American Greetings Harvard Case Solution & Analysis

Introduction

American Greetings Corporation ((AG) has been successfully operating as a greeting card publisher, meanwhile, the company is based in Ohio state and its successful strategy has led it to the American’s second largest company in greeting card industry. However, Hallmark is still the market leader with annual revenue of $1.7 billion. Further, it had a wide variety of greeting cards that it has been offering to its clients; meanwhile, the offerings other than greeting card includes candles, wrappers for gift items, party goods etc. However, AG’s offering other than greeting cards consisted of 25% of its annual revenue. Further, the AG has a strong network of retail channel for the sale of greeting cards and other gift items, meanwhile, in order to reach more customers it had opted to sell its inventories through an online website and this feature added more revenue from the sale of electronic cards through online sales and along with online selling, AG was also involved in selling the licensing and rights for the use of its popular characters that AG had developed over the period of time.

However, before entering into the online sales of electronic greeting cards, AG was completely involved in selling paper based greeting cards, but with the passage of time and changes in customer preferences, the demand for paper based greeting cards declined, leading AG to offer electronic greeting cards. Despite the increase of electronic greeting card sales, the AG could not improve its profits because of the low profit margins of electronic greeting cards; therefore, AG tried to stimulate the demand of its paper based greeting cards and started selling its paper based greeting cards through partnership with the discounted dollar stores. However, this effort of AG did not prove to be successful because it had to incur significant amount of expenditure on marketing in order to increase the demand for its paper based greeting cards. Moreover, the AG had a consistent dividend policy for distribution of its profits, which were constantly growing, but still the share price of AG was depressed and experienced a significant decline in its share price during the year 2011, when its share price declined from $23 per share to less than half value of $12.51 per share.

Meanwhile, a significant number of its equity shares were held by different institutional investors, additionally, the shares were also owned by other investors totaling to around eleven thousand shareholders. However, the management of AG operations was controlled and led by the founder family members with significant influence on the decision of the AG and the family members had occupied the leading positions of President and CEO of AG.

Industry Analysis

However, the paper base greeting card industry has reached its maturity stage and is quickly moving towards the decline stage and the American greeting card industry has been estimated to experience a declining trend in its growth because the total sales of greeting cards in America have been estimated to decline as per the U.S. Census Bureau, Economic Census. In addition to this, the American greeting card industry has experienced a decline of 6% during last 6 year period, meanwhile, due to the matured market the US greeting card industry was further expected to face a declining trend in the range of 4% to a highest decline of 16%.

Further, with the introduction of advanced technologies and gadgets that provide the individual easy and least expensive means of sharing their love with their companions, additionally, the increasing number of alternative communication means has also contributed to the decline in paper based greeting card industry and people prefer to use electronic greeting cards in order to express their love and feelings to their loved ones. However, this shift of consumer preferences has been identified by the greeting card industry, which is why they have opted to offer the electronic greeting cards through their own websites. Meanwhile, despite of that the greeting card industry is still struggling for growth, which led the greeting card company to diversify into other gift items offering and related to their survival. Similarly, AG has also taken initiative in order to increase its sales through building partnerships with retail stores; meanwhile, AG is also investing in the development of its online electronic card offerings in order to increase its sales revenues.

Effect of Market Conditions on Multiple Valuations

However, since AG is operating in a matured market, which is declining year by year, meanwhile, its electronic card business has not been able to secure higher profit margin because of the marketing expense; therefore, the decline in AG’s share price can be a result of matured market and declining trend. However, further analysis...................

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