HERMY’S ADVENTURES BRIEFING

Hermy’s Adventures

Hermy’s Adventures (HA) blends DVD technology and good story writing to create an exciting
learning adventure for three- to five-year-olds. The cornerstone of the brand is a large plastic
console, designed to fit over a child’s lap, containing several buttons of different shapes, colors,
textures, letters, and numbers. The console is best described as a large “universal remote control”
that is compatible with most standard DVD players. The parents insert any one of three currently
available DVD Adventures into a standard DVD player, and the child can interact with the story
on television by pressing the appropriate buttons.

By blending learning puzzles and exciting story lines, HA delivers a stellar experience that is
both fun and educational. The DVD adventures tackle a variety of age-appropriate subjects like
letters, numbers, colors, and manners.

Initial market surveys and product tests for the HA concept predict the line to be one of the
company’s all-time best sellers. Parents as well as children have shown a strong affinity for the
product, and analysts predict that the line may become the “must-have” toy for this holiday
season despite strong competition.

The Consumer

Toys are typically purchased by adults, namely parents and grandparents, but the main
consumers of toys are children. This demographic has undergone some dramatic changes in the
last few decades. The complexity of new toys is increasing, and in efforts to compete for market
share the line between toys and technology is quickly becoming blurred. Children are “tech-
savvy and educated; multicultural; bombarded by media messages; accustomed to sex and
violence … and have big spending power,” according to Advertising Age. The Economist
describes this generation, nicknamed the Millennials, as “technologically precocious, growing up
with a rattle in one hand and a computer mouse in the other.”

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Financial and Product Summary

Retail Fixed Costs Variable Unit sales Gross Margin

price Costs Year 1
HA Starter set – console +
$69.99 $3,000,000 $30/unit 2,000,000 $76,980,000
DVD 1
HA DVD 2
$11.99 $1,000,000 $3/unit 1,500,000 $12,485,000
Math and the Mummy
HA DVD 3
$11.99 $1,000,000 $3/unit 1,500,000 $12,485,000
Manner and Magic Lamps
HA Cartoon Series $7,500,000 $0
HA Website $15,000 $0
Factory outfitting costs $35,000,000 $0
Other/ Advertising costs $25,000,000 $0

Financial Objectives:

• Earn an average of 25% return on investment for the life of the product, which is
estimated at four years.
• Earn a 35% return on $77mm investment in the first year
• Produce a gross margin of $101mm in the first year of sales, increasing to $200mm by
the third year.

Financial projections

Net first year sales from HA are estimated to be $176mm, which is equal to 20% of the total
projected sales for the company. Gross margin is expected to hit $102mm, approximately 30% of
company profits. Cost of production, selling, and administration costs relating to HA total close
to $73mm. The variable cost per unit of the HA console is $30, and the sales volume is expected
to be close to 2,000,000 total units. A significant portion of sales is expected at the end of the
fourth quarter.

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Marketing strategy

The HA product is designed for use by three- to five-year-old children. To reach this market we
will aim advertising at their parents, 30- to 40-year-old, middle-to-upper class professionals
(Target Audience), who value creative, fun, and educational toys, which may give their children
a jump-start on a life of learning and fun. This demographic prefers durable toys that can “grow”
with their children. Although lower priced items are preferred, market surveys show that many
high-priced items are purchased for children, ages three to five, during the fourth quarter holiday
season. Highlights of Turning Gears marketing strategy include the following:

• Positioning. Hermy’s Adventure is a “must-have” toy that fosters learning, fun, and
creativity.
• Product Management. The basic model with one DVD adventure included will be
introduced in July of next year. Two additional DVD adventures will be available in
late September. Focus R&D on further possibilities of expanding the technology used
in Hermy’s Adventures to other toys and further possibilities for new DVD
adventures.
• Pricing. The expected first-year average retail price is $69.99 for the console and one
DVD adventure. The price of the console and the starter set is expected to decline
over the course of the next three years, but the price of the DVD adventures, whose
first year retail price is $11.99, will remain relatively stable.
• Distribution. Normal distribution channels for popular toys will be used: large toy
stores, specialty toy stores, and department stores, as well as various E-tailing
opportunities.
• Marketing Communications. An advertising campaign will be created to build brand
awareness targeted at parents with three- to five-year-olds. It will emphasize the value
of getting an early start on learning, creativity, and fun. This campaign will involve
the following:
o A test campaign in the greater Boston area before going national
o Creation of a website for parents to show the impact of Hermy’s Adventures
on children’s learning abilities and reading skills, as well as activities and
games for children
o Launching a cartoon of Hermy’s Adventures starting July of next year to
familiarize children with the series and create a relationship with the audience.
The cartoon will emphasize the fun and coolness of learning with Hermy.
• Marketing Research. Brand awareness will be measured before, during, and after the
marketing campaign and the launch of the cartoon series. Customer satisfaction will
be studied by collecting data from parents as well as children. Future product
development possibilities will be identified.