UK toys and games industry

Topics: Marketing, Project management, Product differentiation Pages: 7 (1642 words) Published: August 30, 2014

Case analysis

I. Macro environment

Any changes in macro environment will inevitably influence on the company. PESTLE is a framework to estimate external forces (see Table 1)

Table 1. PESTLE analysis
FactorCurrent situationImplications
Environmental1) Restrictions in marketing to children
1) ethical and legal aspects should be taken in marketing to children; damage to company reputation in case of offence Economical1) Recovery after recession and economic downturn 2) GDP growth
3) Industry trading deficit increased by 40%1) rising costs and falling prices, currency rate volatility etc.

2) disposable income growth
3) price competition may take place
Social1) Less spending on toys and more confectionary, video game and consoles, children magazines 2) Children birth rate growth
3) Children sophistication and savvy
1) development of new markets/segments

2) market potential growth
3) educational or interactive toy products
Technical1) Easy Internet access and high Internet penetration1) types and channels of communication with customers are shifting to digital ones

External environment both complicates and provides new growth opportunities for Hornby company. Economical and social forces define customer’s behavior. Digital presence and social media marketing (SMM) are a must nowadays.

II. Competitive environment

The majority of issues may outcome from the industry.
To summarize market environment it is better to use Porter’s Five Forces Model.

Potential entrants (low access):
Barriers to enter the toys and games market are relatively low. Therefore, if local competitors appear they are likely to take a niche segments; the more threat should be expected from overseas markets when competitors take a decision to enter the UK market or increase import volume to the UK (like Mattel or Hasbro, US owned companies operating in the UK). •In terms of distribution channels Internet clears up geographical boundaries and barriers and provides an unlimited access to on-line toys and games shops of different producers all over the world.

Rivalry (high):
Market rivalry is extremely intensive. Hornby has a number of strong competitors both in the whole market (Lego, Disney, Hasbro, Mattel etc) and in the toy vehicles segment (Hornby vs Peco/Bachmann/Dapol or Scalextric vs AFX/Mattel (Hot Wheels)/Tomy/ Tyco).

Bargaining power of buyers (medium):
End-user customer base is expected to grow (due to rise of children population in the UK) (↓ power) •Customers’ disposable income growth (due to GDP growth) (↓ power) •Low cost of switching to another brand (↑ power)

Toys are consumer goods with elastic demand (↑ power)

Bargaining power of suppliers (medium):
High cost in case of local production (↑ power)
Opportunity to switch to overseas producers with lower production cost exists (↓ power), however, a range of additional risks occurs in this case (eg, currency rate risk)

Power of substitutes (high):
Hornby owns 7 brands and product ranges: Hornby, Scalextric, Corgi, Airfix, Humbrol, Lima and Electrotren. Only railway brand encounters 650 products. From customers perspective the chances of rivalry between products exist as they may face to dilemma which Hornby product to choose. There is an implication of proper product portfolio management to avoid potential trade-offs. •It is very easy to switch from one toy product to another.

III. Strategic review

From the strategic point of view - how Hornby can go further - both Ansoff’s growth and Porter’s generic strategies have to be used simultaneously.

Market development options:
Entering new markets as an opportunity to reduce reliance on UK sales. •Targeting new market segment, eg busy people who have no free time and prefer on-line shopping. •Cooperation and partnership with other brands through licensing and product tie-ins.

Product development options:
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