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Gottlieb Global Toy Experts


Is the toy industry terrible at channel management?


In May, Jerry Storch, Toys R Us chairman of the board, spoke to the toy industry’s US leadership and told them that they were the worst industry he had ever seen when it came to channel management. It was a bold statement that resulted in agreement, rejection and anger. But was Jerry Storch right; is the toy industry terrible at channel management and, if so, does it matter? Before we get too far into the subject, let’s step back and define the terms channel and channel management. A channel, in the context of retail, is a category of merchant. For example, mass merchandisers with their broad range of product categories, deep discounting and high sales volume (think Wal-Mart) are different than category killers who also concentrate on high volume and low price but focus on a particular category of products (think Toys R Us). Category killers differ from specialty retailers (think independent toy stores) who carry a particular category of products but sell at full price while providing service and unique products. There are many more channels including supermarket, drug, e-commerce, sport, hobby and craft, and more. Channel management is therefore how a supplier goes about determining which of these channels to sell and when to do so. It incorporates a pricing strategy, a marketing plan and, in many cases, an advertising campaign. Currently, according to Storch (and on this there is no disagreement), the toy industry sells to everyone


and anyone at the same time. A new product, when launched, shows up in all channels of trade resulting in a wave of products hitting the market and the eyes of shoppers at the same time. Differentiation between retailers, as a result, is not fought over exclusivity or availability but over who can charge the lowest price. As a result, there is a race to the bottom in pricing and an over-stimulation of the marketplace, resulting in marginal profits and closeouts after an exhaustive, short life span for the product. The result is high volume, little profit and an ever


shortening product life cycle. It doesn’t sound good for anyone, but the industry continues to follow this business model. Storch suggests that the toy industry would be far better served in managing their sales by focusing on the toy retailers in the first year and then spreading out to the big mass merchandisers, supermarkets, drug stores, etc, in year two. This would result in less price competition, more profitability, a healthier toy industry and a longer shelf life.


Those opposed to Storch’s suggestion state that the current model is necessary due to the limited number of major retailers. How, they ask, can they fund a major advertising campaign for their new product with a more limited distribution? Even if they followed the model, they note, lack of convincing sales in year one would turn off retailers who were due to get on board in year two. In general, I think we can all agree that a toy industry that depends upon three retailers for 50% of its US sales is not a healthy industry. What is desirable is a broad market basket of retailers so that toy companies can thrive without having to take the big risk of a heavy TV spend that can result in anything from a huge hit to a company knockout punch. So, what can be done while we wait for this current


retail cycle to become part of history, along with five and dimes and catalog showrooms? Here are a few suggestions for those who aspire to become major toy companies:


Remember that the ultimate business of business is to stay in business. As Peter Drucker put it; the


Dan


Salem Prism Digital


Solutions How do we watch TV?


While most of you will be counting down the days until you go away for some well-earned respite before the countdown to Christmas begins, a new study by Thinkbox highlights some interesting


statistics about the how we watch TV. While this research is based on adult consumption, it does highlight some important issues and dispels some myths about video on demand (VOD) versus linear TV. Also, it is important to note that kids TV consumption is not dissimilar in some of the motivations, and the importance of congruency in terms of creativity, is an untapped opportunity for many toy advertisers.


The six reasons we watch TV The study explains why, in an era when people can choose to watch what they want, when they want, the UK continues to watch live TV 90% of the time; the live TV experience satisfies human emotional needs that on demand viewing alone can’t.


purpose of any business is to stay in business, and everything else is a byproduct. Why stay in business? Because you create jobs and value for stake holders. Taking big financial bets on heavy advertising are for many companies simply too big a risk. It’s better to grow a new product organically by building a following through smaller retailers (think baseball farm teams and homegrown talent) than by taking one big swing at the ball. Build your brand. Yes, brands do still count, and


your ultimate payout may well be the value your brand has, more than the dollars you pull out as salary. A company that takes the time to carefully choose and nurture its product is a company that is going to be around for a while. It is also going to be an enterprise with identifiable brand value. Should founders wish to sell their company, raise additional rounds of capital, or even go public, it is the brand value and proof of the business model that will be most attractive, and not any one product. Engage in channel management. Both sides of the argument are right as long as they follow the old paradigm of heavy first year television advertising. But is such an approach still advisable in a rapidly changing marketplace for play? Whether we like it or not, the old paradigm of a heavily-funded launch though television is on the edge of collapsing under the sheer weight of too few retailers, too much risk, and a changing landscape in which television is rapidly diminishing as a force. Not only that, but any toy that is launched using any form of mass marketing is going to struggle against a myriad of other forms of play and entertainment; from new play platforms like tablets, phones and computers to older ones like books, music and television. New ways of going to market are needed, and the channel management that will result may be far different than one Mr Storch or any of his proponents or critics can imagine. Watch carefully for new approaches to business as alternative forms of communicating continue to evolve and grow stronger. Whether it’s streaming TV, websites, social networks, or whatever the next big thing is, things have to change…and they will.


The researchers identified six core reasons why people watch TV: • Unwind: defer life’s chores or de-stress from the pressures of the day.


• Comfort: shared family time, togetherness, rituals, familiarity and routine.


• Connect: a sense of ‘plugging in’ to feel a sense of connection to society, to time or to a place.


• Experience: a need for fun and a sense of occasion to be shared.


• Escape: the desire to be taken on an enjoyable journey to another time and place.


• Indulge: satisfying your (typically guilty) pleasures with personal favourites, usually alone.


continued... Toyworld 35


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