Mr

Porters Five Forces Model on Toy Industry

Older Kids Pre-school

Buyer Power Games for older kids are attractive for discount retailers who need large volumes for high demand products. They have substantial buyer power and are demanding (NEGATIVE) Specialty stores do not usually carry franchise items. They purchase directly form the manufacturers, typically carry a full line and focuses on pre-school market. (POSITIVE)

Supplier power Toys for older kids (plastic toys) are produced by manufacturers that use high volume injection molding that result in economies of scale. (POSITIVE) The rotational molding process allowing for a rapid changeover of molds is good for typical pre-school toys. Less cost effective than high volume production (NEGATIVE)

Barriers to entry Slow market growth , high fixed cost and expense, unpredictable business and demanding retailers make the industry less attractive thus protecting current players (POSITIVE ) Market is more stable and predicted to growth best among the industry for the next 20 years, although has high fixed costs. This makes it an attractive market for new entrants. (NEGATIVE)

Substitutes products Several substitutes exist -video games, Lego or activities (Cartoon Network, sports, and playground games). This might reduce market share (NEGATIVE) Because of parents choice for developmental toys there are few or no substitutes products for preschool kids toys. Lego and Learning channel might affect market share but not significantly (POSITIVE )

Rivalry Because of major players in the industry and economies of scale will drive down prices, will be hard for a small manufacturer to compete in the market. (NEGATIVE) Fisher’s price dominates the market, thus small manufacturers might need to compete on niches: geographically to local specialty stores or daycares (POSITIVE)

Market size and growth Increasing substitutes products (video games, etc вЂ" see above) might shrink market size and affect price and quantity (NEGATIVE ) Demographics and lifestyle changes (with grandparents living longer, more divorces or dual careers families) are factors that contribute to the growth of the infant / pre-school market (POSITIVE )

Overall Assessment

This segment is less attractive due to high buyer power, licensing issues and brand recognition, high fixed costs, increased substitution and rivalries among major players. (NEGATIVE ) This segment is more attractive because of market growth predictions for the next 20 years, no significant buyer power and less substitute products (POSITIVE)

At first, one can get from reading the case a hint that the pre-school market is the more attractive option of the two. After completing the Porter’s five forces analysis this hint becomes a convincing conclusion: for a small manufacturer intending to diversify the core business, the pre-school market is the best option.

Due to Fisher Price’s prevailing position in this segment, our firm needs to be able to position itself in such a way that will be able to make a profit and not loose money fighting Fisher Price and other large competitors an endless war. I would focus first on large developmental preschoolers’ toys which can be used in playgrounds and backyards. This is a very attractive segment which might not require extensive R&D or very complex manufacturing at first. Here, a carefully designed strategy needs to be engaged and a focused target nice to be chosen. I would begin with local communities as a target for focused market attack. Sustainable strategic positioning requires trade-offs and I will chose to target the Columbus’ smaller toy stores, daycares and schools instead of competing directly with Fisher price. My close friend who runs a daycare has told me that parents are very interested in buying developmental toys for kids to play with at the center, so I will verify this and I can first serve to his needs and hope that other parents and daycares will find out, too. As mentioned already, will focus on a small set of customers offering large developmental toys, additionally our entire strategy will start with narrow scopes: local markets and no vertical integration: this will allow increased flexibility and maximizing the results of our limited resources.

The advantage of being a small manufacturer is increased flexibility and I will try to leverage this as much as possible. I would try to develop a rapid distribution network that deals with small batches of production very rapidly. I would use for the beginning one or two sales associates to develop tight local contacts and to monitor our toy stores stocks daily, or as often as needed. Then I would use the data from this channel, together with other market data (such as feedback collected from my friend, other daycares, employees with kids, online blogs, etc) for demand forecast and production scheduling. I would design new toys or manufacture repeated batches of the successful ones, based on what sells. I would use a flexible team of toy designers, engineers and technicians working at times extra shifts if needed. I would try to use Ohio State University graduates pool for a well prepared and relatively low-priced workforce and I would pay employees slightly above the local market, with incentives tied to performance.

Later, once the business would grow and the resources would allow, I would try to improve the sales data accuracy and use them for an even more accurate demand forecast and production planning. In my pricing policy I cannot afford to compete with Fisher Price, thus I would chose to stay slightly higher priced but visibly higher quality than the big competitors. Hopefully this strategy will convince an increasing number of customers to buy our toys instead of the traditional brands.

Furthermore, our strategy needs to be able to adapt to opportunities and threats of the market. Targeting niches of the market, with quality products will probably add value to the industry without accumulating additional rivalry for the whole industry. Due to the added value and especially since Fisher Price operates market-wide while we operate locally we will be able to avoid detrimental price wars. The higher quality developmental