Saturday, July 25, 2009

E-Tailing at a Children's Toy Company

Search Strategy
A regional toy company is considering the Internet as a selling channel and commissioned a background research report to decide if this retailing channel warrants further investigation. I used the Internet to do background research on toy retailing on the Internet. McDaniel and Gates (2008, p 86) recommend listing the distinctive words that might identify articles as a first step for an Internet search. I chose the following words: buy educational toys online. For my first search I did not try to enclose phrases or clich├ęs in quotes because I wanted to see a wider range of results to get other ideas for searching. This starting gambit hit a rich vein of useful material. In addition to educational toy company Web sites, I found this blog that reviews educational toy companies: Suite 101.

The companies reviewed in the blog such as The Discovery Channel provided useful information. Moreover, I followed the McDaniel and Gates guidance (p. 87) to “vary your approach with what you learn,” and picked up some words and other ideas in the review of these companies. E-tailing was a new word and eToys was a high profile failure that merited investigation. I decided to also improve the quality of my source material (see McDaniel and Gates, 2008, p. 87) and started searching with my new terms and information in EBSCOHOST. The following is my report to the toy retailer, call them KidzBiz.

The Market Reality for Online Educational Toy Sales
There is no mistake that revenue growth for online educational toy sales is front-running its brick and mortar relation by a significant margin. Online sales now form a significant share of sales for educational toy companies with the vision to participate in this channel. On example is Fat Brain (see Davis, 2008, p. 1), which has most of its sales online. It also takes advantage of the infrastructure services provided by Amazon to reduce the risk and cost of selling online by sharing Amazon server capacity, technical services and expertise.

Carson (2009, p 1) reports that Fat Brain is now on the Internet Retailer’s Hot 100 List. Furthermore, Inc. Magazine (2008, p 1) reports the astonishing growth in Fat Brain sales of 428% from 2002-2008. It also reports that the company is ranked number 40 in the Top 100 Consumer Product Companies. Not bad for a small family owned business that started in a garage selling educational toys through local stores.

What about established players? According to Internet Retailer (2006, p. 1), Toys-R-Us online sales jumped 20% with increasing strength in both number of orders and average order size. Although they do not specialize in only educational toys, they do sell them and experienced a 33% growth in sales of toys for toddlers. Hughes (p 32) reports that Disney has experienced phenomenal success in selling educational toys by “redefining babies solely as learners whose potential to learn can be released by consuming these products.” The combined message is a powerful indicator that online sales of educational toys for toddlers yield rich returns.

Are there other examples? Consider Leapfrog, an educational toy vendor who sells in brick and mortar retail stores, through its own online store and through online channels like Yahoo Shopping. In its quarterly filing with the SEC (see SEC, 2009, p. 15), Leapfrog reports that it plans to increase its online presence. This is in spite of, or perhaps because of the beating retailers are getting from the economic downturn (see SEC, 2009, p. 14).

The Discovery Channel (2008, p. 12) reported in its 10-Q news conference review that it closed all brick and mortar stores on May 17, 2007 and now will sell its educational products solely through catalog and their online store. They further inform us (p. 3) that they are aggressively investing in their online properties. Web traffic to their Web sites almost tripled from March 2007 to March 2008 from 13 million unique visitors per month to 33 million. Please note that the report does not break out visits to their online store from visits to their informational sites.

What about the high profile failures
The most high profile failure for an online toy company was eToys. Sliwa (2001, p 1) reports that eToys faced strong Internet competition from Amazon. As noted above, Amazon is now willing to partner with toy sellers. Moreover, Gomolski (2001, p. 72) goes into more depth about why eToys withered before Amazon. She reports that the eToys business model was based on competitive pricing but they had neglected to build awareness about their pricing. In addition, they failed to use the Internet to build customer relations of any kind. This resulted not only in inadequate brand awareness but also a failure to connect with children.

Moreover, eToys did not have the critical mass to reach profitability quickly and at the same time did not have cash flow from conventional business operations to sustain itself. The result is that eToys was not able to initially compete online with Amazon and could not sustain itself until it could.

How Can We Trust the Data
Can we trust the information used in this report? The sources are well respected. Inc. magazine, InternetRetailer, ComputerWorld, and InfoWorld are news magazines of note. They follow standard journalistic practice, which is designed to ensure reliable reporting. The Contemporary Issues in Early Childhood is a professional journal. Articles are peer reviewed to again ensure information reliability.

McDaniels and Gates is an academic textbook. It has been reviewed by the editorial board of John Wiley, one of the most trusted publishers. Finally, audited 10-Q statements are filed with the federal government. Heavy penalties under the administrative law are assessed for publishing false information on these statements.

Recommendation
KidzBiz has a lucrative opportunity to expand its sales and establish a presence in a new and growing sales and distribution system, the Internet. That system is placing relentless pressure on traditional brick and mortar operations. Today, KidzBiz is solely dependent on that old tired soldier. The next step should be to review Kidz Biz internal customer, product and sales data.

Johnson (2009, p. 3) says that, “secondary data can be greatly enhanced when merged with internally-generated data.” Kuchinskas (2003, p. 2) reports that in 2000 Dell experienced declining growth in the educational market because of tightening education budgets. They responded with a database-marketing program to the education sector. Database marketing on the Internet should enhance KidzBiz sales.

References
Carson, Mark (January 8, 2009). Fat Brain Toys Named To Internet Retailer’s 2009 Hot 100 List. Fat Brain Press Release. Retrieved on May 26, 2009 from http://www.fatbraintoys.com/about_us/press.cfm?pr_id=62

Davis, Don (September 2008). Advantage Amazon. Internet Retailer. Retrieved on May 26, 2009 from http://www.internetretailer.com/article.asp?id=27583

Discovery Holding (May 8, 2008). Discovery Holding Company First Quarter Earnings Release. Retrieved on May 27, 2009 from http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/05-08-2008/0004809260&EDATE

Gomolski, Barb (02/05/2001). Going global: Some lessons from eToys and Yahoo that might help you. InfoWorld. Retrieved on May 29, 2009 from EBSCOHOST.

Hughes, P (March 2005). Baby, It's You: international capital discovers the under threes. Comtemporary issues in early childhood. Contemporary Issues in Early Childhood. Retrieved on May 26, 2009 from
EBSCOHOST and http://www.wwwords.co.uk/pdf/viewpdf.asp?j=ciec&vol=6&issue=1&year=2005&article=4_Hughes_CIEC_6_1_web&id=74.6.25.186.

Inc. Magazine (2008). Company Profile: Fat Brain Toys. Retrieved on May 27, 2009 from http://www.inc.com/inc5000/2008/company-profile.html?id=200808330

Internet Retailer (June 21, 2006). Toysrus.com swings into the black in first quarter. Retrieved on May 26, 2009 from http://www.internetretailer.com/dailyNews.asp?id=18996

Johnson, E. (2009). Using Secondary Data & Databases. Retrieved on May 30, 2009 from WVU www.imc.wvu.edu.

Kuchinskas, Susan (Sep 2003). Data-based Dell. Adweek Magazines' Technology Marketing. Rertieved on June 5, 2009 from WVU IMC 611 week 3 readings.

McDaniels, C and R Gates (2008). Marketing Research Essentials. John Wiley.

SEC (March 31, 2009). Form 10-Q for Leapfrog Enterprises. Retrieved on May 27, 2009 from http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=6580220-812-158026&type=sect&TabIndex=2&companyid=108193&ppu=%252fdefault.aspx%253fcik%253d1138951

Sliwa, Carol (1/8/2001). Facing Tough Rivals, eToys Nears Oblivion. Computerworld. Retrieved on May 29, 2009 from EBSCOHOST.

1 comment:

Berchta said...

Thanks alot for the great posts. I thin toddlers toys , like childhood itself, mean different things to different people