An article in BBC.COM (http://www.bbc.com/news/world-us-canada-42374523) describes the Fingerling – an animatronic toy made by a Hong Kong based Canadian company, WowWee. The article describes the early launch in the UK and Canada, and an internet buzz on social media that preceded the US launch in August, as stoking the demand explosion in the US. Expansion of production capacity, air lifting product to speed up availability, actions against counterfeiters and modest selling retail prices of around $15 all caused supply chain challenges. Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz ? What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys ? What should stores do to position themselves to have access to inventory of the hit toy each holiday season ?
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Global Supply Chain Musings 
Very interesting article on the virality of toys every Christmas.
I feel part of the buzz is always on the price – accessibility as a gift item for christmas (other eg: the One Plus). So, ways to improve contribution margin without increasing prices can be looked at – eg: Reducing margin to retailers, given that this is a pull product now.
To keep demand growing into next season, one could look at retention – that can be maximized on two factors: virality, and collectability. The current holiday season has taken this one as an in-demand toy. There is no guarantee that this might continue in the future (next Christmases, etc.). Hence, apart from creating shareable moments and collections with different toys (an easier sell given current company capabilities), the company can look at starting an app – (like Talking Tom) to preserve this shareable moment in the digital form. This could help create further buzz, and may also help retain consumers by keeping them engaged in the non-holiday season as well.
Stores better pile up with the complimentary toys, provide premium shelf space, and reduce their ask on margins. An on demand toy after all, is a crowd puller!
Very interesting read.
I agree that it is particularly difficult to identify which product will go viral in the upcoming season. More often than not, it would be that someone rolls a dice and decide on which product to produce for the upcoming season. One way to predict demand for these type of products would be by looking at the past data on similar products and try to extrapolate to get a fair sense of the demand.
Also to tackle the variability in demand, the supply chain should be designed in an agile manner.
It’s interesting to know how small little toys can bring about such waves in the industry. To keep its demand going WowWee can produce stories/themes around the fingerling monkey and each season’s release can serve as sequels or relations to the story. This is similar to how fictional worlds used to be created around G.I.Joe or Barbie.
Additionally, complementary items can be sold with the fingerling monkey, to suggest a few – tree rope, banana, monkey family, etc.
My family and I were recently at Walt Disney World for the holidays and they are selling an “interactive” banshee at Animal Kingdom to promote their World of Pandora. The toy sells for $60, it sits on your shoulder and has a tiny remote you can use to control its movements. I thought $60 was ridiculous but there were plenty people buying the toy and walking around with it. Now, after reading this article, I wonder if the demand is for interactive toys and the lower price fueled the fire at the right time? That said, I’m not sure I would change the price point – or if I did it would be less than $5. Yes, the banshee sells for $60, but the phenomenon of being at Disney (and those darn magic bands that make you forget its real money leaving your wallet!) likely allows for a higher pricing strategy. I like the idea posted earlier about adding an app, which creates fingerling 2.0. I also wouldn’t rush to create the new version until closer to the holidays and then again, have limited inventory. With respect to store preparation, I don’t think they should do much more than they do. Part of the buzz is when something is hard to get and once they get the customer in the store, there is always the opportunity to sell a different – or comparable toy – to the shopper. For those of you curious, below is the link to the Disney Blog and photos of the banshee.
https://disneyparks.disney.go.com/blog/2017/05/connect-with-a-banshee-at-the-rookery-inside-windtraders-in-pandora-the-world-of-avatar/
One of the greatest threat to the toy is a competitor creating a similar toy that interacts more with the child in the same price range. If a fingerling could interact and recognize its owner along with other fellow fingerlings, kids would be excited to use them in group play creating fingerling parties.
It was also interesting to note how WowWee shared the toy with top youtube starts in the age group to generate buzz with the followers and advertise their products.
Regarding the price, once WowWee creates a fully functional ecosystem where a fingerlings have a house, toys, food, etc.. specific to the brand, then WowWee can consider raising the price since their customers will not want to move to a competitor after investing in fingerling branded items
From an economics perspective I believe that the company should raise prices in order to moderate demand. If the company controls the demand through pricing they can also more control the consumer reaction to price changes. In my experience, letting the aftermarket channels (ebay, etc) buy up all of the product and then resell them for exorbitant prices tends to alienate your customers and drive them to competitors alternatives. I think the company should continue to develop new animals or features that can interact with them as well as create new digital platforms that keeps consumers interested in the latest “feature” with each season. Stores should have a guarantee purchase level of toys that says that they will sell “X” amount of the toys or that they will spend “X” amount on advertising for the toys in a specific timeframe, etc in order to drive sales and keep customers demanding the toy. If the store can guarantee a minimum revenue that should put them in a position to have access to the hit toys each season.
I would agree with Sandeep’s overall thought of “is it too soon to raise the price”? With the risk of all of the competitors (and counterfeits) it seems like them raising their prices too early might cause customers to jump ship.
I like the idea of adding new animals or developing a digital platform for interaction. I also think it was brilliant that it was released in the UK before the US, they should keep that up with all releases. The US is the biggest consumer market, when you deprive them of the latest/greatest/coolest toy, people go crazy…this could be an opportunity for WowWee to get a better understanding of demand, but offering the US pre-orders. (Depriving a country/region is very similar to how Yuengling has released its beer, it slowly (over multiple years) travels into the neighboring state….which drives demand of the next state over very high!)
The stores could do similar to the suggestion above of pre-orders. A large chain store could take pre-orders months in advance, and then work with WowWee to gain priority of the inventory. This might result in a smaller profit per unit, but if that store is able to gain more units…overall profits could be higher.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz?
In terms of pricing strategies its all about the customers willingness to pay and their price sensitivity. You can analyze it before to see how customers would react to price changes. I would suggest to keep creating a strong customer base and by that increasing the market share with the same price (no increase) the customers are already used to. I’d rather would look for further selling potential (s. below).
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
Expanding horizontally with developing further animals seems pretty obvious and could be an expected move by the competitors. In the short-run, it could create value but in this case it is the best starting point to not only serving existing demand, it is a great chance to creating/developing a new demand! This could be by building up whole ecosystem, fully digital integrated to increase the barrier to switch. New animals with a form of digital connection, e.g. to the smartphone (app?) to create a real-world adventure as e.g. Pokemon Go. This could lead to a great community of loyal, continuously time-spending, brand “addicted” customers.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
The most obvious form is to take (pre paid) pre-orders to ensure a certain purchase volume.
Great chains could also (economies of scale) trying to get a right of first refusal or are the only licensed seller for special toys. By creating artificial scarcity the supply/demand balance can be influenced and e.g. higher prices can be taken to focus on a more, wealthy target group with prospective higher potential.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz?
Certainly the comapny should consider raising the price. The article suggests that Wowee has been active in defending their patents, and the popularity of their products will more than likely be limited in its shelf life. I would reaise price and gain the most profit possible while the toy is popular and top of mind.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
The company should invest in an app for both the iOS and Android platforms, and a storyline to go along with it that will keep it fresh and in front of their target consumers.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
Ordering earlier in the season, with a target of number of units to sell in the holiday season. They could also try and pre-sell the units, to help with establishing a target number of units to order in.
Fingerlings Week 8 Blog Reply
Should the company raise prices to moderate demand or let the price increase in after-market channels enable the continued product demand buzz?
The company has to consider and increase in price as you do not want to see your product exploding on that after market channels as that is lost profit. However as it needs to be considered I don’t think they should raise the prices (or not yet). I think they have to look at capturing a larger audience and overall market share. I think back to beanie babies and the after market resale values and how crazy people went over a stuffed animal. I think that if you have the right product you can afford to maintain a steady price and let that aftermarket continue to drive demand as you release the next round of monkeys. I think you also have to look at this as how you can expand and what can you offer the consumer next. In theory by maintaining the price you are developing a customer loyalty and as you release a new product or line the intent would be to maintain the same buzz.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
In this day an age of technology and immediate satisfaction I think WowWee has to explore both options and need to make them a reality. As the monkeys continue to be a success there needs to be a way to expand; develop another “character” for the monkey and consumer to interact with. In the end you have chosen a jungle animal so why not provide the consumer with the whole jungle? I think that taking this to a digital platform is a must. The Fingerlings are designed to interact with the consumer and we as the consumer are always looking for the latest update. As Aaron presented an app is the most realistic option. I would think it would resemble something of the Tamagotchi where its interactive and “alive”. I think that Chris brought up an interesting point with “Pokémon Go” and think that if consumers could interact with each and with the other animals it would give WowWee unlimited potential.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
I think that with the transition to online shopping versus retail stores; the stores themselves have to be prepared to sell out and utilize that as an increase demand to get people into their stores to hopefully purchase other products. I think the idea of pre-orders is a must and can position the store to maximize their supply while also providing an opportunity to get the consumers on site. If demand is as high as the “tickle-me Elmo” and “cabbage patch doll” then the risk of excess supply is low therefore they can hammer the over in order to match the demand.
Should the company raise prices to moderate demand or let the price increase in after-market channels enable the continued product demand buzz?
As a new product and a possible limited window of interest I do not think they should raise their price but use the opportunity to gain the biggest audience possible at the lower point of entry even with the price increase in after-market channels. In order for a toy manufacturer to sustain interest they need a wide audience and to continually find ways to build additional revenue sources of that character or toy. For now, I would leave prices as they are.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
I would focus on digital platforms to interact with the physical toys and continue to extend the excitement around the toys into the following year. The more engagement the company can get with the toys the more opportunity they have to introduce additional revenue opportunities into the future. Additionally, the continued digital platform can be used to introduce new animals, which could make demand for new products.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
Stores could increase the quantity of size and orders to build a robust inventory of the toys but would need to make sure holding costs weren’t taking away all the margin on the low-priced product. Additionally, they could work with the manufacture to introduce new products around the toys and build upon the digital platform to increase awareness on an ongoing basis versus just the holiday. This trade partnership could help secure more product from the manufacture and help secure additional sales across the stores by having availability to this key product.
I would caution against increasing the initial price for the product to the retail stores. The limited supply and subsequent demand for the product may cause some retail stores to increase the selling price. This could hurt WowWee, if they increase the cost to the retailers and the retailers raise their selling price. Future potential customers may see the cost for the Finderling as to expensive and the “buzz” could quickly fizzle. I would keep the price affordable for the customer and benefit from the sales volume.
The introduction of the next season’s product line would be the right time to raise the selling price. This could be in conjunction with the introduction of new product lines (animals) and digital platforms. Consumers would want to take advantage of the new products and may be more willing to purchase a new item for a higher cost.
To position for the future, stores need to calculate their anticipated demand and order the animatronic toy with plenty of lead time to meet seasonal shopper requirements. They can assess demand from the initial launch and calculate the desired quantities to order to meet the shopping season timeline and minimize inventory holding costs. In conjunction with WowWee, they can synchronize their marketing and advertisements to coincide with the availability of the product line in the retail stores.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz ?
Whether they should raise prices depends a bit on the scalability of their manufacturing. If they have supply chain constraints that are not quickly resolvable, they’d be better off raising prices now to moderate demand. That would increase their profits per unit and create a “scarcity” attraction for the toys. If, however, they can quickly scale up their supply chain, then they should hold price constant and begin ramping up production based on forecasts. These fads can fade fast, so they should aim to maximize profit in 1-2 holiday seasons. If they can extend popularity beyond that, then they can revisit their pricing model based on competing in a more mature toy market.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys ?
They should probably both develop new animals to increase the “collectability” of the toy, and extend interactions into digital platforms to stimulate visibility and demand.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season ?
Aside from developing a commercial relationship with the manufacturer and pre-ordering inventory for the holiday season, stores should identify multiple sources of supply beyond just the manufacturer. The alternate sources of supply could also be an avenue to offload excess inventory in the event that sales do not materialize.
Should the company raise prices to moderate demand or let the price increase in after-market channels enable the continued product demand buzz?
Where these is opportunity – a business must assess & seize it. There is a slight window of opportunity where they can increase the price a bit, without adversely affecting the demand. They could potentially execute a sliding increase, testing the waters. If there was a negative or adverse market reaction, they could offer coupons to reduce price for a pre-order. There are many different tactics to utilize.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
Both of those options are viable ways to keep the demand growing, plus possibly branch into children’s coloring books with the figures, activity books, candy figurines, cereal, or simple collectable cards.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
I would not try to achieve access inventory—just in case it changes from hype to a flop. It is better to have less and keep the demand hype high to extend profits throughout the year, especially with the complexity of the global supply chain. Ramping up isn’t always easy, but access inventory cost money and ultimately decreases the demand.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz ?
While there is an allure of capturing some of the money that the after market channels are bringing it, it is not a wise strategy for the company. If anything, the true benefit that these channels offer to the manufacturer are the hype and perception of exclusivity. To promote a longer life for the toy, the manufacturer should keep the lower price to promote a wider range of children access to the toy, furthering its popularity and demand.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys ?
There are numerous examples of toy companies bridging the gap between physical and digital. One popular example is Webkinz. With a one to one access code and numerous characters, the company drove demand for the sale of multiple toys.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season ?
With at least one holiday sales season behind them, the company has a limited amount of data that can help them to distribute the toy to the hot spots and high sales areas more easily. Additionally, they should consider creating a partnership with a designated retailer known for their distribution network. In this way, they can reduce the total number of stores with small amounts of inventory and increase the opportunity for the large retailer to move the inventory between stores to better meet demand.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz ?
While the intention of raising the price is to moderate demand, there could be a distinct reduction in demand with the change to price. As mentioned in the article, one of the selling points of the product is the low cost of the toy. If prices begin to rise and it no longer becomes affordable, it may not increase demand as expected.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys ?
I think the company should look at both options to increase demand for the product into the next season. As interactive toys are more and more popular, it would be extremely beneficial to add additional digital platforms to the toy, with new features each season that will continue to build demand.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
They could partner with manufactures and retailers to streamline their supply chain. This would allow them to potentially utilize economies of scale and reduce cost through the manufacturing process.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz ?
While it’s always attractive to consider a price increase at this stage of popularity in an attempt to maximize profitability, for this particular product I would advise against raising the price at this time and instead continue to focus on original selling points of the Fingerlings: affordability and accessibility. Let after-market channels do the work – and as the product continues to develop and offers ancillary technologies and products, then focus should shift to promoting its exclusivity, which can include a price increase.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys ?
Like others have mentioned, introducing a new product-line, whether new animals or digital platforms, would be a great opportunity for a price increase mentioned above. Consumers will be looking to enhance their own Fingerlings, and new features and animals would increase appeal to consumers, and encourage them to want to purchase collectibles, even at the higher price point.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season ?
I agree with Jessica, that by establishing relationships with manufacturers, retailers, etc. would be a great way to streamline production, as well as monitor demand a little more closely, especially during the holiday season.
Should the company raise prices to moderate demand or let the price increase in aftermarket channels enable the continued product demand buzz?
I do believe the company should raise the price and to maximize profit while the product is popular. The supply and demand should even it right while they watch close how much the price should be raised to.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
I would recommend adding new animals to the product line, this would help to have a bigger profile of products being offered, in addition it would be a good time to raise the prices while introducing new products.
While they are introducing new products, they could also develop the digital platforms to interact with the physical toys, this could keep the demand growing as you are introducing new concepts.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
The most important thing is to have a good relationship with the manufactures, with this they could work with supply chain to avoid or minimize any issues. Having past demand data could help them to calculate some anticipated demand, also I would recommend to have those plans in a time manner so they can plan accordantly.
Should the company raise prices to moderate demand or let the price increase in after market channels enable the continued product demand buzz?
The company should let the price increase in after market channels to enable the continued product demand buzz. The frenzy and buzz associated demand seems to be central to create a craze that can be sustained beyond seasonal sales. Moderating demand by raising prices may benefit their internal operations in the short term. However, in the long term, they risk creating a perception that their products are inaccessible due to price.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
All of the above. While there is a buzz around the Fingerlings they should take advantage of it. In the US, they can add new animals – some exclusively designed and released for specific holidays. They can incorporate games via app stores that are accessed through purchase of the product. They could also explore partnerships with cartoon producers as a mechanism to reinforce the suite of Fingerlings. Globally, they could tailor the product to specific countries and cultures making it a true global phenomenon. E.g. national animal Fingerlings.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
Stores have to be careful when positioning themselves for holiday season. If they are overly ambitious, they will get stuck with too much stock. Rather than maximizing sales for toys where they cannot really predict the demand, they should remain cautious and focus on maximizing profit. They could also invest in better inventory management so they can respond to demand surges in local markets by borrowing from markets with excess stock. The biggest risk are toy stores – if they stock out, they run the risk of losing customers for the long-term. They may have no other alternative than to stock up and risk having excess stock.
In my opinion company should continue with same price otherwise it will be a bad publicity for company. People can develop a theory that company did it intentionally and now buyers have to pay more and might switch to a complimentary good. Also, concerning point for retailers can be if they raise price during the peak demand pre-Christmas, customers will return the popular item after the holiday season when price has fallen back down, only to buy it again at the lower price.
Adding new animal(s) will be a good option but ‘m pretty sure when a hot toy comes in market other companies get busier to launch similar toy which will be another animal mostly. So, you already have a competition.
I ‘m in favor of develop digital platforms to interact with the physical toys, demand of smart toys is increasing day by day, making them interactive will engage the child into action, challenge them to think, feel and react. So, I guess parents will buy more.
Carrying too much inventory can backfire retailers, on the other side Shoppers are never happy when they miss out on that special gift, advertised or not. Retailers have a new solution for this, but it is also the new competition to in-store sales. Direct to consumer fulfillment can be initiated from anywhere. Out-of-stock in the store? Ship it in two days. But don’t let the shopper place the order somewhere else. Make it easier to do it through your digital commerce. And don’t sell that last one. Keep it in the store for the tactile sell.
Should the company raise prices to moderate demand or let the price increase in aftermarket channels enable the continued product demand buzz?
I don’t think the company should take any steps to moderate demands but should encourage every action that continues to drive up demand. Raising prices might benefit the company on the short run but may hurt them in future, this may compromise their market share and leave room for competitors and new entrants. The company should invest in an efficient supply chain management systems to better manage demand fluctuations, this will enable them handle high demands and then scale back when demand drops without the need to change prices.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
The company should pursue both options, they are complimentary and will inevitable lead to increased demands. According to industry experts, to make the hot toy list a product has to be innovative and at the right price, but to drive demand it has to be interactive and should have variety. Adding new animals and developing a digital platform will increase the demand buzz.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
Planning and preparation is the key. The stores should establish relationships with manufacturers to pull in supplies based on demand. This is similar to what Walmart does with some of its suppliers, this enables the suppliers respond directly to retail demands.
Should the company raise prices to moderate demand or let the price increase in aftermarket channels enable the continued product demand buzz?
The company should not look at price increases as a means to manage demand. This is the toy market that is highly volatile and managed by fleeting trends. To manage demand down with increases in price would debilitate the company’s ability to take advantage of the trend while it’s hot. On the other side, the company should let the price increase in aftermarket channels in order to match demand to price to find a better equilibrium. It may be the public is willing to pay more for the toy. Increased revenue at that point could be sent back through the supply chain to incentivize partners to better manage their throughput.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
The company should do both. When the trend for toys is hot, it is good to 1) take advantage of varying ways to keep the demand trend positive, and 2) prepare for the fleeting trend to fade. By developing digital platforms to interact with the physical toys, the company could take advantage of the digital proliferation in modern homes. From a marketing standpoint, the company could sell the idea that this is a safe way for kids to engage the internet or their hardware (phones, pads, laptops, etc.) Additionally, the trend will fade. Before the trend of the fingerling fades, it would be wise for a new animal or toy to be introduced. While fingerlings fade in fashion, the next item is there to take its place.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
Unknown demand is difficult The to plan, but not entirely impossible. Stores should use sophisticated operations management to plan for the unknown with a focus to maximize profit. In my estimation, because stores don’t produce anything and each toy store would carry the same items, the holding cost would be greater than the economic loss of running out. Therefore, it would be better to plan to run out of the product rather than overstock. Having too much in overstock would be difficult to sell off when the trend is down. Even selling at a fraction of the cost might not be possible in order to clean the inventory out.
I think the company should not raise prices to moderate demand because this is a temporary situation. There are increasing demand now because the customers are amazed by their product during launching. However, this is not steady and long-term. Therefore, I don’t think that the company need to increase the price to moderate the demands. Additionally, I think the company should come up with long-term strategy to attract the customers and build their brand reputation. For example, expanding the company’s R&D and improve the quality of their products and pursue a differentiation strategy. In this way, the demand will likely to grow steadily and be a long-term. Therefore, the company should develop digital platforms to interact with the physical toys to attract a broader range of customers.
I agree on what Winnie says that increasing price may not be an effective strategy.
The company can rather invest in market research more to understand the demand pattern and what affects it, that would reduce lost sales. They can have a mix of local supplier and the the main supplier to manage demand as well.
Fingerling is a successful product because it is a right product launched in a right time with right price. However, if retailer raise its price to moderate demand, the strategy may not be effective because people will reconsider its value and the hit may disappear. Such a product may not be popular for a long time, so seizing the opportunity the develop digital platforms which could offer authentic interaction is a competitive strategy. What’s more, developing new series and using some marketing such like hiring some Youtubers to lead a popular tide will definitely increase the sales.
New products in the short-term acquisition of the market should not be directly selected to raise prices to ensure the normal operation of their supply chain, which will lead consumers to lose confidence in the product, resulting in a cliff-like decline in demand, so the company can not find through the price The balance between demand and production capacity, so companies should look for other ways to reduce supply chain pressure. If the company needs to increase the price and protect the demand in the post-market, this requires the company to improve the product itself, the product needs to be more attractive, and add more highlights to attract consumers to pay more. Expanding the product line, interacting with new toys and old toys, or realizing human-computer interaction through the application network, can attract consumers’ attention. Stores need to pay attention to the trend of popular toys, market research, consumer feedback and other methods are reliable, so that their stocks are all things that customers love, so that they can respond to the needs of toys at every festival.
Toys are notoriously hard to predict weather or not they will be successful. This means that securing contracts early or trying to increase capacity is risky business. If i was WoWWee i would be increasing the prices throughout the holiday season to maximize their current profits. If they do not they are allowing other enterprising individuals to profit off of their good product. This is not providing any real bottom line growth for them. Toys are very seasonal and their product could go out of fashion by the next time people are buying toys so they need to strike while the iron is hot. I would look for third party manufacturers with extra capacity to see if i could ramp up production for this season so that i could make maximum profit while i still had a strong market position.
The company isn’t really in the position to raise prices on the toys, that would be a PR nightmare that could seriously damage its reputation. The best it can do it try everything to mitigate the situation, maybe ramp up production using whatever capacity it has, if any, in its factories. It could also see about outsourcing production to local facilities to see if it could help meet demand. For the retailers themselves, with such limited supply, they could employ a rationing strategy with the inventory they have, possible only offering the merchandise through their websites only. For the following year, to keep demand high, they would have to ensure they offer the same type toy but also offer additional varieties of the toy. Companies too often try to mess with a good thing when they have it and it can bite them in the end.
Should the company raise prices to moderate demand or let the price increase in aftermarket channels enable the continued product demand buzz?
I do not think raising price is a good strategy for the company because it will hurt the reputation of the company that customers will think it is trying to exploit the popularity of this product. The best strategy will be creating a bigger smash and trying to last it. Hunger marketing can create a lot more long-term benefit for the company. It can potentially enhance customer loyalty and goodwill for the firm.
What can the company do to keep the demand growing into next season – add new animals or develop digital platforms to interact with the physical toys?
The firm should try to transform the success into a brand image and create a unique connection to the market preference. Even people who are not interested in the product will have the potential favor for the product. E-commerce should be considered as part of the branding strategy for the further promotion of the product. Therefore, the price should either be the same or higher. Most important of all, the firm should spend more budget on marketing research and the design of the product that can help to sustain the popularity in the future.
What should stores do to position themselves to have access to inventory of the hit toy each holiday season?
The stores should secure the supply chain by better vendor management. The stores should share the forecast for the company to reach more accurate target inventory. Certain percentage of stockout is acceptable based on the marking strategy I mentioned. Seasonality should be heavily considered while doing the forecast. The store should thus, devoting more resources to during the holiday season.
I don’t think the company should raise prices to moderate demand or let the price increase in aftermarket channels enable the continued product demand buzz. This strategy won’t solve the problem fundamentally, only alleviating the current situation that supply cannot satisfy demand. I would suggest the company create story lines for its current and future characters to keep the demand growing into following season. For example, many video games or toys like Teddy Bear have its own story, which add intangible values to its products. Having unique and outstanding intellectual properties plays an important role in gaining competitive advantages in nowadays. Also, beside product itself, spiritual pleasure and satisfaction would increase customer’s retention rate and loyalty, making products more profitable in the long run. The company can find a another supplier or change current supplier to a new one with higher production capacity to meet customer demand during holiday season.
Hi Chenxi,
I follow and share your opinion on creating story lines and all these kind of ideas that will make this toys desired not just for holidays. But do you think a company can manage to solve stocking issues and availability and if so, the increase in costs to reduce lead times and continue air shipping? With good forecasts everything could be done but with a hit as mentioned before this toy is, its really difficult to achieve a level of certainty and meet demand.
I think the realistic view is that the product is a “hit” for this year and the company may be able to continue some sales after the Christmas selling season. However, because the selling season is defined by a single day (Christmas), demand will likely decrease along with the hype of the product and price along with availability are very related. I think the company should raise prices for a few reasons.
First, if they don’t others will. With any toy that is highly sought after, a secondary selling market will be created. This could be limited if the price is increased since customers will not be willing to pay even more above the mark-up for the product.
Second, by raising prices the company can cover costly logistics costs associated with the velocity needed to meet unplanned demand. If product availability is an issue, customers will be willing to pay a premium to ensure they have the “must have” gift of the year.
Limited capacity with rising demand is often controlled by price. Disney World is a great example of this. While it is selling experience and service and has a continuous demand, an example article highlighting this is a June 3, 2016 Fox News article titled :How Disney manages its legendary lines. This highlights, “surge pricing” for the most busy parts of the year.
Again, I think raising prices while still increasing quick response production/inventory capability could be used together to meet demand while generating good margins. Perhaps this could also push some customers to choose to wait and purchase the product after Christmas, purchasing the product for birthdays or other occasions.
Mark, I totally agree with you on the fact that raising prices would be a viable strategy at this point. Thanks for sharing the example of Disney World. Sure, there might be a small group that would opt to wait after Christmas to purchase the product, however, the earning potential would not be the same as when they could raise prices and sell it in and around Christmas. By being able to use the capital and introduce a digital platform that could compliment this toy, I feel the buzz would sustain longer and demand could maintain or grow. However, for all this to happen, it is important that the product is available at all times.
Being realistic, all products when becoming a hit and increase their sales to the point air shipping and different methods in the supply chain of a company had to be adopted, has raised their prices. Clear examples could be seen in other industries like iPhones, Enotebooks, etc. So why can’t this cute little toy raise their price to increase profit and cover the company’s extra expenses? In my point of view, as stated in the blog, this toy is sold aftermarket at a higher price and customers are willing to pay that so why not equal that price? Or even higher to block that aftermarket?
I believe that with a holiday season coming like Christmas, or even thanksgiving, this company will incur much more cost to increase availability and stock and also reduce lead times so a good idea will be to raise prices. To do this obviously a market research and surveys should be done to see how much more is the public willing to pay for this and how much are parents willing to pay for these toys for their kids. Looking at similar products in similar stages could be a choice to conduct a fast and save research.
There are a couple of things one can pick on that contributed to the success of the toys – tapping into an unmet need, creating demand, tapping into customer emotions and ensuring availability. A toy that saw its beginnings from a viral post will probably have viral demand. Viral, however, means short-term. The toys market, in general, is a little turbulent given the wake of “digital screen toys”. The company should absorb this success and invest in R&D for another product, especially since counterfeits have already made it to the shelves; once on the shelves, there’s little way to distinguish, except price. The customer are locked in on WowWee as they have created a brand image for themselves which will pay off with the next product launch. They could forecast demand for next Christmas, use the same raw material contracts, same capacity but all with a new design. The challenge would be the acceptance, but if I put myself in the customers’ shoes, if WowWee left an impression last Christmas, I would be on the lookout for a new product and would buy it too. In a nutshell, investments in new design, product promotion, and forecast accuracy would reduce many of supply chain challenges. As for the retailers, they can stock new products for customers in festive spirits!
Asmita,
Most toy “fads” or viral trends end abruptly. Also, after much of the market is saturated many consumers realize the product is not as great as they once though it was. Don’t you think that they should focus on meeting as much demand this year as possible? Also, if they increase price they will have more capital to create new products. I understand your long term approach, but if they fail to meet customer demand and expectations (availability) do you think customers will just move to competitors “knock-offs” in the future?
Raising prices to the customer during festive seasons could be a suitable action by the manufacturer to contain demand but it is crucial to note that the product is being pulled and not pushed to the market. This could influence the company to ensure reduction of margins at all supply chain ends as well as utilize direct-to-customer shipping methods as well. However, in the case of toys, it is imperative to continuously improvise on the product and come out with new product features or characteristics every season else the demand forecast would be obsolete when matching their supply. For the stores to stock up adequate amounts of inventory, it is crucial to know what the forecast is on the company’s end in correlation with the forecast at the stores end. Having a VMI in place could eliminate that gap in turn providing incentive to the company to gain control of the inventory of the store, thus benefiting both the store and the company.
Siddhanth,
Do you think its reasonable to believe that some of the demand at stores is not true customer demand? Because the toy is so popular and not very expensive do you think some people may be purchasing the toys and selling on a secondary market? If that’s the case do you think the retailer has any ability to control this?
I consider that the Toy industry is a fast industry and the product life for each toy is short. Hence, raising the price to control the demand is not wise. As long as the demand drop, it’s hard to bring the demand level back. Keeping releasing new toy in the same theme or a new version of one toy is recommended to heep the demand growing into next season. Also, more budget invested in marketing is critical since the company needs to keep high visibility in front of the public, extending the impressive image in customers’ mind.
As for the stores, they need to manage the inventory more carefully. The demand is seasonal, so in regular days, stores remain low inventory level to keep the holding cost as low as possible. Before the season holiday coming, stores start to order. Of course, lead time of order has to be considered severe to decide when to order.
The company should take advantage of the buzz created by the holiday season and can charge premium amount for the toys. This will moderate the demand and also help them not to stock out during the holiday season which will help them increase the profit much higher. To keep the buzz of the brand very high they can manufacture toys using a famous and trending character from a movie or any sports. People like to buy toys these days which are trending and are famous in the digital world and are willing to pay premium price for it as well. So if they produce something with buzz the company would be really profitable.Stores should try and keep inventory based on the trends and forecast and buzz created by the products in the nearby market. They should also have backups for the higher demands because the holiday season is time for highest sale and stores should not miss out on the profits.
The supply chain challenge met by the company is kind of resulting from the forecasting error. If the company can decrease the forecasting error to make the order in a small range, then the pressure they met now will be much more less. Actually, I think that they can increase their price because the product is so successful and if the elastic of price is not high, the decreasing of price will not affect much on the sales.
As for the next season, I do not believe that digital platforms are good way to sell this product. The reason is that for the interactive toys, it is important that consumers can interact with the toys in a real scene instead of online shopping.
Toys follow the fashion supply chain in the sense that demand is high as long as the product is trendy. A new season demands a new product. But unlike the apparel industry, where people can price clothes at a premium price to address a segment a people who want to have exclusive collection, the toys industry targets children, thus, will see high demands when the reach of their product is large (and affordable because ultimately the parents will pay for it). So the prices should not be increased at least for the current product. As recommended by many, they can manufacture the future versions based on stories or comics. Depending on the previous product’s demand and the buzz around the series, the later products can be charged higher. Interactive toys can further add to the buzz and increase the demand. The company can also look into remodeling the excess inventory since the series can be built upon a single basic model. This will also enable the retailers to stock enough inventory without facing the loss from overstocking.
First I think raising price is an available idea, since the sudden demand of the toy is so high and there is high probability that stock out will happen. To guarantee the inventory, raising price can become a choice. As for keeping the trend going on , I think creating more animals may not be a good choice. From my perspective, the toy monkey becomes popular more because it has become a cultural symbol, which is hard to be take over. Other animals using the same trend may not receive a equivalent focus. Instead, I think keep digging the residual value of the monkey is important, the company can keep the monkey being exposed to the public and creating new story and trends on it. Lastly, to get rid of potential loss, shop keepers need to predict next period’s monkey demand based on two parameters:1/ will the trend keep going in this season 2/ is there any way to salvage the stock. Thinking these parameters can help owners separate the risks
In my opinion, the company should raise prices to moderate the demand buzz. To be more concise, the company had better transfer the extra cost to customers, including the transport costs, urgent production costs, etc. For example, the company can ask for subsidy from retailers for urgent production or expensive transport costs. To keep the demand growing into next season, the company should add some new functions or characteristics to the original toys, since many people are only interested in novel products. Therefore, in the next season, the attraction of Fingerling will go down as expected. The key is to produce more novel toys and do better demand forecast.
There is a serious potential for the toys industry in the holiday season enabling them to quote a high mark-up for the items, thus pacifying the demand. Current fashion trends can be taken into consideration when creating new & innovative toys during peak season. Gain of a toy company largely depends on consumers’ responsiveness to new fashion trends & glitz. Retailers can also take a cue from the trends and manage inventories accordingly. Keeping a safety stock in completely warranted.
Shivam,
It does make sense for the company to quote a high markup for the toys, especially when there is a lot of buzz around the launch and that the company can anyways face high price in the aftermarket channel, but shouldn’t the company grab this opportunity and start expanding its own business? In the toys industry, if you get one of your toy a hit, you should begin to cashing in and make a brand image out of it and start using that brand to sell other toys as well. This will also help deepen the customer engagement and would reduce the overall per unit cost of a product. Also, what do you think about whether the company should develop the digital platform or not? In my opinion, considering the advent use of technology in our daily life, and increased time on the digital platform, it is perhaps in the best interest of the company to think of the future and develop a digital platform to interact with physical toys.
I believe that the company should raise prices to moderate demand, but only by a small increment. After one of these kinds of price increases, the company should reassess their demand situation and see if they continue to face the same supply chain challenges before deciding whether or not to continue raising the price. In order to keep demand growing, I think that developing digital platforms would be more effective, though adding new animals would be effective as well. The company could explore the possibility of first developing a digital platform and then using this platform to introduce new characters. Then, depending on the popularity of these new characters, they can be physically created for distribution. Also, in order for the stores to position themselves for the holiday season, they need to stock up on inventory of the hit toy well before the holiday season begins. These stores should also identify multiple suppliers of this toy in order to minimize risk in the case that the toy is even more popular than predicted.
No, the prices should not be increased as pricing is also one of the significant factors in the popularity of the toys. A combination of variety, technology and social media marketing would maintain the interest of consumers. Making the product available to the customers should be the main concern. In this regard forecasting becomes important. Good relations with wholesalers/retailers would give them more accurate picture of the demand. Historical data should be used to categorize the products into slabs according to the demand. Moving the assemble closer to the retailer should also help to maintain appropriate inventory. Centralized vs decentralized warehousing or strategic storage near bigger retailers should also help in increasing the fit rate.
Well quoted in the article “a real Christmas toy craze to “an act of nature”.”. Indeed, it is very challenging in an industry with such changing trends every season, similar on lines of a fashion industry. The effects of such a trend cascading across the supply chain might tend to cause price fluctuations at the retail points, if the product becomes a hit. Disparity in purchase prices at consumer’s end sends a signal of uncertain prices to which some customers might respond while some may not. Though the channel might want to reflect upon these with their own individual promotions, however an effective coordination to anticipate the realized demand, and responding back with the respective fulfillment rate and service levels can help build profits for all the nodes in the value chain.
The sudden spike in the demand is obviously a nightmare for both the supply chain personal to match current scenario and marketing personal for the next season forecasts. Riding on the wave of current Christmas demand may sound attractive for now, but the increase in the production will leave the large capital investment behind when the demand drops. Hence, it is most important for the management to freeze the service level, they would be ready to cater. As lower retail price is also instrumental in its sales, higher service level of around 97% would maintain the optimum supply in the market.
The firm can look into the internet buzz as well as the certain improvements to renovate the current design with higher retail price and profit margin. This would help compensate for the volume which can have even provide better service level.
The inventory of the toys face same fate as that of apparel. One may not correctly predict what would be the next big hit. Hence, buyer’s prediction and analytical approach to finalize the forecast may help build the inventory for next season.
Raising prices to moderate demand would not be a feasible solution. The usage time of toys is very short hence customers prefer to spend less while buying them. To increase demand in the next season, brand should increase SKUs to offer variety to customers. The newly introduced SKUs should be targeted to different age groups of children, increasing market share. The USP of these products is that children instantly relates to this products in stores in terms of look, ease of play and previous experiences through television, books etc. Hence the newly introduced SKUs should be positioned in the same manner.
The retail mark ups in the toy industry is around 80%. To increase profits retailers need to ensure minimum stock outs. For stores to have access to inventory for their best selling items, the inventory levels need to be optimal so that there is no stock out items. The identification of best selling items is crucial and can be done based on two factors – historical demand patterns and judgement of buyers (influenced from previous forecast-demand experiences and in-depth knowledge of customer preferences). Additionally, company can explore the possibility of closer to stores assembly to take benefit of quick response as per customer demand. This requires modular product design thereby increasing product cost. However, this can be compensated by increased sales due to varied product offering and product availability. Retailer can also schedule multiple stock deliveries to stores to optimise shelf space.
Raising prices will play into the hands of counterfeiters who rely on providing a cheaper option to make their sales. WowWee and the Retail Stores would have to agree on sales volumes, which the Retailers must commit to based on their forecasted demand. This should be done months in advance of the expected sales period to provide enough room for production planning and distribution and avoid costly rushed production or/and air lifting.
Since fads for toys last for about 8 months, it would be necessary for WowWee to add new animals or introduce new toy concepts every season to provide the feel of a different toy and continue to generate interest and demand.
Given the internet buzz on social media, I feel now is the time to raise prices on an increment basis to increase the earning potential. It is likely that the demand will decrease as the internet buzz fades away and hence being able to raise prices and have better product availability would be a good strategy. Doing so would enable the company to cover its standard costs and the costs that could arise from unpredictable demand. There might be other players in the market that try to sell similar toys, however, by being able to meet the demand and make sure product is available at all times could benefit the company along with the first-mover advantage. There is always the option to use a third-party that could be used instead of having to expand capacity within the company. I feel that the capital received from raising prices could be used to introduce some digital platforms, especially for those physical toys that are highest selling. By being able to offer complementary digital products to the toys, the potential to improve revenue increases rather than simply introducing new toys that fall in the same category. Digital platforms can help expand the company’s portfolio and thus might reduce risk of failures. They could also help continue the internet buzz and increase demand. Given that kids now are learning to use digital devices and tools at a much younger age, this strategy could give a lot of earning potential to the company. Also, I believe creating these digital platforms is a more challenging task which might even reduce the issues of counterfeiting. As for the stores, they need to coordinate with the company to make sure they keep inventory based on the buzz with higher safety stock and also for other high selling toys.
I agree with several of my classmates that the company should indeed raise their prices. The toy industry historically is an industry driven by hype. This means that a product usually loses its demand in the market relatively quickly. Under such circumstances, the company should definitely raise the prices to take advantage of the initial wave of excitement. While adding new animals may create renewed buzz, I think the creation of digital platforms to interact with the physical toys seems a more appealing product for the consumer. It could even lead to a rise in the sales of the previous toy when consumers see the new product as attractive. This idea of resuscitating an old product through a new product will prove beneficial for this company. Stores should anticipate the new product demand and get rid of old inventories through clearance sales and other modes. Although this is already in wide practice, the new trend of introducing the product early will imply that stores time their sales in a more efficient way.
I don’t think that a price change would be warranted in this case. I’m actually familiar with these toys as my nieces and nephews all wanted one last year for Christmas and my mother had an unbelievably difficult time trying to find one to buy her grandkids. As with many other products, this exclusivity is what lends to its incredibly high demand because just like adults (actually probably moreso) children want what they can’t have. I think a production timing strategy would be a better solution, now that they know how popular these toys are. Keeping the supply limited until a major purchasing season such as the Christmas timeframe and then having a plan in place to ramp up production would be a better strategy to capitalize on the popularity of this product.
As mentioned in the article, the success of the product is a function of its look, functionality, and price point. An increase in the prices of these products will allow fake products to take over the market and the original fingerlings would be stuck as inventory. To ensure that the product is timely reaching its customers, the demand can be forecasted based on the popularity in other countries and marketing campaigns in US. Since, the supply is constrained due to limited capacity at the manufacturer’s end, manufacturer needs to coordinate the decisions which are ideal for the retailer, thereby increasing the entire supply chain profits. Revenue sharing agreement can be used here to coordinate the supply with demand.
To keep the demand growing into the next season, WowWee need to work on all the three aspects: look, functionality, and price points. While the look of the product can be inspired from the recent fad in the animated movie industry, digital technology could be used to enhance the functionality of the product. Lastly, the product should be appropriately priced so that it can reach the mass audience.
As mentioned by multiple people, toy industry acts in similar to fashion industry.
So there are certain things that can be done to decide the issue at hand such as identifying the service level that would help to get the maximum profit, as this kind of products are not need based items. The items will sell till the time it is trending, because children have short memory and they wont prefer to have the product once it is not available in the market.
Also, a mix of local supplier and primary supplier can help to mitigate inventory issue, lead time issue and transportation cost. The idea of storytelling works for toy industry e.g. the way barbie and its extended family was formed, but that happened when internet was not . The idea of digital platform across is a competitive advantage in this scenario, so that should be definitely used to reach the customers.
It might be wise to increase the price slightly and take advantage of the popularity of the toy along with containing the demand but not at the cost of losing customers. As suggested by many, the stores can take pre-order for the toy several months in advance of the peak season and stock up their inventory. They can also lower the prices slightly in the off seasons to mitigate the excessive demand in peak season. To keep the demand growing, they can keep some Fingerlings in play areas of the store, similar to Lego stores, where the kids have physical access to the toy and play with the samples. They can introduce related new characters like friends of Fingerlings. They can create themes and have Fingerlings & friends dressed in those themes. Collectibles of these characters could also be introduced. All these would continue to build the hype around Fingerlings. WowWee should try to increase their capacity before the peak seasons to satisfy all the demand. One way could be to outsource some portions of the productions to ramp up production.
Increasing prices drastically while offering the current variety of toys would not be a good idea. This might cost them sales in the subsequent years as well. But the company can either add new animals or develop digital platforms to interact with physical toys which will only increase the demand for these animatronic toys. The latter strategy would also allow the company to increase the prices to meet above-mentioned Supply Chain demands and at the same time to maintain a growing demand. Just like how demand is planned 6-8 months in advance for the winter clothing, the retail stores could place an order to WowWee much in advance, something like a pre-season ordering. This might help the stores stay up to date with the market and having an accessory to hit toys.
A modest retail price of $15 for these animatronic toys at same time accommodating an expansion of production facility will surely reduce their gross margin. Driven by this, if the company increases prices of these toys, their sales for this season might be hampered and the toys produced based on the high demand planned at the start of the year, would go down as excess inventory at the end of the year. Instead, the company can add new toys or develop digital platforms that might again increase the demand but, the company would have a good reason to increase the prices and still sell more of their products to customers. There should be a better coordination between the retailers and the manufacturers so that the retailers don’t run out of stocks of hit toys each holiday season.
It is interesting to see how a seemingly unassuming piece of toy takes the market by storm and create a huge demand-supply gap. In my opinion, rather than increasing the price of the toy, it is in the best interest of WowWee to work on their supply chain to make it more robust, and hence have a better availability of the product. This is crucial because if the prices are increased, the most obvious choice of the customer is to go to a competitor with a similar product. The lost sales combined due to the increased price and non-availability of the product will be detrimental to the company’s P&L and market-share in the long run. Thus, building a loyal customer base is the need of the hour. This can be further coupled with introducing more toys or leveraging the digital platform to enjoy the limelight for a longer period. However, the company must do a cost-benefit analysis for both the options to decide on their future course of action. Stores, to position themselves to have access to the inventory of the hit toy each holiday season must carry out a predictive analysis based on the past data. This, coupled with an option of pre-ordering well before the holiday season starts, gives stores ample time to stock up inventory. However, stores must also be wary of keeping huge safety stock, because one never knows when the demand dries out, due to the small attention-span of customers in the ever-changing business scenario.
To begin with, one of the greatest threat to the toy is a competitor creating a similar toy that interacts more with the child in the same price range. Letting the aftermarket channels (ebay, etc) buy up all of the product and then resell them for exorbitant prices tends to alienate your customers and drive them to competitors alternatives. What’s more, to position for the future, stores need to calculate their anticipated demand and order the animatronic toy with plenty of lead time to meet seasonal shopper requirements. And because stores don’t produce anything and each toy store would carry the same items, the holding cost would be greater than the economic loss of running out. Therefore, it would be better to plan to run out of the product rather than overstock. Having too much in overstock would be difficult to sell off when the trend is down.
Increasing the price of the toy might not be well-received by customers and might adversely impact the image of the brand during the Christmas season. To maintain the popularity of the product, both the suggested options – adding new animals and developing digital platforms – are worth exploring. In fact, the digital option is all the more attractive now since children have greater access to smartphones and tablets today than at any other time in the past.
In order to take advantage of hit toys, it is imperative that stores improve their assortment planning processes. A good approach here would be to classify products into categories based on their sales and proportionally allocate inventory with the largest quantity of inventory allocated to bestsellers and the smallest to those products which are sold least. This will reduce chances of stockouts and will help retailers maximize their sales during the holiday season.
One thing is as the price going up, counterfeiters will definitely appear and cause a hurt to the company. There are some differences between adding new animals and developing digital platforms. By adding new animals, part of old customers would buy again and maintain retained profit. Developing digital platforms may take new customers and better against counterfeiters due to the high entry for competitors. A good strategy for the company is to be customer-centralized and focus on new features which children may like. When customers are attracted by the toy, they would be definitely loyal to the company.
Price rise doesn’t seem a great option since it would encourage counterfeit products to flood the market with cheaper substitutes, leading consumers to potentially shift to duplicates, if there is not much of a difference in the experience. The company can think of innovative ideas and add new features such as making two monkey toys interact, two different species toy interact, build a functionality to repeat words said by the owner in a funny manner, etc.Stores should keep higher safety stock for the bestseller items to ensure greater sales. They should also communicate the demand pattern early on with the manufacturer to prevent lost sales.