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CASE ANALYSIS:
Toy Retailers Limited
Submitted to:
Prof. Jessie Singson
Professor
Submitted by:
Amanon, Jules Ryan
Repolledo, Japhet
Ferraris, Althea Bonnafe
Omambat, Michael
Playing with toys is important when it comes to growing up and learning about the
world around us. Younger children use toys to discover their identity, help their bodies
grow strong, learn cause and effect, explore relationships, and practice skills they will
need as adults. Adults on occasion use toys to form and strengthen social bonds, teach,
help in therapy, and to remember and reinforce lessons from their youth.
In the Philippines, there is a growing market for the toy retailing in the 1990s. Toy
Retailers Limited (TRL) is one of the key players in the imported toy retailing industry.
In 1997, TRL entered into an exclusive concession operation agreement with the state
owned duty free shop, Duty Free Philippines (DFP). In this agreement, TRL became the
exclusive supplier of DFP for Toys, Infants Line & Juvenile Furniture and took over the
retail operations of the Toys, Infants Line & Juvenile Furniture department of the new
DFP Fiesta Mall.
The Company
TRL was incorporated in June 1997 for the purpose of operating the Toys, Infants
Line and Juvenile furniture concession at DFP. In this arrangement, TRL is the exclusive
supplier of these merchandise and has been allowed tax free import privileges provided
that all the goods imported tax free are sold only at DFP stores. Otherwise, the products
will be subject to taxes.
TRL provides manpower, fixtures and everything necessary to operate the store.
As part of the concession agreement, TRL pays DFP 30% of its gross sales. It is the first
time that the directors of TRL will directly handle such duty free line of business and
second time that such concession arrangement was awarded.
DFP was organized as part of the government’s goal to establish and operate a
tax and duty-free merchandising system in the country. After several years, DFP was
successful in serving its purpose and in catering its target market. DFP is part of the
Department of Tourism’s major programs. It provides over 60% of the government’s
tourism infrastructure budget. It is DFP’s belief that shopping is an essential component
in the promotion of tourism.
The Customers
DFP caters to the Filipino and Foreign traveler. The Fiesta Mall where TRL’s store
is located is geared towards the arriving shopper. Arrival Shopping may be availed by
the following:
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a. Balikbayans – Filipino’s who have lived abroad for more than 12 months or
foreigners of Filipino ancestry who have also lived abroad for more than 12
months. These customers are entitled to tax and duty free shopping up to
US$2,000. They can bring their entire family to shop with them and they have the
exclusive privilege to purchase appliances and electronics.
b. International Travelers – Filipinos who have lived / travelled abroad for less than
12 consecutive months. These customers are entitled to tax and duty free
shopping of up to US$1,000. They can bring their entire family to shop with them.
Customer Count
800,000
700,000
600,000
No. of Pax
500,000
400,000
300,000
200,000
100,000
-
1990 1991 1992 1993 1994 1995 1996 1997
Year
Growing leaps and bounds due to increased spending power of the new Tiger
economies
The largest visitors come from EAST ASIA amounting to 952,777 arrivals in 1997
Second largest visitors come from NORTH AMERICA totaling 491,523 in 1997
These foreign tourists account only for 15% of DFP’s total sales
Bulk of DFP’s sales come from Overseas Contract Workers (OCW’s)/ Overseas
Filipino Workers (OFW’s)/ Balikbayans who are obliged to bring home a gift or
pasalubong for every member of the family once they return home.
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It is estimated that there about 1.3 million OCW’s working in the Middle East and
East Asia
In June 1997, the Asian Economic crisis began. DFP sales were reduced by 35%
on the average compare to previous years. Customer traffic was also significantly
reduced.
The devaluation of peso caused DFP prices to become comparatively higher than
domestic prices by 25%
There are 10 major suppliers who each hold an exclusive distributorship for a
particular product segment. Some of which are:
Distributor Product
Wellrich Barbie Dolls
Keebans Disney Character Toys
LIL Radio Controlled cars
TRL has to purchase its merchandise through these local distributors who also act
as agents for these brands
The local distributors have aggressive marketing and advertising campaigns
The liberalization of trade resulted in the reduction of tariffs which is favorable for
domestic retailers
Aside from DFP, the largest retailer of toys in the domestic market is Toy
Kingdom. It’s product mix is 35% high-end and 65% lesser known brands coming
from China but provide higher profit margins since the Company caters the mass
market.
Most major department stores also have their own toys and infant wear sections
but they do not have a strong identity like Toy Kingdom nor do they have a
specific category of products like race car kits and radio controlled cars
There are also other smaller toy importers/retailers in Greenhills which import
small quantities of assorted toys and sell them at a discounted price at their own
retail outlets
Product TRL was required to absorb all the remaining stocks of DFP which is
approximately 12.5 months’ worth of inventories. The product mix is 20%
high-end infant products and ride-ons and 80% are items bought at
loseouts. It consists of 60 different brands and about 2,700 SKUs.
Price DFP vitually has a monopoly in the market before and saw no need to
formulate a focused pricing strategy resulting a product for every price point
category (low, medium, high end and mid-range price point).
Promotion Since TRL took over the operations from DFP, it has not embarked on any
promotion strategy that will differentiate it from DFP. It is only know as the
toy section at DFP.
Place The new Fiesta Mall where TRL is located is heavily advertised and is failry
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accessible to travelers. There are new amenities in the mall such as
foodcourt where shoppers could bring along their whole families.
STATEMENT OF THE PROBLEM
What is the best product and pricing mix strategy for TRL to
improve its market connection, define its position and cater its target
market despite the current situation and rapidly changing market
conditions along with increasing number of competitors?
AREAS OF CONSIDERATION
The following marketing tools were used to present the areas of consideration
given the facts of the case:
TRL is taking over DFP’s toy, infant’s line and juvenile furniture line. In understanding
TRL’s situation, we shall use the Ansoff Matrix, also called the Product/Market
Expansion Grid. This tool shows four strategies a business may use in order to grow.
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entering the market should be through MARKET PENETRATION.
PEST Analysis
To understand better the environment where Zeneca Pharmaceuticals is currently
operating in, analysis of the Political, Economic, Social, and Technological factors
should be done.
PThe industry is E
regulated and
Asian
economic
S Culture of
Filipinos to
T Therefew
are only
Political Factors
The government’s move towards trade liberalization, the tariffs on imported toys
have been lowered to 10% - 20% only, which was an advantage for domestic
retailer.
The issuance of EO 250 in January 1996 eliminated the privilege of returning
Filipino tourist to purchase large electronic items.
Economic Factors
Asian economic crisis began in July 1997 and sales in DFP rapidly dropped.
Customer traffic was also observed to have been significantly reduced. This
caused customers to become more price sensitive.
Also, the devaluation of peso caused DFP prices to become comparatively higher
than domestic prices by 25%.
The bulk of DFPs sales come from OFWs/OCWs or Balikbayans who are obliged
to bring home a gift or pasalubong for every member of the family once they
return home. It is estimated that 1.3 million OFWs work in the Middle East and
East Asia.
Technological Factors
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Porter’s Five Forces of Competitive Position Analysis
The porters five forces tool is a tool for understanding where power lies in a
business situation. This will help TRL understand both the strength of current competitive
position and the strength of a position that TRL is moving into. With a clear
understanding of where the power lies, the company can take fair advantage of its
strengths, improve its weakness, and avoid taking wrong steps.
Supplier Power - In the toy industry, not one supplier holds a critical component for the
toy retailers. Retail toy companies have alternative sources of suppliers available for
them. This means that they can shift from one supplier to another supplier. However, we
still consider the bargaining power of suppliers as moderate since not all vendors has the
ability to meet the safety requirements imposed by the government. Also, popular brands
such as Disney or Warner Bros. only authorize selected toy manufacturers to produce
licensed products which give these licensed suppliers bargaining power over toy
retailers.
Buyer power – The power of buyers should also be taken into consideration when
analyzing the attractiveness of an industry, because powerful buyers extract price
concessions for products, thus reducing industry profitability. Buyer power at the time of
the case is significant since there are many toy stores to choose from and due to the
Asian economic crisis in 1997, buyers became more price sensitive.
Competitive Rivalry – The retail toy industry is highly competitive. Competition is based
on competitive pricing and promotional strategies. Most major department stores also
have their own toys and infant wear sections. There are also the smaller toy
importers/retailers in Greenhills such as Nova Fontana and Henry’s on Pasay road who
are able to import small quantities of assorted toys and sell them at a discounted price at
their own retail outlets. The most significant competitor of TRL is Toy Kingdom, one of
the largest retailer of toys in the domestic market owned by Shoe Mart group of
companies and can be found in almost all SM stores/malls.
Threat of Substitution - In the toy industry, substitutions do not always come into play.
When a certain toy is the “hot” item, the kids are not happy with any other substitute. The
bottom line is that parents try to get the one toy that will make their child happy, settling
for nothing less. However, in the present times, threat of substitution for toys may not be
as minimal as the time of the case due to the increasing popularity of gadgets such as
tablets and smartphones to children.
Threat of New Entry – The threat of new entry affects the firms within an industry, if new
rivals can easily get in, then it will be more competitive, thus firms must put up barriers to
stop others from entering. In the case, there are increasing number of competitors due to
the easing of entry barriers. The liberalization of trade resulted in the reduction of tariffs
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on toys and infant wear from 30%-40% down to 10%-20%. This has allowed local
distributors to pass on their merchandise at lower prices to domestic retailers.
Threat of
New Entry
is High
Bargaining Buying
Power of Competitive Power of
Suppliers Rivalry is Customers
is High is
Moderate Significant
Threat of
Substitute
is
Minimal
SWOT Analysis
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IFE and EFE Matrix
SWOT Analysis presented in IFE and EFE Matrix.
INTERNAL FACTORS EXTERNAL FACTORS
Strengths: Opportunities:
TRL was awarded with the exclusive The toy retailing industry is in its
concession agreement with duty free growth stage in the Philippines.
to take over the retail operations of the TRL has opportunities to grow being
Toys, Infants Line and Juvenile part of DFP, which became the fourth
furniture department at the new DFP among the world’s top duty free
Fiesta Mall. operators with sales amounting to
The concession agreement allowed $298M in 1994 and hit a record high in
TRL tax-free importation privileges. 1995 with sales of 354M.
The New Fiesta Mall where TRL is The number of overseas Filipino
located is heavily advertised and is workers are increasing through the
fairly accessible to travelers. years, which makes the bulk of duty
Moreover, TRL occupies a prime free sales, due to Filipino’s tradition of
location within the mall, being the first bringing a gift or “pasalubong” for their
store as one enters the shopping area. loved ones once they return home.
Weaknesses: Threats:
No definite price positioning for toys Continuing appreciation of dollar
which stems largely from the fact that making Duty Free products more
in the early 90s, DFP had a virtual expensive than domestic toy retailers.
monopoly on the sale of imported Government’s move to trade
toys, thus, it provided a product for liberalization lowered tariffs on
every price point category. imported toys from 30%-40% to 10%-
Overstock situation wherein TRL 20% giving advantage to domestic
was required to absorb all the retailers.
remaining toy stocks of DFP which is Due to Asian economic crisis in
equivalent to 12.5 months’ worth of June 1997, month to month sales at
inventory. duty free was reduced on an average
TRL has not embarked on any by 35% as compared to previous year.
promotion strategy that will Increasing number of competitors
differentiate it from DFP. It is still due to the easing of entry barriers.
known as the toy section at DFP.
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The IE matrix and plot show that TRL should grow and build its position in the
Toy Retailing Industry. Management should focus their efforts to formulate an action plan
in line with the Company’s objectives of selecting the best product and pricing strategies.
The company should now come up with strategies in order to determine which
positioning and product/pricing mix strategy is best. After defining the strengths,
weaknesses, opportunities and threats, we can now translate them into strategies (as
shown below) that can guide us into formulating our alternative courses of actions.
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ALTERNATIVE COURSES OF ACTION
To address the problem of Toy Retailing Limted (TRL), we have proposed
alternative courses of action based on SWOT Strategies, as follows:
ACA 1 ACA 2 ACA 3
A product mix strategy A product mix strategy A product mix using
that carries more of the similar to Toy Kingdom product-bundling pricing
high end branded items which means higher where items will be
and less of the unknown inventory levels of the offered both individually
low priced brands, and to unknown brands which and in bundles, charging
have an optional/two- give higher margins and less for the bundle than if
point pricing strategy few key imported brands the items were purchased
where there is a low end which would give lower separately.
and a high end price margins but are
point. necessary to maintain its
international image.
There is a need to modify price-setting logic when the product is part of a product
mix. In product mix pricing, the firm searches for a set of prices that maximizes profits on
the total mix. Pricing is difficult because the various products have demand and cost
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interrelationships and are subject to different degrees of competition.
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IMPLEMENTATION AND RECOMMENDATION
After analyzing the case through the areas of consideration and given the
alternative courses of action, we recommend that Management adopt:
In this way, TRL would be able to differentiate itself from the domestic retailers.
TRL can concentrate on carrying the products of well-known brands which are
considered high-end in the domestic market. It is in these products that TRL can
maximize its tax free importation privilege giving them definite cost and pricing
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advantage. In opting for a two-point pricing strategy focused in the upstretch market,
TRL is able to maintain the reputation of DFP.
Furthermore, we recommend to management the following marketing strategies
and action plans:
1. In General:
a. Develop a strong store identity with its own name, graphic design, and
distinctive layout (not to be just another shop within the DFP Complex)
i. Re-branding of logo
ii. Use of the trademark/logo in packaging
iii. Use of the trademark/logo in multi-media advertisements
b. Take advantage of the prime space (first store as one enters the shopping
area) and exclusivity of product line (toys and infant/juvenile lines) by
organizing it attractively and appealing to customers
c. Select the brands that are historically salable and popular to the target
market
d. Conduct research and market study of the trends in toys and novelty items
in order to determine buyer preferences
e. Re-install airport toy and souvenir outlets (NAIA and Cebu International
Airport Departure Halls) for departing guests
f. Partnership with an airline company regarding possible promotions and
advertising
g. Install a photobooth featuring different themes every month/season
h. Free gift wrapping section
2. Balikbayan’s/OCW/OFW
a. Partnership with other establishments (food/beverage, cosmetics, salons,
etc.) where the receipt could be used to avail of discounts and perks
b. Take part in the discounts to be provided to Balikbayan’s/OFW through the
Balikbayan Plus card of Duty Free Philippines
3. International Travelers
a. Encourage the habit of shopping through installation of new amenities (i.e.
playroom, televisions where cartoon shows are played, etc.) bringing the
entire family a new level of shopping experience
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Re-branding of Logo
Organizing the Premiere Store Space
Knowledge of the Buyer’s preferences
The “Character Photobooth”
The “Playroom”
Sponsoring Foundations/Donating toys to less fortunate children
CONCLUSION
Despite the rapid changes in the economic situation of the country affecting the
industry and the increasing number of competitors, there is a market for imported toy
retail for Toy Retailers Limited. The Company is a new company, very lean and flexible.
Market penetration could be achieved if TRL would focus on its niche, which is the
imported, high-end and branded items that cater its primary target market (the
Balikbayans and OFWs) and its secondary target market.
The best product and pricing mix strategy for TRL to improve its market
connection, define its position and cater its target market despite the current situation
and rapidly changing market conditions along with increasing number of competitors is
Level of Perceived
Level of
Market Demographics value of the
Competition
Demand product
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