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FISCHER-PRICE TOYS, INC.

Aniruddha Saladi (170101125)


Diya BS ( 170103067)
Komal Sharma( 170103099)
Gaurav Bhatt (170103071)
Honey Jain ( 170103085)
Akshay Deshpande ( 170103019)
Avijit Banerjee (170103048)
THE US TOY INDUSTRY
• Estimated at 2-3 billion dollars in 1968
• Riding toys (including bicycles) accounted for 22% of dollar sales
• Approximately one sixth of the items purchased accounted for almost two thirds of the total dollars spent on
toys
• Parents accounted for the bulk of toy purchase (72% of unit sales) and grandparents were the next in line with
11% of unit sales accounted for
• Composed of a few large firms and several hundred small manufacturers (over 1000 manufactures in 1967)
• 8 of the largest manufacturers accounted for 35% of sales and the 20 largest firms accounted for 58% of the
sales; 9% of sales for foreign manufacturers
• Highly seasonal purchasing cycle (53% of dollar sales and 45% of unit sales happened in the months of
November & December)
• Number of toy & game shops had declined by 18% however sales increased by more than one-fourth
• Studies predicted that chain stores, particularly discount & variety chains were likely to be major vendors
FISCHER-PRICE TOYS, INC.
• Founded by Herman G. Fischer in 1930 in East Aurora, New York with the concept that solid wood blocks
with lithographs applied would sell as toys for pre-school children; belief that “kids want toys to play with
them”
• Established corporate creed that Fischer-Price Toys must have five qualities: intrinsic play value, ingenuity,
strong construction, good value for money and action
• In 1959, significant changes in the product line and pricing policies helped transforming them into a major
force in the industry
• Significant breakthrough with the first successful line of music box toys
• Although Mr. Fischer strongly advocated price maintenance, the coming of large discounters in the market
made such a policy impractical and they departed from its stringent pricing policies
• Hiring professional management from other industries for promotion and marketing strategies coupled with
an increase of six new toys annually resulted in substantial growth in the 1960s
• Quaker oats Company of Chicago purchased the firm from Mr. Fischer for $50 million dollars, however they
were hesitant to meddle in the concerns of the existing management
5C ANALYSIS
Company Customer Competitor Collaborator Context

• Fisher-Price Toys • Parents, • Playskool • Wholesalers • Dilemma –


inc., founded in • Grandparents, • Mattel • Retailers Whether to
1930. Relatives. • Creative • Discount Stores launch ATV
• Production of • 6 major corporate playthings explorer or scrap
• Variety Stores
buyers (national the project?
quality toys for • Childcraft
preschool chains) • Kenner etc
children
• Ideology:
Intrinsic play
value, ingenuity,
strong
construction,
value for money,
and action
THE PROBLEM
• Production department confirmed that investment on mould would be $161,000 and special tooling
cost would need additional $18,000, the direct costs were $4.21 for material and $0.73 for labour

• Using standard mark-up pricing, Fisher-Price Toys need to sell the ATV Explorer for $9.20 for trade,
which meant $18.50 retail price

• At $12 retail price an annual demand of 1 million was anticipated, but would the people see value in
the ATV Explorer worth spending $18.50 was doubtful

• A single mould was capable of producing 500,000 units, high demand or anywhere close to
expectations would result in ill will among the trade for lack of sufficient capacity and investing in
another mould would be risky due to high uncertainty
The CHOICES AVAILABLE
Option 1:
Reduce the cost of production by eliminating some features like the horn, dummy passenger or the secret
compartment
Adv: Will bring down the price of the ATV Explorer in line with competitor's riding toys
Cons: Will reduce the functionalities of the toy thus engagement or attention span of children could reduce for this
product and it is against the companies policies to compromise on quality

Option 2:
Depart from the corporate advertising policy of promoting the entire product line and promote the ATV Explorer
individually on television to communicate the value and generate demand at the $18.50 retail price
Adv: Can generate demand even at the estimated price
Cons: Not in line with company’s advertising policy
Would incur additional expenses leading to higher losses in case of failure to generate demand
THE CHOICES AVAILABLE

Option 3: Reduce margins


Adv: Will bring down the retail price of the Explorer in line with competition
Cons: Would develop a notion in the production team that they could relax on their cost-cutting efforts and that the
marketing team could always reduce margins if cost went out of proportion

Option 4: Increase the price to $19 or $19.50


Adv: Increased margin would help generate additional revenue to support advertisement & promotions
Cons: Uncompetitive price point will make it extremely hard to sell
Optimistic view (100% of Projections)
Jun-71 Jul-71 Aug-71 Sep-71 Oct-71 Nov-71 Dec-71 Jan-72 Feb-72 Mar-72 Apr-72 May-72 Entire Year
Estimated Annual Demand 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000
Sales to trade (%) 8.8 12 10.1 12 14.5 7 4.6 3.6 3.2 8.9 8.2 7.1
Sales to trade (units) 88000 120000 101000 120000 145000 70000 46000 36000 32000 89000 82000 71000
Selling Price ($) 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2
Revenue ($) 809600 1104000 929200 1104000 1334000 644000 423200 331200 294400 818800 754400 653200 9200000
Realistic view (75% of Projections)
Estimated Annual Demand 750000 750000 750000 750000 750000 750000 750000 750000 750000 750000 750000 750000
Sales to trade (%) 8.8 12 10.1 12 14.5 7 4.6 3.6 3.2 8.9 8.2 7.1
Sales to trade (units) 66000 90000 75750 90000 108750 52500 34500 27000 24000 66750 61500 53250
Selling Price ($) 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2
Revenue ($) 607200 828000 696900 828000 1000500 483000 317400 248400 220800 614100 565800 489900 6900000
Neutral view (50% of Projections)
Estimated Annual Demand 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000 500000
Sales to trade (%) 8.8 12 10.1 12 14.5 7 4.6 3.6 3.2 8.9 8.2 7.1
Sales to trade (units) 44000 60000 50500 60000 72500 35000 23000 18000 16000 44500 41000 35500
Selling Price ($) 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2
Revenue ($) 404800 552000 464600 552000 667000 322000 211600 165600 147200 409400 377200 326600 4600000
Pessimistic view (30% of Projections)
Estimated Annual Demand 300000 300000 300000 300000 300000 300000 300000 300000 300000 300000 300000 300000
Sales to trade (%) 8.8 12 10.1 12 14.5 7 4.6 3.6 3.2 8.9 8.2 7.1
Sales to trade (units) 26400 36000 30300 36000 43500 21000 13800 10800 9600 26700 24600 21300
Selling Price ($) 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2
Revenue ($) 242880 331200 278760 331200 400200 193200 126960 99360 88320 245640 226320 195960 2760000
BREAK EVEN ANALYSIS
Direct material cost 4.21 • The company needs to sell only 66,395 (~6.64% of the
Direct Labour cost 0.73 annual demand) units of the ATV Explorer to break even
Selling & Admin Expenses1.564 • In the Optimistic assumption of 100% projections break
Selling Price 9.2 even is reached in the first month itself
• Even if we consider the worst case scenario of 30%
Contribution 2.696
projections, break even would be reached by August-71

Total Fixed Cost 179000

No of units 66395
RECOMMENDATION

• Break even figures are quite low therefore Fischer-Price could afford an increased advertisement & promotions
budget
• They should go by the second choice, depart from the corporate advertising policy of promoting the entire
product line and promote the ATV Explorer individually on television to communicate the value and generate
demand at the $18.50 retail price
• This would be in line with the other policies of the firm; not compromising on quality and price structure remains
the same therefore no impact on margins
THANK YOU