase the complete range of Archies products which included a host of gift items such as posters, cards and other stationery.

The company then launched its official web-site through which customers could order anything from fresh flowers to greeting cards.

Hallmark, a US-based company, has also been producing and marketing an exclusive range of greeting cards in India. Their product ranges have also been displayed in outlets across the country.

How will companies in the segment tackle the onslaught of e-cards? Till a few years ago, players in the sector believed that e-cards could never evoke emotions the way physical cards did.

The fact they missed then - and are now finding out the hard way - is that in a country like India economics is as important as emotions. Where there is a significant cost differential, most emotions take a back-seat!

Many e-cards come without a price tag, there is no postage fee involved and they can be used for multiple mailers. Against this, physical cards become a costly proposition.

The increasing popularity of e-cards has affected the market leaders' sales. What is making matters worse is the growth of the low-cost unorganised sector which is proliferating by the day.

Acceptance of western fads, I believe, is a temporary blip. Besides, family ties are far stronger in India than those in the West. Hence, means of the surrogate display of emotions are less likely to grow here exponentially.

Therefore, given the existing business model, the segment seems unlikely to emerge as a significant outperformer, though an odd stock price flare-up may occur.

If that happens, it will be more a function of demand based on a value play rather than a large segment of the market backing it as a growth play.

One of the key players in the segment is Archies Greetings. The company's operations can be divided into three sub-segments - greeting cards, gift items and stationery products.

The greeting cards division is the largest contributor to the company's turnover. It has also set up a music division and has been expanding the range of products sold at its outlets.

Archies has introduced various forms of gift items mainly targeted at the younger generation. Gift items, including photo albums, frames, stuffed toys and pen stands, are outsourced by the company. This enables it to maintain flexibility in line with changing trends.

The company ventured into the perfumes business with the launch of the Archies brand of Boyz and Gals deodorants. The perfume division contributes 15 per cent to company's revenues.

The financials of the company pass muster. Its price-to-book ratio and dividend payout record suggest that it has the potential to become a value buy at price declines.

However, with its margins evidently under pressure, one needs to give it a good thought before committing any funds at the counter.

Perhaps, an innovation some of these players could introduce is consolation cards for their shareholders, given their stock price trends!

(The author heads Lotus Strategic Consultants, Mumbai, and can be contacted at ashokkumar@mantraonline.com. Disclosure: The author has no outstanding interest in the stock discussed here.)