Leveraging the Brand: Hallmark Case Study

As I look back on my tenure as Hallmark's chief brand advocate I'd like to share a few observations that may help you build your brand...

In the early to mid-1990s, an ever-increasing share of greeting card sales occurred in the mass channels.  Wal-Mart alone was projected to achieve a 20% share of the total greeting card market by the year 2000.  Three brands accounted for the vast majority of sales in these channels: American Greetings, Gibson, and Ambassador – Hallmark’s flanker brand.  (The sale of Hallmark branded greeting cards accounted for no more than 20% of the overall market.  Hallmark branded products were sold primarily in Hallmark card shops and select chain drug stores.  Hallmark’s corporate share of greeting card sales was 39% including all brands (Ambassador, Shoebox, etc.).) 

At the same time Ambassador brand sales were becoming an ever-increasing proportion of Hallmark’s overall corporate sales, Ambassador’s margins were eroding due to increased retailer leverage over manufacturers and heightened mass channel competition.  This trend of a less and less profitable brand becoming a larger and larger share of corporate sales was not acceptable.  We knew that more sophisticated contract negotiations and sales term innovations would not be enough to halt or reverse this negative trend.  We had to do no less than change the rules of the game itself.

After some thought, we knew our only hope was to unleash the power of the Hallmark brand in the mass channel.  But, that was tricky and unpopular as we did not want to undermine the success of the Hallmark card shops and chain drug stores – channels that were our “cash cows” and to which we felt a strong loyalty. 

(We conducted the most extensive research in Hallmark’s history to assess the impact of pursuing this strategy on Hallmark card shop and chain drug store sales – which turned out to be minimal.  Nevertheless, prior to the launch of this strategy, we fortified the viability of these two channels through extensive store consolidation, marketing, merchandising, systems and standards improvements, most notably through the development of the Hallmark Gold Crown program.  And, we expended great efforts to quantify and communicate the equity and power of the Hallmark name to the mass channel retailers. In fact, one mass channel retailer believed in the power of the Hallmark brand so much that it refused to switch to one of our competitor’s brands in return for $100 million in sales term.)

Some salient information to help you understand the strategy: Hallmark’s primary competitors had significantly reduced their costs by reducing their internal marketing research and creative development capabilities.  They leveraged Hallmark’s resources in this area (Hallmark employed over 700 artists and writers and 70 marketing researchers at the time) through well-constructed systems of emulation.  All mass channel (non-Hallmark) brands had raised prices faster than inflation for a number of years, due to the apparent lack of price sensitivity for greeting cards (until the major price thresholds of $2 and $3 were surpassed) and the pressures applied by retailers for ever increasing year-over-year sales productivity gains. In fact, while over 65% of Hallmark branded cards were priced under $2, 89% of competitive mass channel brand’s cards were priced over $2.

Competitors used their lower cost structures and higher product prices to fund ever accelerating sales terms.  They placed their bets on rich sales terms buying distribution with major mass retail chains, which was in fact what was occurring.  (Greeting card manufacturers negotiate multiple year contracts with mass channel retailers in which they receive most or all of a retailer’s business for a specified minimum floor space and number of stores for a specified period of time.  In return for that privilege, they pay substantial sales terms.)

Despite the fact that mass channel share was increasingly based upon which brand could write the biggest check, Hallmark was betting on the fact that it could change the rules by introducing the power of brand equity to the mass channel.  After all, Hallmark is the only greeting card brand widely recognized by consumers.  (It had unaided top-of-mind awareness of nearly 90% and Shoebox – a tiny little division of Hallmark – was the only other greeting card brand with significant top-of-mind awareness or preference.) Hallmark’s product also was superior (validated by rigorous market research) and Hallmark products were priced lower than any other major competitive brand.

Compare this with what I was fond of saying about Hallmark’s primary competitors to rally the internal troops around this strategy, “Would you rather be our competitors with overpriced, no name, inferior products?”  If Hallmark could align consumer price perceptions with reality (Hallmark was perceived to be “expensive” by consumers), I knew we could win with this strategy.  Our competitors (both public companies, one of which consistently touted quarter over quarter revenue and profit increases) were locked into multiple year retailer contracts with very high sales terms.  They would not be able to reduce prices without severely affecting their revenues, profits and stock prices.

I could devote at least several posts to the nuances of this strategy, but suffice it to say, that Hallmark’s static 39% greeting card market share increased to 42% with increased profitability in the first two years after we implemented this strategy.  Since then, Hallmark’s share has steadily grown to 55% in a few short years.  Unleashing the power of the Hallmark brand in the mass channel resulted in substantial market share and profitability gains for Hallmark without taking away from the success of the card shop and chain drug store channels. (Hallmark card shops achieved consistent month over month sales increases for at least three years during this period, validating my held belief that the added marketplace exposure to the Hallmark brand would have a positive impact on all channels carrying Hallmark products.)

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Comments

[Dave]

Brad - I disagree that you feel that the addition of the brand to the mass channels has had no impact on Hallmarks existing GC network of stores, simply look at the loss of over 1900 Gold Crown stores since 1993! Yes Market share increased due to our Mass Channel partners aggressive rooftop growth, Walmart, Walgreens, etc...

[Brad VanAuken]

Dave,

The Hallmark brand’s problem in the 1990s was not with awareness (it had extremely high top-of-mind unaided awareness), relevance or even emotional connection. It was with perceived value and accessibility. Its share was much lower than it could have been and than the average person thought it was because of its limited distribution – exclusively through card shops and some chain drug stores. We needed to take the brand out to broader distribution to combat category commoditization and gain significant market share commensurate with the brand’s strong equity. The bottom line: for Hallmark (and its competitors) to survive and thrive in the long run, brands had to matter in the social expression category. To do so, the Hallmark brand had to be present in the mass channel. It was the only brand with significant awareness and equity in the category.

We created the Gold Crown program to fortify the card shop channel. The program was designed to increase retail success. At least while I was still at Hallmark after the Hallmark brand’s expanded distribution, Gold Crown same store sales increased consistently quarter over quarter. Some consolidation in the card shop channel was inevitable as weaker stores closed to make way for better located and managed card shops. And, owners of multiple card shops almost always seemed to have stores that performed better than single card shop operations.

Ultimately, one must have to ask the question, “What is the advantage of one retail format over another? Is it value (price, value-added services), convenience (hours, location, breadth of offering), the shopping experience itself (entertainment), its self expressive nature (brand as a badge) or something else? Hallmark Gold Crown stores will survive, thrive or die based upon their competitive advantage relative to other retail formats.