Challenging the Big Three Card Grading Companies Hasn’t Proven Easy — Here’s Why.

While room exists in the marketplace, third party grading companies have found challenging PSA, SGC, and Beckett to be difficult

I stumbled upon an interesting discussion recently regarding a list of third party grading companies. While almost all collectors are familiar with the ‘Big 3’ of PSA, SGC, and Beckett, some would be surprised at just how many grading companies have entered (and, in many cases, exited) the market.

Off the top of your head, how many grading companies can you identify? This thread has tracked as many of them as they can and nearly 100 such companies are listed. There are certainly others missed.

prewarcards-goudey-babe-ruth-rabbit-maranvilleGrading companies, despite the recent altered cards scandal, have still piled up a ton of business and, by all appearances, are doing quite well. I’ve written this before but the big three basically are able to print their own money, so to speak. They have more work than they know what to do with and that’s despite even with some slow turnaround times and increasing prices.

I’ve written before that the market is ripe for a fourth grading company. My opinion on that hasn’t changed at all and that, arguably, is even truer in the current atmosphere with all of the allegations regarding altered cards. Some people might think the grading house of cards is collapsing but I think it’s just the opposite. Collectors have proven they are willing to spend good money for these opinion services and that probably isn’t going to change despite the scandal. Give them a viable, competent option and they’ll be in.

But if grading is such a lucrative gig, why haven’t more companies succeeded? Out of 100, only a small handful have risen to any real level of prominence. Why hasn’t a fourth challenger risen to seriously threaten PSA, SGC, and Beckett?

Mostly, it’s been a perception and branding issue.

Any grading company looking to enter the market is facing an uphill battle. The opportunity is there but it’s not as simple as showing up and getting paid.

Collectors not only distrust these startups unprompted but they’ve actually been conditioned to avoid them on the evidence of dealers and other collectors. That sounds bad but it’s mostly a good thing since it helps collectors avoid getting burned. But it also means that even if a company is doing quality work, it’s not going to register with most collectors simply because they’ve been convinced thus far that only three companies are reliable.

Know this. If you’re starting a grading card company, you’re playing catchup in a highly competitive market. There’s opportunity there so the bases are loaded. But you’re also down four runs in the ninth and facing an 0-2 count.

The lack of name recognition, more than anything, remains the biggest hurdle for a new grading company. It’s not capital, which I think is what many would assume. Sure, you need the money to take on any business venture. But any investor offering money could see the upside in terms of profit. I find it nearly impossible to believe a smart business plan from smart people couldn’t be enough to attract investments. The problem is changing the perception of collectors.

prewarcards-w513-tony-lazzeri-sgc-80The only real way to change that is by removing the stigma of being a noob. Collectors have to get comfortable with the name and the product. And the first step to that is establishing some brand identity.

When Beckett got into the grading business, things were easier for them. They already had the brand recognition from their price guides. Beckett had been a trusted name in the card space already so, even though they were new to grading, they had the name brand, which is really the biggest part to jumpstarting this thing. An ideal fourth grading company would come from the same stock, so to speak. It would rise as an extension of a trusted company that’s already in the industry. However, if you don’t have that kind of street cred, you need to acquire it and you do that through marketing and building a brand.

But what about performing quality work? No one would argue that’s definitely needed. Collectors have to see that grades are consistent and be able to trust that graders know what they’re doing. But if we’re talking about challenging the big three, you better be able to develop a brand first and get some name recognition. And that, in my opinion, is where almost all of these other companies have fallen short.

If collectors haven’t heard of you, they aren’t going to trust you with grading their stuff. Nor will they trust your grades when buying grading cards. That sounds cut and dry but it is that simple. And while no collector will start using your services merely by hearing your name over and over, those repeated messaging signals at least get you in the door.

To really be a viable challenger in the graded space, you better be pouring a ton of money into marketing. That’s not true in every industry but in one with such entrenched and limited competition like card grading, it’s essential. Setting up at as many big shows as you can. Taking out prominent full-page advertisements. Being highly engaged on social media. Developing quality relationships with auction houses, card manufacturers, and dealers. Handing out promotional items at events to collectors face to face. Sponsoring breaks. All of it.

You can’t sustain a company purely with good marketing. It takes more than that, obviously. As stated, you’ve got to do quality work. You’ve got to develop aesthetically-pleasing slabs that are tamper-proof. You’ve got to make key hires. But it all starts with marketing and branding, and, to date, attempts by others to seriously break into the industry have fallen well short there.

Is there an exception to this? Glad you asked and the answer is yes.

One could become a completely viable competitor without all of the marketing I’m talking about here by offering an entirely different and innovative service. Specifically, grading cards differently.

Currently, most card grading roughly looks the same. The procedures and techniques are undoubtedly different. But essentially, you’ve got a human grader viewing a card, finding its flaws, and registering an assessment before the card is encased and sent back. But what if you could remove the human element or, at the very least, diminish it?

There’s been quite a bit of talk on message boards and such about a new kind of grading. Grading where technology comes more into play using machines and computers to remove a lot of the subjectivity out of current grading techniques. I’m not sure exactly what that looks like in terms of actual output but if such a company came along and revolutionized the actual style of grading, that would be a real exception to breaking into the marketplace. Collectors, I imagine, could get behind that and while you’d need some startup marketing to get going, it’s a product that could more easily sell with the hook being the accuracy and consistency of the service.

And given how there’s been so much distrust building up in current grading performances, I could see something like that doing quite well.

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