Ateneo de Davao University

School of Business and Governance

School Year 2016-2017
2nd Semester

CASE ANALYSIS:
Toy Retailers Limited

in partial fulfillment of the requirements for

BA908 – Marketing Management

Submitted to:
Prof. Jessie Singson
Professor

Submitted by:
Amanon, Jules Ryan
Repolledo, Japhet
Ferraris, Althea
Umambat, Michael

February 24, 2018

 TABLE OF CONTENTS

Background of the Case ……………………………………………………….. 1

Statement of the Problem ……………………………………………………… 5

Areas of Consideration ………………………………………………………… 5

Alternative Courses of Action …………………………………………………. 12

Implementation / Recommendation ……….…………………………………. 13

Conclusion ………………………………………………………………………. 18

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 BACKGROUND OF THE CASE
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

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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:

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.

The yearly customer count shows the following:

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

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 YEAR No. of Growth
Pax Rate
1991 216,084
1992 468,925 117.01%
1993 553,499 18.04%
1994 606,471 9.57%
1995 673,995 11.13%
1996 631,229 -6.35%

The Industry: Duty Free Retailing

 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.
 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%

The Competitors: The Imported Toy Retailing

 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.

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  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

Other Considerations: The 4Ps

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
accessible to travelers. There are new amenities in the mall such as
foodcourt where shoppers could bring along their whole families.

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 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:

a. Ansoff Matrix Analysis

b. PEST Analysis
c. Porter’s Five Forces Analysis
d. SWOT and IFE-EFE Matrix Analysis
e. Translating SWOT to Strategies

Ansoff Matrix Analysis

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.

Industry: Duty Free Retailing The Ansoff Matrix

Segment: Imported Toy Retailing
Target Market: Balikbayans, OFWs/
OCWs, International Travelers
Product/Service: Toys, Infants Line
and Juvenile Furniture

Based on the given information

and in Ansoff Matrix, TRL’s strategy in
entering the market should be through
MARKET PENETRATION.

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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

is part of the crisis and bring small gifts technologically

Tourism Sector devaluation of to family as advanced
”pasalubong”
peso products

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%.

Social and Cultural Factors

 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

 There are no highly-technologically advanced toy products as of this time that

could be a better substitute for kid’s entertainment/novelty items, compared to the
gadgets and availability of internet in today’s time.

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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
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.

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 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

Porter’s Five Forces

SWOT Analysis

In making important business decisions and formulating effective marketing

strategies, a company should conduct a careful examination of the company’s strengths,
weaknesses, opportunities and threats or SWOT analysis during the planning process.
SWOT analysis enables organizations to identify both internal and external influences of
their business. In this section, let us examine the strengths, weaknesses, opportunities,
and threats of Toy Retailers Limited using the IFE and EFE Factor Matrix and translate
it into appropriate strategies or actions.

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IFE and EFE Matrix
SWOT Analysis presented in IFE and EFE Matrix.
INTERNAL FACTORS
Strengths:
 TRL was awarded with the exclusive
concession agreement with duty free
to take over the retail operations of the
Toys, Infants Line and Juvenile
furniture department at the new DFP
Fiesta Mall.
 The concession agreement allowed
TRL tax-free importation privileges.
 The New Fiesta Mall where TRL is
located is heavily advertised and is
fairly accessible to travelers.
Moreover, TRL occupies a prime
location within the mall, being the first
store as one enters the shopping area.
Weaknesses:
 No definite price positioning for toys
which stems largely from the fact that
in the early 90s, DFP had a virtual
monopoly on the sale of imported
toys, thus, it provided a product for
every price point category.
 Overstock situation wherein TRL
was required to absorb all the
remaining toy stocks of DFP which is
equivalent to 12.5 months’ worth of
inventory.
 TRL has not embarked on any
promotion strategy that will
differentiate it from DFP. It is still
known as the toy section at DFP.
EXTERNAL FACTORS
Opportunities:
 The toy retailing industry is in its
growth stage in the Philippines.
 TRL has opportunities to grow being
part of DFP, which became the fourth
among the world’s top duty free
operators with sales amounting to
$298M in 1994 and hit a record high in
1995 with sales of 354M.
 The number of overseas Filipino
workers are increasing through the
years, which makes the bulk of duty
free sales, due to Filipino’s tradition of
bringing a gift or “pasalubong” for their
loved ones once they return home.
Threats:
 Continuing appreciation of dollar
making Duty Free products more
expensive than domestic toy retailers.
 Government’s move to trade
liberalization lowered tariffs on
imported toys from 30%-40% to 10%-
20% giving advantage to domestic
retailers.
 Due to Asian economic crisis in
June 1997, month to month sales at
duty free was reduced on an average
by 35% as compared to previous year.
 Increasing number of competitors
due to the easing of entry barriers.
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10
 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.

Based on the SWOT Strategies only 3 strategies were selected in formulating

alternative courses of action. Some strategies were grouped in order to formulate a
stronger and more appropriate alternative courses of action.

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
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:

ACA 1: “A product mix strategy that carries more of the

high-end branded items and less of the unknown low
priced brands, and to have an optional/two-point pricing
strategy where there is a low end and a high end price
point.”

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

4. The general public

a. Sponsor a foundation where books/toys will be donated encouraging
customers to participate by being one of the donors
b. Participate/host in events during the Children’s month in October as well as
in Philippine Tourism exhibits of the Department of Tourism

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Re-branding of Logo

Organizing the Premiere Store Space

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Knowledge of the Buyer’s preferences

The “Character Photobooth”

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The “Playroom”

Sponsoring Foundations/Donating toys to less fortunate children

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 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

“A product mix strategy that carries more of the high-

end branded items and less of the unknown low priced
brands, and to have an optional/two-point pricing
strategy where there is a low end and a high end price
point.”
There are factors that should be considered in determining the right product
mix strategy. These were the factors we considered in choosing the best alternative for
TRL.

Level of
Market Demographics
Demand

Perceived
Level of
value of the
Competition
product

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