Toy Industry: SWOT Analysis Prepared By: Tara Nottingham Thaynara Barbosa Timothy Zawachy Melissa Stack Chris Ghannam 5-30-2011 Group 3 Toy Industry: SWOT Analysis

Snapshot Analysis Overview Major Competitors Profitability Effective Strategies Strengths Weaknesses Competition Substitutes Supplier Bargaining Power Buyer Power Industry Makeup

Critical Questions 1.What firms are the major competitors in this industry and what are their annual sales, market share and growth profile?   2. Which of the five forces drive profitability in this industry? Why? 3. What strategies have competitors in the industry been using and what has been their success with them? 4. What are the relative strengths and weaknesses of competitors in the industry? Are there any strategic groups? 5. Is there a threat of new competitors coming into the industry and what are the major entry barriers? 6. Are there any substitute products for the industry and what are the advantages and disadvantages compared to the industry products? 7. How much bargaining power do suppliers have in this industry and what is its impact on the firm and industry profits? 8. Buyer power and impact? 9. Describe the industry makeup in terms of Monopolistic, Oligolopolistic, many small players, or other.

Major Competitors Toy Industry

Major Competitors Gaming Industry Market Share

Profitability - Porter’s Five Forces Threat of New Entrants The Bargaining Power of Buyers The Bargaining Power of Suppliers Threat of Substitutes The Intensity of Rivalry among Competitors in an Industry

Profitability - Porter’s Five Forces Threat of New Entrants The competition in an industry will be the higher; the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (examples would be; market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically Economies of scale (minimum size requirements for profitable operations) High initial investments and fixed costs Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets Brand loyalty of customers Protected intellectual property like patents, licenses etc Scarcity of important resources, qualified expert staff Access to raw materials is controlled by existing players Distribution channels are controlled by existing players Existing players have close customer relations, from long-term service contracts High switching costs for customers Legislation and government action

Profitability - Porter’s Five Forces The Bargaining Power of Buyers Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Buyers bargaining power is likely to be high when…. Switching to an alternative product is relatively simple and is not related to high costs They buy large volumes; there is a concentration of buyers The supplying industry comprises a large number of small operators The supplying industry operates with high fixed costs The product is undifferentiated and can be replaces by substitutes Customers have low margins and are price-sensitive Customers could produce the product themselves The product is not of strategically importance for the customer The customer knows about the production costs of the product There is the possibility for the customer integrating backwards

Profitability - Porter’s Five Forces The Bargaining Power of Suppliers The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. Supplier bargaining power is likely to be high when: The market is dominated by a few large suppliers There are no substitutes for the particular input Supplier’s customers are fragmented - bargaining power is low The switching costs from one supplier to another are high Supplier integrating forwards to obtain higher prices /margins This threat is especially high when: The buying industry has a higher profitability than the supplying industry Forward integration provides economies of scale for the supplier The buying industry hinders the supplying industry in their development The buying industry has low barriers to entry In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.

Profitability - Porter’s Five Forces Threat of Substitutes A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. Similarly to the threat of new entrants, the threat of substitutes is determined by factors that include: Brand loyalty of customers Close customer relationships Switching costs for customers The relative price for performance of substitutes Current trends

Profitability - Porter’s Five Forces The Intensity of Rivalry among Competitors in an Industry This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing players is likely to be high when There are many players of about the same size Players have similar strategies Minimal differentiation between players and their products - minimum price competition Low market growth rates (growth of a particular company is possible only at the expense of a competitor) Barriers for exit are high ( expensive and highly specialized equipment)

Effective Strategies Continuous innovation in concept, design, manufacturing process and marketing Creating catchy twists on classic items to include: Barbie, Mickey Mouse etc. Building product associations with fads or movie characters Outsourcing to maximize profits and minimize production costs

Strengths – Strategic Groups Specialized Marketing Initiatives Product Differentiation - Unique Attributes, Features or Designs Location, Location, Location Quality Control, Durability Company Reputation

Weaknesses – Strategic Groups Commercials that Lack Appeal Undifferentiated Products or Services Poor Quality Control Tarnished Reputation

Competition – Barriers to Entry Becoming the next “IT” Product There is a threat of new competitors entering the market. A startup company that has discovered the next “it” product, can easily corner the market before existing companies can react. This was the case in 2009 when the company Cepia invented “Zhu Zhu Pets.” Toy companies must therefore constantly research new products and improve and their existing products and procedures. A major entry barrier in the toy industry is customer loyalty. Firms such as “Playskool” and “LeapFrog” design products that can be individually tailored to the end user and updated with the use of the internet. These companies also offer their products in age group stages that allow the customer to grow with the products the company offers. This manner of built in customer loyalty is hard to break.

Substitutes – Pros and Cons While there will always be a market for "toys," there is a growing trend of toys being substituted for portable electronic devices such as I Pods, I Pads, and Kindles. While the toy industry has countered with similar "toy" or "kid" versions of the aforementioned products, the out of industry electronic products will not be outgrown like a child version I Pod will be. The advantage for the toy industry is once an "it" electronic product hits the market; it can be replicated without the financial strains of research and development and marketing that the host firm endured.

Supplier Bargaining Power Suppliers Have Little Bargaining Power Suppliers Are Everywhere Low Wage, Low Environmental Control Regions Low Cost To Produce Price Competition Made in Taiwan

Buyer Power - Impact The buyer holds all the power in the toy industry. Toys are purchased with discretionary funds, they are not a necessity . Without the appeal of some aspect of the product, such as educational, creative, entertainment or some other factor the toy will not sell. The industry is very competitive so pricing must be kept in line with like kind products or the product must be unique in some fashion that the consumer will not mind spending a little more. The impact on the industry is they must be vigilant about research and development. Always on the lookout for emerging technology and trends and an eye toward what their competitors are up to. Works Cited "Toy Not A Child's Play Anymore, India." Gifts, Anniversary Gifts, Birthday Gifts, Christmas Gifts, Accessories Handbags, Magazine, Advertising Products, Promotion Items. Web. 21 May 2011. <http://www.giftsnaccessories.com/back-to-school/1897.htm>.

Industry Makeup – Monopolistic Competition The Toy Industry is/has all of the characteristics of monopolistic competition. Differentiation comes from branding, consumer loyalty, effective marketing campaigns and in some cases price. Many producers and consumers Consumers may perceive there are non-price substitutes among competitor’s products. Producers have a degree of control over price through manufacturing processes, technological advancements and cheap labor. Eventually profits break even because demand will decrease and average total cost will increase.