Where All The Profit’s At In The Toy Industry

Where All The Profit’s At In The Toy Industry

One of the most exciting and stimulating features of working in the toy industry is the ongoing product development cycle. So many new products don’t make it past the first year that the majority of companies in the industry are continually in a process of development. And frankly that takes a lot of work, as well as a huge amount of investment!

That investment comes by way of R&D, tooling, inventory, marketing and of course human resources. The reality is that for even small companies to develop and launch a TV advertised hero level product is going to cost anywhere from hundreds of thousands to many millions of €$£.

Which is all well and good as long as that investment pays back of course. The issue though is one of focus and habit. By focusing on the involved and exhausting new product development process we lose focus on other existing products. And by falling into the habit of ongoing development and a ‘chuck it at the wall and see if it sticks’ approach we perpetuate the lack of focus on existing products.

So what you may ask. Well here’s the issue with our obsession with new product development in the toy industry – new products are not where the majority of sales or profit are! Let’s go over that again – despite the huge focus/effort/investment in new toys they do not (overall) make up much more than 1/3 of total sales, and they certainly make up a lot less than 1/3 of profit due to the investment needed – in fact it would be very surprising if they accounted for more than 20% of total toy industry profits!

Don’t believe it? Check out this press release from the highly regarded British Toy And Hobby Association and NPD group http://www.toynews-online.biz/news/read/british-toy-market-sees-best-performance-in-four-years-in-2014/043791

Note the part where it says that newly launched products made up 37% of toy sales in 2014 in the UK, up 16% from 2013.

So despite that large increase, existing or carry forward products made up 63% of the total market in terms of sales, and it would be surprising if that 63% didn’t make up at least three quarters or more of all profit!

Our industry has complete ‘shiny object syndrome’ where we see new risky product launches as a better bet than commercially proven products.

The usual counter argument to that is that there is pressure from retail for innovation,and that product sales start to tail off after the first year in most cases/over time.

Yet this is actually illogical – we are lucky to have a new consumer base every 3 years or so due to the ageing process – kids come into core toy age c. 4-7, and move through it and on to other product categories, but as they do that a new consumer generation comes through. So we can’t actually saturate sales unlike in some other markets.

Yes there are technological drivers of new product development, and yes there is new opportunity via development, but sometimes we need to focus on what we already have and work out how to give it a bigger push in order to maintain business/products we already have.

P.S. Spoiler alert, the following is blatant sales spiel, designed to help toy companies reduce their risk of relying on faith, gut feel and luck! One of the proven ways to deliver carry forward performance on toy products is to actually  put them somewhere near your target consumer before you launch them! It’s called consumer research, and toy companies could benefit from doing more of it in many cases!

Our sister company Kids Brand Insight runs a low cost, highest quality research service to test toys with kids called KIDSPLAYTEST™. For more information, please click here: http://www.kidsbrandinsight.com/kidsplaytest/

The next KIDSPLAYTEST™ runs at the end of March in the UK, and at the time of writing we have 2 slots left. For more details/to book in just click the weblink above.

KIDSPLAYTEST™ has a 100% recommission record i.e. every single company who has used the service has come back & used it again…must be a reason why!