1 Uptoys Report
Environment Analysis of Toy Industry
Doing business in the worlds toy industry today, is anything but plain sailing, with the toy industry as a whole generating $21.47 Billion in 2009 and $21.65 Billion in 2008 (Riley, 2010) This producing a fiercely competitive market, but a market that is very open to new entrants,right throughout the industry. The market is also growing year on year with birth rates rising throughout the world, with the U.K. Birth rate growing this year (2014) by 13%).
Using Porter's five forces model (see appendix 1),we can look at the (Micro) external environment for the toy industry.
Risk of entry
The barrier of entry to the Toy industry is very low, this given new and up and coming entrepreneurs and companies a chance of success in this very fast paced and fiercely competitive market, to create products to capture the attentions of children and adults alike. The market environment has also pushes many well known brands to invest a major part of their budgets on research and development, allowing them to introduce new products continuously. Many well known brands such as as Hasbro, Mattel, BanDia and many other companies also invest huge amounts of money to compete for licensing of products connected to characters from TV shows, Films and video games,to expand their market share.
Power of the Buyers
The toy industry is very concentrated, this leaving manufacturers I a very weak bargaining position with its customer, for example fives stores including Wall-mart and Toys “R” Us make up 54% or Hasbro's net Revenue in 2009. (Hasbro inc., 2009) Target, Wall-mart and Toys”R” Us also had 43 % of Net Sales of Mattel, (Datamonitor, 2007)these both figures being massive amounts of products and given these companies power on pricing. The rise in online activity had also gave the manufacturer a door to sell direct to customer, but most of the large manufacturers still use the traditional route through supply chain.
Power of the Suppliers
The materials used within the production of 1UpToys products, for example plastics, paper, cardboard, computer chips and cables, are available from a wide range of suppliers , but are susceptible to market related pricing, (e.g., copper for wiring, plastics etc.) some of which are controlled by legislation due to the chemical compounds (like Phthalates and BPA) Which could incur higher taxation brackets and could be subject to government legislation.
Threat of substitute product
The threat of substitutes are growing with the continuous growth in demand, with children at a very young age having access to high technological gadgets and platforms.
This has driven toy companies to incorporate more technology within their products, as toy companies are now in direct competition not only with other toy products but also with traditionally non toy products such as, Tablets, computers, smart phones and even Mp3,s offering gaming within their technological platforms. The risk from these platforms is very high and is on the increase, as with prices continue to drop on cell phones and technological other gadgets, children are adopting to them earlier in their lives, with these devices offering gaming and entertainment at a very low cost and on occasions no cost at all to download.
The phenomenon of these technological devices has added extra pressure to the toy industry as a whole , to create toys with enough bells and whistles to compete with these digital device alternatives, with the cost of traditional toys significantly much higher to invent and manufacturer in comparison to the digital format. As a result to this the profit margins of the more traditional product is significantly lower, adding to the need to sell more units per product to make profit in today’s toy market.
Another major factor for the toy industry is that children at different ages have shifted preferences. Young children are...
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