Passion for Learning
Helping Kids Become Amazing Students
CASE SUBMISSION 3
Professor Ganesh N. Prabhu
Indian Institute of Management, Bangalore
On July 26, 2011
Case Group – 2J:
Arit Kumar Mondal
TOY DISTRIBUTION INDUSTRY IN USA
The toy distribution industry in USA is dominated by top five retailers (50% market share). Sales are seasonal towards the last quarter of the calendar year. The industry is attractive and the per capita contribution to toys is increasing. There has been a growing interest in the educational toys segment where educational value is the primary purchase driver.
DIRECT MAIL INDUSTRY
In 1993, over 40% of the Americans used mailed catalogs for purchases. Catalog consumers were well educated and had high incomes. Catalog sales were driven by mailing size, response rate & average order amount. Volume discounts, coupons & free gifts served as incentives. New products were extremely important in children’s catalog.
CHALLENGES FOR PASSION FOR LEARNING (PFL)
PFL’S market positioning is of a direct-mail company offering 100% educational products for 6-12 year old children. Its first catalog mail in 1994 resulted in a disappointing response rate of 0.77% which resulted in a loss of $145000 on revenues of $54000. There was also increasing competition from specialty chains focused on educational toys and big discount retailers. The firm also faces immediate challenge of designing its 1995 holiday catalog. Repositioning of the firm with the objective of breakeven in the short term and sustained profits in the long term is another major challenge.
We briefly state the condition of five forces mentioned in Porter’s Framework for industry analysis here.
The toy industry has seen high competition due to presence of many medium and small players. Major players competing on price contributes to the intensity of competitive rivalry.
Bargaining power of suppliers is moderate as there is mutual interdependence between manufacturers and mass merchandisers.
Customer bargaining power is low as toys are low-cost and standardized or mass products.
Threat of new entrants is high as often small players tend to come up with fad toys. Even PFL has also experienced several new entrants even in its differentiated product segment.
Threat of substitutes is low as there are no promising alternatives to toys.
REPOSITIONING OPTIONS ON PORTER’S FRAMEWORK
Three repositioning options have been analyzed using Porter’s generic strategy framework:
i) Differentiation Strategy
ii) Low-cost/High-volume Strategy
iii) Focus Strategy
ANALYSIS OF REPOSITIONING OPTIONS
Advantages and disadvantages of each repositioning option are discussed below:
REPOSITIONing Option 1: differentiate on service
|Based on the Porter’s framework, this option can be regarded as an industry-wide differentiation strategy. | |Advantages |Disadvantages | |More local knowledge to better customize product offerings according to |Additional expenditure would be required for design and | |local taste |production of catalogs | |Leveraging local relations helpful in opening specialty stores and |Additional expenses to procure the extended mailing list | |retail centres |Long term expenses could be as high as $80,000 per learning | |Good alignment with existing business and marketing strategy of being a |centre/ retail outlet | |niche player...
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