Opportunities within the traditional toy sector of the UK Toys and Games Industry - A German Perspective

CONTENTS

Acknowledgements

List of figures

1. Introduction

2. An overview about the UK Toys & Games Industry
2.1 Market definition
2.2 Market size and value
2.3 Competitive landscape
2.4 Influence on the industry and market forecast
2.4.1 Economic influences
2.4.2 Legislative influences
2.4.3 Demographic Development
2.4.4 Product Development

3. Applied Research
3.1 Research Methodology
3.1.1 Considered research approaches and methods
3.1.2 Choice of methodology and its reasons
3.2 Research application and highlights

4. The UK Consumer within the toy industry: Research Findings
4.1 Form of purchase, shop distribution and its service
4.2 Frequency of purchase and average expenditure
4.3 Product preferences and vital product features
4.4 Advertising and other forms of interference

5. Recommendations for German companies: How to be successful within the UK toy industry

6. Conclusion: Achievement of the research objectives and weaknesses of the used research methodology

Appendices

References

ACKNOWLEDGEMENTS

Being an international student at Hull University, the final year was not always easy regarding sometimes given language and communication problems. Hence, I greatly appreciate the help of my English speaking friends and the supervision of Dr Phil Smith who all supported me a lot in developing this piece of work.

Secondly I am grateful to the good collaboration with both the Day Nursery at the university and the management of the DEEP in Hull city centre which made it both possible to conduct primary research regarding the UK Toys and Games industry. Secondary research was mainly supported by a German toy company - SIMBA DICKIE GROUP - which I work for part-time, since the management department agreed to help out with some relevant market reports which otherwise would have been very expensive to order.

Finally I want to say thank you to all my family, in particular my mum, who supported me during my year abroad and especially in the hard periods of exams and assignments.

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LIST OF FIGURES

Fig. 1: UK Toys & Games Industry – Market Value

Fig. 2: Population projections for England

Fig. 3: UK toy of the year 2005

Fig. 4: Market value projections until 2008

Fig. 5: Issues affecting research strategy

Fig. 6: Where do consumers buy toys?9

Fig. 7: Reasons for buying toys

Fig. 8: Consumer expenditure on toys per purchase11

Fig. 9: Children’s preferences of toys

Fig.10: Importance of toy features

Fig.11: Promotional interference of consumers

Fig.12: Potential consumer profit by reward systems

1. Introduction

Being a relatively dynamic and one of the biggest of its sort within the European Union, the Toys and Games Industry in the United Kingdom is attractive for many foreign toy manufacturers. Especially the market sector of the traditional toys, which will be defined later, seems to be very auspicious from a general point of view.

To what extent this general view corresponds with the reality will be examined on the basis of German toy manufactures and needs to be analysed critically.

Hence, the research objective of this work is to figure out what opportunities but also what sorts of threats toy manufacturers from Germany could be faced with when entering the British market. This, however, needs several questions to be answered. Terms like market value, market growth rates but also other factors like the influence of the toy firms’ environment and consumers’ attitude towards the industry must be explained which will be done through a secondary data-based overview of the industry in chapter two. Having introduced to several considered research approaches, the choice of the used methodology, its application and special research highlights in chapter three, the analysis’s findings will be illustrated in the fourth part of this study. These results will be consumer-based in order to get a better overview about the market itself and to being able to give more efficient recommendations to German toy companies considering breaking into the UK market. The final answer of the research objective mentioned above and further recommendations will be content of chapter five. The last chapter of the essay then tries to draw a conclusion and will clarify whether the targeted research objective has been achieved and outline weaknesses within the used methodology and their potential avoidance in future research projects.

2. An overview about the UK Toys & Games Industry

The UK toy industry is an active one which continues to be affected by several influences. The main impacts on the industry will be outlined in this part including some future forecasts and will be based on the student’s literature review. First of all, however, the market needs to be defined, its size be illustrated and the competitive landscape be explained.

2.1 Market definition

The Toys & Games industry within the United Kingdom can be divided in three different parts. There are the two sectors of games consoles and games software, whereas this work focuses on the third industry part, namely the traditional sector. Typically you include eight product categories within this sector: infant toys, games/puzzles, activity toys, dolls, action toys, vehicles, plush toys, and ride-ons (Datamonitor, 2004). Please see Appendix A for specific categorical examples.

2.2 Market size and value

As you can see in Fig.1, both the total toy market but also the traditional sector underwent steady growth regarding the market value for the last five years. Whereas the whole market value grew by 7.89 percent at retail selling prices from 2002, the traditional toy sector was worth £2.1bn in 2003 which means an increase of five percent.

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Source: Datamonitor United Kingdom, 2004 and Euromonitor, 2004

In comparison to other European nations, the UK is market leader with 22 percent market share within the traditional toy market, in front of France and Germany, 19.6 and 18.1 percent (Datamonitor Europe, 2004).

Regarding the sales analysis and according to the NPD Group, a global leader in sales and marketing research, the UK sold 66.3 million units for an average price of £6.47 within the traditional sector. This underlines its leading position in Europe in comparison to other nations like Germany, for example, that sold only 54.9 million units for an averaged price of €8.30 (NPD Euro Toys, June 2004).

2.3 Competitive landscape

Being affected by children population changes which will be discussed later and the growth of the video gaming sector mentioned above, the target market for traditional toys is more and more shrinking. Hence, the rivalry insensitivity within the industry is rather high as every percent of market share is fought about due to high price and cost competition. With very low switching costs for consumers, more and more companies try to differentiate themselves, mostly based on licensing products or the like which will be explained later (Gilbert et al., 2004). Hence, the market comprises just a few big companies which are market leaders, mainly US-owned global players like Mattel and Hasbro, but also British toy manufacturers like Vivid Imaginations or other European ones as Lego which are forming the competitive shape of the industry. These market leaders have all strong relationships with suppliers, retailers and so forth and are characterized by steep learning curves which give them an enormous competitive advantage (Gilbert et al., 2004).

2.4 Influence on the industry and market forecast

2.4.1 Economic influences

Both the gross domestic product (GDP) and the inflation are economically influential on the UK toys and games industry.

The UK GDP at current prices grew by 0.7 percent to £1,158,026 million in the fourth quarter of 2004, an annual rise of 2.9 percent (National Statistics IV and V, 2004), but a gradual decline is predicted by the government between 2005 and 2008 (Key Note, 2004). This suggests that consumers might only buy those toys which are perceived as being of high importance for them if the economy really turns out to develop like that.

On the other hand, the inflation is predicted to remain between 2.4 and 2.7 percent until 2008. Hence, prices within the industry will go hand in hand with inflationary pressures and might slightly rise during the next years (ibid).

2.4.2 Legislative influences

Sales of traditional toys are in danger of being reduced by the European legislation that “in line with the growing awareness among consumers of the social and political importance of ‘fair trade’ with developing nations [] will sharpen its focus on areas such as the illegal employment of minors in factories” (Euromonitor, 2004) and will try to control the certainty of toy safety which is still the most important toy feature for consumers. Moreover, the whole spectrum of patents is an important influence factor, as more and more companies try to secure the rights to their products. Mattel, one of the leaders within the UK toy business, for instance, has the exclusive right to produce its product flagship, the Barbie doll (Gilbert et al., 2004). But as in other European countries, toy companies that think about entering the UK market are probably already aware of the fact that designing and the subsequent patent of their toys is a vital prerequisite to survive in the business.

2.4.3 Demographic Development

Firstly, with the second biggest child demographic size (18 percent) behind Germany (19.7) (TIE, 2004), the UK is faced with the fact that the birth rates within the nation have been declining for the last couple of years. However, there has been a “slight rise to 1.71 children per woman” in 2003 in comparison to earlier fertility rates (National Statistics II, 2004), a development that is predicted to continue with another rise in the 2010s which should be due to the second generation of the ‘1960s baby boom’ (National Statistics I, 2004).

Secondly, and even more important is the fact, that children get older in younger ages which is very influential on the industry as “maturing tastes and children becoming more sophisticated at younger ages reduces the life cycle of many products” (Research and markets, 2004). Consequently, the target groups of toy manufacturers within the traditional toy sector get interested in substitutes earlier. Substitution is mainly focused on mobile phones, CDs and even products of other industry sectors like game consoles and software which emphasises the need of efficient product innovations in order to maintain children and their parents as loyal consumers (Euromonitor, 2004).

Fig. 2 shows the population projections for England until 2028 and underlines the statements about the demographic developments made before.

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Own illustration (based on source: National Statistics III, 2004)

However, it should be stated that in spite of the declining number of children in the UK, the expenditure on toys has increased as of several reasons. Higher divorce rates than in Germany mean that children are often given two presents for the same occasion. Moreover, there is the general trend of getting children at older ages when the income of the parents is higher. Finally and often underestimated are the expenditures due to “guilt-motivated spending on children” (Key Note, 2004, 3) due to the longer daily working times of parents and the busier lifestyles in general (ibid).

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2.4.4 Product Development

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This fourth influence, the lack of innovations, seems to continue within the general European traditional toys and games market. Even if the Robosapien, “the first robot based on the science of applied biomorphic robotics” (Robosapien, 2004), developed by NASA scientists and produced by the company ‘Character Options’ was rewarded as toy of the year 2005 (TRA,

2004), there is still a lot of backlog demand regarding other nations. If the industry sector wants to slow down the absorption of market share by the video games sector, with a value of over £2 billion in 2003 the biggest in Europe (Euromonitor, 2004), it urgently needs to come up with crazes that attract potential sector switching consumers. Product development in the future will mainly be based on technology and its interactivity with the upcoming products such as electronic components and sound systems integrated in toys. One stepping stone regarding future toys has already been made by Mattel which will sell mobile phones soon that are associated with the famous Barbie doll (Crocket and Kharif, 2005). One of the main future trends, however, will be character licensing like producing Disney figures for example, a field, the UK is regarded as being leader in (Toy News, 2004).

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