TVCs VERSUS DIGITAL MARKETING FOR TOYS: HAVE WE REACHED TIPPING POINT?
TV advertising has been the core marketing activity for the toy industry since not long after TV adverts came about. So career toy people and career toy retail people have known and come to depend on a powerfully effective and above all simple (if not cheap) marketing solution.
Retailers have to buy our products at around 60-75% (ignoring sales tax – GST/VAT etc) of the price they sell them for (on average – there are exceptions!). So they are risking 60-75% of the net retail price to gain 40% to 25% of that price, sometimes on hot products due to promotional activity and discounting they are on far less, even losing money on occasion to bring more customers into store (physical or online). They have to cover all their costs from this, and if they are highly efficient operators they may be fortunate enough to earn 5-10% operating profit, but especially in today’s turbulent times, achieving profit is ever more difficult.
Understandably therefore retailers are risk averse with regards to product selection. Historically, they looked for licensed products or TV advertised items with a known formula to reduce the risk of products failing and leaving them with an inventory problem, leading to no or at least low profit.
TV advertising has historically been a big sign of investment and commitment from the toy company to give retailers comfort that we are equally as focused on selling products off of their shelves/e-commerce stores as we are getting them in. Therefore generally speaking the old model necessitated a big TV spend commitment to persuade retailers to take enough stock on our typically long lead time items to deliver the year both sides need.
Fast forward to today, and the challenge we now have is that TV advertising is nowhere near as effective as it once was. The trend is ever increasingly towards kids watching streaming e.g. Netflix and informal/user generated YouTube content for hours on end. Theoretically this should not be a major problem. We should be able to utilise social media and content platforms like YouTube to market our products…but there are some real challenges for toy companies and their retail customers with this evolution:
Firstly, the major benefit of TV was that it was simple, broad reach, targeted and highly scaleable. With Youtube, Google, Instagram/Facebook etc it is harder to create predictable critical mass like TV used to deliver – to put it bluntly, TV was like pressing one big, effective albeit expensive button. Digital marketing on the other hand is like trying to press dozens of buttons at once while hoping/encouraging many other people to do the same – it is innately more intricate, more intensive and to a degree less systematically scalable. OK, we can do PPC, but can we reach enough of the right consumers? Maybe, but it was easier with the old TV focused model.
One of the major factors in effective ‘digital’ marketing and especially ‘content’ marketing is the viral effect whereby people share or imitate/replicate content which encourages people to buy the producy features. BUT virality is not guaranteed, the hit rate on trying to create viral effect is poor – so you have to keep on grinding out new content to finally find something which works and delivers the desired effect – so it is not guaranteed that such an approach will lead to a viral effect in the key selling windows.
Secondly, retailers and toy companies are trying to effectively and prudently manage inventory. This is made difficult by the long lead time whereby product typically leaves the factory in July/August for sale months later. TV was far more (although not entirely) predictable. With a (non-TV) digital approach to toy marketing the challenge is how to make the impact equally guaranteed i.e. tangible and high impact. We need to give retailers this comfort early enough for us to order stock. Going forward, we can expect a growth in direct to consumer sales from toy companies, because if we have to drive each customer on an individual basis to buy, why not drive them to our own online channels where we don’t have to pay retail margin? Even then though, stock ordering/forecasting is the big risk, and as such I therefore see retailers part in the toy industry protected by the major opportunity they offer – stock commitments in advance of selling. We can though expect a vast array of direct to consumer businesses/brands/sites springing up over the next decade.
A major part of the solution to these challenges is to build really firm foundations for digital marketing i.e. we need to create a virtuous circle of activity across platforms/media with a clear, consistent and motivating campaign. Some companies have or recruit the know how to do this in house, some will utilise outside resources and expertise. In the end a degree of trial and error will be required as different approaches will be needed by category, product, target audience etc.
One thing is for sure, we may want the simplicity of the old TV driven approach, but kids viewing habits are not moving in that direction. TV may still be part of the picture – throughout toy fair season this year, marketers have been telling me that right now they feel they still need to do both – TV plus the digital stuff – but the %age of marketing funds being committed to off TV activity is increasing every year, and those who don’t move with this trend will be left behind.
One thing I have learnt as a foundational business principle over time is that we may make too many mistakes/lose money by being at the front of the pack, taking all the risks and making all the mistakes, but being at the back of the pack is not typically a winning formula either based on today’s trends. If your company is spending £$€ on marketing, you will get best return by following your consumer, and in this case their viewing habits are ever moving away from traditional TV.
We recently launched a new brand and product management service. This service has been very popular, but we have one space coming up after NY toy fair – please get in touch if you are interested in working with us. Some of our brand and product management clients asked us to help them create YouTube content, so we recently launched a new strategic partnership creating content for toy companies. To find out more, click here: http://www.kidsbrandinsight.com/toy-industry-veterans-launch-new-marketing-content-production-service-for-toy-companies/