A Toy Story

  • Category: Business
  • Words: 1807
  • Grade: 93




Toys are one of the oldest consumer products. However it is only within the last five years that the industry has matured from a cottage industry into a global market of over $50 billion. (Learning from toys)
However, it is not an industry, which can be easily conquered and dominated. It is one of the most competitive and challenging industries to strive in. Time to market and product turnover are vital; products have a very short life and are sold in brief, well-defined selling seasons. Many of the products do not even survive two seasons before they hit the discount racks. In addition to these difficulties most of the toys are manufactured in countries such as China, Taiwan and other Southeast Asia countries where labor is cheap but there is a great risk of currency and political problems in these underdeveloped countries.

A Matured Industry
Children residing in the United States account for only 2% of the world's children, however these kids consume almost half of the entire world production of toys. (Learning from toys) The demographic changes, which have been occurring in the 1990s throughout the western world, do not favor the industry either. United States Census Bureau forecasts that the industries core consumers, who are 14 years and younger will only grow by 3.5% from the year 1995 to 2010. (Learning from toys) The slow grow rate of young children is due to the current economic conditions that force not only the male to be source of income for the money but the female as well. As more and more women enter the working world, the number of newborns will grow at slower rate. However, it is not all bad news for the industry. The purchasing power of kids has grown over the last decade. According to a study conducted in 1996, U.S. children between the ages of 5 and 14 spent $27 billion and directly influenced spending of $117 billion. (Learning from toys) This hike in purchasing power is due to the increasing disposable income of American families as well as the fact that grandparents and other relatives fund almost 15% of toy sales. (Learning from toys)
A second sign of a mature industry is apparent in the concentration of toy manufacturers. The two industry leaders, Mattel and Hasbro controlled 21% of U.S. retail toy sales. Today that number has grown to over 33% with the closest competitor controlling only 3% of the market. (Learning from toys) The two industry leaders have been able to maintain a strong track record by the control and sales of various familiar brands, which dominate the industry. Newcomers have entered the market but they have mostly been successful due to one successful toy idea and have been eventually gobbled up by these giant corporations.
These industry leaders have been able to create various competitive advantages, which are not available to the smaller manufacturers. Some of these advantages are; economies of scale, brand recognition, and available funds to acquire licensing agreements. Therefore it only makes sense that the less fortunate smaller companies have been forced to compete by investing in research and development with the hopes of creating a product which is noticeably distinctive and attractive from its competing products. These smaller companies have also had difficulties in exposing their product to their target market. They have found shelf space at major toy retailers to be a rarity thus forcing them to find other ways of bringing their product to the consumer. Independent mom and pop toy stores has become the most popular way of bringing the product to the market. The addition of the web and e-commerce has also been very beneficial for these small toy manufacturers. It has opened a new of exposing their product to their target markets some of the greatest advantages of this medium is that it is global and relatively inexpensive. Being a small toy company is not all negative; it does have its upside. Since the company is small in size it is better fitted to quickly adapt to any changes or trends in the market which a lot of times is the thin line between success and failure. A perfect example is the recent Razor Scooter craze that swiped up the entire country.
The changes have not only occurred within the manufacturing of toys but also between the retailers. Department stores have lost as much as 16 market share points within the last fifteen years to discounters and national toy chains. Discount stores accounted for 40% of all toy sales in 1999. Wal-Mart which is the worlds largest retailer controls about 18-19% of the traditional toy market which is slightly higher then the one time leader Toys "R" Us which controls 18% of the market. These two giants are followed by Target at 6-7% and Kmart at 5%, followed by KB Toys. (The new toy story)

Managing Demand
Toy manufacturers also have the difficult responsibility of managing for the always changing demand of toys. For one, toys have a very short life span and they are also seasonal. The sum of these conditions leaves the corporations scrambling around for solutions. Toy sales grow in enormous proportions during the last couple of days before Christmas. The two months of November and December account for 45% of toy sales for the entire year with the last two weeks of December representing half of those sales. This number can go as high as 70% for some companies. (Learning from toys) The seasonal demand of toys is only half of the problem for the retailers. New toys continuously enter the market, however not all succeed and even if they do the majority of them do not have a life cycle which extends over two years. Those that have survived the test of time such as Barbie, G.I. Joe and Mr. Potato Head are very few. As vice president of product design for Mattel, John Handy put it; "We're just one good idea away from going out of business." (Learning from toys)
Many of the new products that hit the market are not revolutionary but instead mere extensions of products that already exist. This is due to manufacturers attempting to avoid the risk of failure of a new product by simply modifying and improving a product that has already proven itself in the marketplace. Extensions of current products are often essential to keeping products on the shelves of large retailers such as Wal-Mart and Toys "R" Us. Manufacturers can learn from the research on the previous product and modify it to the specifics of their customers. The entire marketing process of the product becomes much easier since it has already been done with a near identical product. However, there is a risk associated with always evolving a product. It may alarm consumers and diminish the strength of the brand.

Advertisement
The toy industry was revolutionized in the year 1955 when the founders of Mattel, Elliot and Ruth Handler took a great gamble and signed a 52-week contract with ABC Television. The contract made Mattel a sponsor of the Walt Disney Mickey Mouse Club at a cost of $500,000, which was the equivalent to Mattel's net worth at the time. The only time toys were advertised prior to this was during the holidays but the show made Mattel a well-known brand and skyrocketed its sales. This was the launch of advertising toys to children. The heavy commercial advertisements to kids was halted by the 1974 agreement of the National Association of Broadcasters which reduced the commercial time on children programs. Thus toy makers were forced to find a new way of reaching the youth and they turned to Hollywood and professional sports for aid. Licensing became the new hot trend. Toy makers found the licensing business to be very lucrative due to several reasons. First, it was possible to coordinate the release of the movie with the release of the toys to meet off-peak demand. Second reason is due to the fact that kids had already developed play patterns for the toys before they even came out based on the events in the movie. The timing of the release of the movie with the toys allowed toy makers to have a consistent flow of income even during the traditional slow months.
According to the statistics released by the Toy Industry Association, an estimated $837 million was spent on advertising toys to children in the year 2000. (Toy-makers must market morally)

Current Trends
A trend that is bothering toy companies a great deal is the belief that American kids are continually growing mature at a younger age, They are abandoning Barbie at ever-younger ages. In the past Barbie was popular with kids between the ages of 6-10 now they are more popular with kids between the ages of 3-5. This phenomenon is referred to as "age compression" in the toy industry. Maria Weiskott, editor of Playthings magazine states: "The toy age is actually peaking these days at 8, and the toy industry is really wondering how to deal with that." (Toys? But I'm 10 Now!) The shift of children's interest in toys has changed significantly, enough for the Consumer Product Safety Commission has been rewriting its 15- year old guidelines intended to help parents determine the type of toys appropriate for each age group. Sales of traditional toys increased a mere 1.7%, from $24.5 billion in 2000 to $24.9billion in 2001 and the year before sales were nearly flat. (Toys? But I'm 10 Now!) The reason for this shift of interest of children is associated with the new various forms of entertainment available to them. Now a days, kids find themselves with high-tech games such as Playstation2, X-Box, and TV in the form of Satellite TV with 500 channels. Proof of this may be seen in the 43% gain in sales of video games over the previous year. (Toys? But I'm 10 Now!) According to the president of Griffin Bacal a marketing and research firm companies must "Redefine the industry as "˜toyetic entertainment' What this means is finding new innovative ways of chaining toys with the other entertainment sources. Lego has been able to find such a strategy. They recently released a new Lego robotic toy that allows the kid to download various programs into the vehicle they had just built.



Bibliography

Johnson, M. Eric. "Learning from toys: Lessons in managing supply chain risk from the toy industry" California Management Review, Berkeley Spring 2001

Finnigan, David. "The new toy story" Brandweek, New York Feb 11, 2002

Fanning, Christine. "Toy-makers must market morally" Northeast Pennsylvania Business Journal, Dallas Dec 01, 2001

Shen, Fern. "'Toys? But I'm 10 Now!'; As the Barbie set gets younger and younger, The Industry Retools" The Washington Post, Washington D.C., Feb 17, 2002

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