DCVTM d12 Case Study

Professional Diploma in Marketing
Professional Diploma in Marketing (Level 6)

541 Delivering Customer Value Through Marketing
Case Study December 2012 and March 2013
UK toys and games industry

The Chartered Institute of Marketing 2012
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Delivering Customer Value Through Marketing Case Study December 2012 and March 2013
Delivering Customer Value through Marketing Case Study

Important guidance notes for candidates regarding the pre-prepared analysis The examination is designed to assess knowledge and understanding of the Delivering Customer Value through Marketing syllabus, in the context of the relevant case study. The examiners will be marking candidates scripts on the basis of the questions set. Candidates are advised to pay particular attention to the mark allocation on the examination paper and plan their time accordingly. Candidates should acquaint themselves thoroughly with the case study and be prepared to follow closely the instructions given to them on the examination day. Candidates are advised not to waste valuable time collecting unnecessary data. The cases are based upon real-life situations and all the information about the chosen organisation is contained within the case study. No useful purpose will therefore be served by contacting companies in the industry and candidates are strictly instructed not to do so as it may cause unnecessary confusion. As in real life, anomalies may be found in the information provided within this case study. Please state any assumptions, where necessary, when answering questions. The Chartered Institute of Marketing is not in a position to answer queries on case data. Candidates are tested on their overall understanding of the case and its key issues, not on minor details. As part of the preparation for the examination, candidates will need to carry out a detailed analysis of the case material ahead of the examination. Candidates will find that the time available during the examination is sufficient to answer the compulsory questions, but only if detailed analysis has been undertaken beforehand. When compiling their analysis, candidates should only use the information found within the case, supported by their knowledge and understanding of the syllabus. Candidates are encouraged to use a range of analytical tools and models in order to undertake a thorough investigation of the key aspects of the case. This will improve their understanding of the case and the issues faced by the organisation(s) and/or industry sectors to which it relates. Clearly, the analysis required will vary depending on the specific case content but, as a guide, candidates should consider undertaking the following:

analysis of the external environment using PESTEL analysis analysis of the competitive environment using Porters Five Forces model strategic review using Ansoffs matrix and/or Porters generic strategies stakeholder analysis detailed review/analysis of each of the marketing mix elements product/portfolio analysis (eg using product life cycle analysis, BCG (Boston Consulting Group) matrix, GE (General Electric) matrix SERVQUAL SWOT analysis.
The copying of pre-prepared group answers, including those written by consultants/tutors, or by any third party, is strictly forbidden and will be penalised by failure. The questions will demand analysis in the examination itself and individually composed answers are required in order to pass. Candidates will then need to condense their analysis into a FOUR side summary (a maximum of four sides of A4, no smaller than font size 11. The content of tables, models or diagrams must be in a minimum of font size 8). The analysis should be numbered for ease of reference when answering the examination questions.
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Candidates must hole-punch their analysis and staple it in the top left hand corner. They should write their CIM membership number and examination centre name in the top right hand corner of each page of the analysis. It should then be attached to the answer booklet on completion of their examination, using the treasury tag provided. Although no marks are awarded for the analysis itself, candidates will be awarded marks for how the analysis is used to answer the questions set. Candidates are advised not to repeat or copy the analysis summary when answering the exam questions. It is important that candidates refer the examiner to the analysis summary, where and when appropriate, when answering the questions. Candidates are only permitted to take their analysis into the examination room. Candidates are not permitted to take in the downloaded case study or any other notes. The invigilator will issue candidates with a new clean copy of the case study at the start of the examination along with the question paper. Candidates may not attach any other additional information in any format to their answer book. Any attempt to introduce such additional material will result in the candidates paper being declared null and void. The Chartered Institute of Marketing reserves the right not to mark any submission that does not comply with these guidelines. Important Notice The following data has been based on real-life organisations, but details have been changed for assessment purposes and do not necessarily reflect current management practices of the industries or the views and opinions of The Chartered Institute of Marketing. Figures used in tables may differ as they have been compiled from different sources, using a range of criteria. Candidates are strictly instructed NOT to contact individuals or organisations mentioned in the case study or any other organisations in the industry. Copies of the case study may be obtained from: The Chartered Institute of Marketing, Moor Hall, Cookham, Berkshire SL6 9QH, UK or may be downloaded from the CIM student website www.cimlearningzone.co.uk The Chartered Institute of Marketing 2012. All rights reserved. This assessment, in full or in part, cannot be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of The Chartered Institute of Marketing.
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DELIVERING CUSTOMER VALUE THROUGH MARKETING CASE STUDY

Preparation In preparation for the examination you will need to analyse the UK toys and games industry case material provided, in order to prepare your analysis of the company. You will be given a clean copy of the case study on the day of the examination, but you must bring your analysis with you into the examination. Your written analysis must not exceed FOUR A4 sides and must include your CIM membership number on each page. The written analysis must be submitted as an appendix on completion of the examination and attached with a treasury tag to your answer book. Role You are a specialist marketing consultant with experience in the toys and games industry. You have been commissioned by the Board of Hornby to review a number of marketing-related areas, including:

marketing communications branding channel management innovation and new product development pricing managing customer service.
The Board is keen to adopt a more marketing-orientated approach in order to build market share and profitability in this highly competitive market.
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Case Study: UK toys and games industry

Introduction
The toys and games industry is an international market dominated by global brands. Mattel and Hasbro, both US-owned companies, are the two biggest players in the market. However, other major organisations include Lego, Tomy, Mega Brands and Hornby. Most of the large organisations seek the benefits of economies of scale by sourcing and distributing internationally. The market is very active, with new product development being a key feature. The UK toys and games industry comprises ten categories of products. These are defined as:

action toys, eg boys action figures activity toys, eg building and construction sets, arts and crafts dolls electronic toys, including electronic learning aids games and puzzles infant pre-school toys and games aimed at the under-fives outdoor and sports toys and games plush toys, eg teddy bears and stuffed toys toy vehicles, including cars and trains, and other products.
Key features of the sector In recent years, the industry has been adversely affected, like most sectors, by the global economic crisis. The sector experienced year-on-year growth until 2008, when revenue started to fall. 2009 recorded an even greater fall in revenues, reflecting the downturn in the UK and global economies. Prices have also been driven down by retail competition. Supermarkets have moved into the toys market, very often selling them as loss leaders. Internet shopping has allowed new and existing brands to offer much larger selections of goods to a more geographically diverse audience. In addition, the internet has opened up a larger number of suppliers to customers and has also helped customers to price-compare much more effectively. The sector also experiences a very high degree of seasonality. When a major high street retailer and outlet for toys, Woolworths, collapsed in the winter of 2008, in the critical period leading up to Christmas, there were repercussions for the industry. Woolworths has since re-emerged as an online retailer but its demise on the high street contributed to a general decline in the toys and games industry during 2008. However, other companies were able to exploit the exit of Woolworths from the market and benefit from it. In addition, prices began to recover towards the end of 2009 and overall in 2010, the sector enjoyed growth of 5%, to a value of just under 2.2 billion (source: Mintel). The competitive nature of the market results in heavy discounting, seasonal promotions and special offers to attract buyers. Catalogues are also a significant channel for toys and games. Many children and adults prefer to study a paper-based hard copy of a catalogue at their leisure as part of the decision-making process. The market benefits from increased disposable incomes and the more advanced age of new parents, which have resulted in a higher level of spending on children. This and rising birth rates since 2003 have both been positive contributory influences.
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However, the market is also adversely affected by the increased targeting of adult products at children at a younger age, especially in the field of electronic products, such as computers, mobile phones, etc, and associated merchandise. Buying behaviour According to Key Note, 45.1% of females purchased toys and games (including computer games) during a twelve-month period in 2008/2009. This compared with 29.7% of males and 37.6% of all adults. In the same period, 62.6% of main purchasers fell into the 35-44 age group. This compares with 52.7% for the 25-34 age group, 35% for the 20-24 age group, 34.2% for the 45-54 age group and 30.2% for the 55-64 age group. 22.2% of the over 65s purchased toys and games during the same period, and 13.2% of the 15-19 age group. In terms of the purchasing of toys and games by social grade, there is a relatively even spread. According to Key Note, for the twelve-month period in 2008/2009, 37.3% of social grade A (high managerial, administrative or professional) purchased toys and games. This compares with 38.4% of social grade B (intermediate managerial, administrative or professional), 36.6% of social grade C1 (supervisory, clerical, and junior managerial, administrative or professional), 38.2% of social grade C2 (skilled manual workers), 38% of social class D (semi-skilled manual workers) and 37.4% of social grade E (state pensioners, casual, unskilled or unemployed). Impulse purchasing and pester power (children repeatedly asking for something until their parents buy it) are significant features of the market. According to Mintel, while 39% of buyers find out in advance what the child wants, 27% buy on impulse. Furthermore, buyers are greatly influenced by the expressed desires of children, who are in turn very strongly swayed by advertising and peer pressure. Children are also highly susceptible to toys that have a tie-in with their favourite TV programmes, books or computer games. Pester power at the point of sale is a frequent occurrence. More than a third of parents admit that they find it hard to say no to their children. The influence of pester power is illustrated by the following data: it records the purchasing of toys and games (including computer games) in a twelve-month period during 2008/2009, according to whether children were present at the time of purchase. According to Key Note, 89.4% of 1 to 4 year olds were present when purchases were made, 82.9% of 5 to 9 year olds and 50.5% of 10 to 15 year olds. Of the sample, 22.2% of adults purchasing toys and games had no children in the household. Aside from the wishes of children, adults look for a number of other features when making decisions to buy toys and games. Durability, longevity and value for money feature highly, where brand recognition is used as a strong indicator of quality and safety. Educational value is also an important dimension, as long as the product still promises fun and entertainment. Being able to supplement and expand the product with future purchases is another determining factor. Demographic factors Following successive falls in the UK child population, largely due to a decline in the birth rate at the end of the 1990s, the number of children in the under-four age group has begun to go up since 2004, as a result of a rise in the birth rate. The growth in the UK child population is a major factor contributing to the growth in the toys and games market.
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The population of children in the UK (especially those in the 0 to 9 year-old age group) is set to continue to rise up to 2015. There are also an increasing number of families with only one child and a rise in the age at which adults have children, increasing the amount of disposable income available. However, the purchases made by and on behalf of children are shifting away from the more traditional kinds of toys towards more adult-style entertainment most noticeably fashion, books, DVDs, computer games, electronic goods and sports. Economic factors Gross domestic product rose year-on-year to 2008 before falling in 2009, as a result of the UK and global recessions. The growth in gross domestic product over a few years provided a positive trading environment for organisations operating in the toys and games sector and was a catalyst for continued investment and new product development. However, the recession and economic downturn have resulted in rising costs and falling prices in the sector. Customers research extensively to source the lowest retail prices. This, coupled with cutbacks in discretionary spending, has led to a fall in the demand for toys and games. There has been a trend in patterns of expenditure on children in the UK over the last five years. While net spending on toys has decreased by 6.4% in that period, comparable amounts for confectionery have grown by 19.5%, video games and consoles by 28.7%, and childrens magazines and comics by 23.8% (source: Mintel). Among 7 to 10 year olds, however, toys and games are still the preferred items for pocket money expenditure, with nearly two thirds of pocket money being spent on them. Global developments The toys and games market operates on an international scale, with the major players, such as Mattel, Hasbro, Bandai, Lego and Hornby, producing and supplying goods globally. The Toy Industry Association Inc estimated that worldwide retail sales of toys totalled $78.09 billion in 2008.The top ten markets by retail sales were: the United States, Japan, the Peoples Republic of China, the UK, France, Germany, Brazil, India, Mexico and Italy. Within the UK there was in the region of 585 organisations involved in the manufacture of toys and games in 2009. Fragmented in nature, the sector comprises large numbers of brands and suppliers, operating in relatively small segments in terms of product or region. Overall, the toy market in the UK is dominated by imported goods. Over the period from 2005 the trading deficit has increased by 40%. The Peoples Republic of China (PRC) and Hong Kong are the main sources of imports. In contrast, the export market is relatively small, dominated by other EU countries. Enduring appeal of classic toys In 2010, the BBC broadcast a series of programmes under the title Toy Stories, in which TV presenter James May explored the enduring appeal and potential of classic toys. The series included an attempt to run Hornby model trains the length of a real railway between the towns of Barnstaple and Bideford, a distance of ten miles the longest model track ever made. In the event the trains travelled six to eight miles before their motors burnt out. In another episode he attempted to make a full-size Spitfire aeroplane from a hugely enlarged Airfix model, and in another a full-size
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racing track was created for Scalextric cars. These programmes, which have been repeated several times since, have contributed to the popularity of these toys. Other episodes featured Lego, Meccano and Plasticine. Hornby Hornby plc (Hornby) is an iconic brand of childrens toys and models for collectors, associated in particular with miniature electric trains and complementary items such as track, bridges, scenery, figurines, speed controllers, buildings and other items. In addition, as a holding company, it owns a string of familiar names for child and adult hobbyists alike that include Airfix, Scalextric, Humbrol and Corgi. Its primary focus is on the development, production and supply of toys and models. Despite being over 90 years old, the Hornby trainset, together with some of the companys other leading brands, remains highly popular. Proof of this was evident in a recent Channel 4 TV programme based on the opinions of industry experts and votes from the general public on the 100 greatest toys. Corgi was sixty-first (with its James Bond Aston Martin), Airfix nineteenth, Hornby seventeenth and Scalextric eighth (source: Channel 4 website). A lot of the interest in the Hornby model trains comes from adults, mostly male, who are in their 40s and 50s and have sufficient disposable income (and space in their homes) to spend money on the kinds of train sets they could only dream of having as children. Similarly, there is a growing interest among parents in buying traditional toys for their children, despite the rise in computer games and other technologically innovative alternatives. Before the company reached the relatively stable position that it finds itself in today, its history reveals that on a number of occasions it has come close to being absorbed completely within other companies or vanishing from the market altogether. An important factor in its most recent revival is its successful strategy of moving away from being regarded solely as a producer of childrens toys to embrace fully the interests of the serious adult enthusiast and collector. The company has also been able to associate itself through licensing agreements with other successful brands, by introducing new products that tie in with movies like Harry Potter and Toy Story or celebrate popular events and pastimes like Formula One racing and the Olympic Games. The Hornby group has also been greatly strengthened through its acquisitions of other iconic brand names in the toy and hobby market. History of Hornby In 1901, Frank Hornby, an engineer by trade, registered for a patent for his invention of a childrens construction toy made of perforated metal with interchangeable pieces under the name mechanics made easy. His aim was to pursue improvements in toy or educational devices for children and young people. In 1907, to realise his ambitions, he established Meccano Ltd, and its first range of toys consisted of kits requiring spanners and screwdrivers to assemble various generic components into cars, trains, cranes, bridges and anything else the imagination allowed. This range was sold under the brand name Meccano and continues to this day, although separated from the Hornby group and in a number of different forms as the result of a long series of liquidations, mergers and acquisitions.
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After the success of Meccano, Frank Hornby turned his attention to miniature railways, introducing a clockwork model train in 1920, constructed in part from Meccano pieces. This was the start of the so-called 0 gauge, which enjoyed enormous popularity. Five years later he launched the first in the range of electric trains with which the name Hornby is forever associated. This developed in 1938 into the famous 00 gauge (usually referred to as double-0 or dublo) system, which is still used today. This equates to a scale of 4 mm to the foot (where a foot is the imperial measure of 12 inches or 304.8 mm) and a rail gauge (ie the space between the two rails) of 16.5 mm. The engines were die-cast and the coaches made of tin plate. The scale is roughly half that of the 0 gauge. Activity was suspended during the Second World War (1939-1945), but Hornby was back up to full production by 1948. However, the company found it hard to recover its position and struggled in the 1950s, losing ground to competitors like Peco and Triang, which were using plastic and consequently were able to offer much greater detail and intricacy in their models at a lower cost. Hornby did not adopt plastic until the very end of the 1950s. The relative standing of the company was weakened to the point where in 1964 Triang bought the Hornby brand of models. Tri-ang had become perhaps Hornbys greatest competitor, as well as being owner, since 1958, of Scalextric, among other brands. Meanwhile Meccano was sold to another company, Airfix, which specialised in detailed plastic models that could be assembled by hand, using glue, and then painted. Tri-ang was renamed Tri-ang Hornby. Nevertheless, despite its impressive portfolio, Tri-ang was not able to capitalise effectively on the brands it owned. Subsequently in the 1970s Tri-ang itself was disbanded. The Hornby and Scalextric brands were to continue independently, trading as Hornby Railways and later Hornby Hobbies Ltd. There were attempts in the 1980s to expand the Hornby range through the introduction of other toys and dolls aimed at girls. However, this was unsuccessful and was quickly discontinued. At one stage in this period the company was placed in receivership, although it managed to survive through a management buyout. The company became a plc in 1986. Throughout the 1980s and 1990s the toy market was revolutionised by technology. Computer games and toys with advanced functions rapidly came to dominate, while traditional and seemingly old-fashioned toys, like trains, suffered as a result. By this stage Hornby as a separate brand was in danger of disappearing altogether. Over this period, in a move designed to benefit from the interest in technology, Hornby introduced Digital Command Control (DCC), a system that allowed multiple locomotives to run on the same track, each individually controlled, with the option of running a programmed sequence of trains starting up, slowing down, stopping at stations and then moving on, together with automated points, signals, lights, gates at level crossings, and so on. A further and even more decisive change was necessary, however, in order to preserve the brand and save it from extinction. Since the formation of the original company, all of the Hornby products had been manufactured in the UK. In the 1980s and 1990s the company found it increasingly difficult to compete with others like Bachmann, which were able to produce models with much greater and finer detail and remain competitive on price. This effectively drove Hornby in 1997 to the difficult decision to move all of its production abroad, principally to China, resulting in the loss of 700 jobs of Hornby factory workers in the UK. This painful break with the past proved to be critical, allowing the company to deliver more sophisticated models that
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appealed to adults while still feeding the imagination of children. Two years later the company made a similar choice for its Scalextric brand, shifting all production out of the UK. In 2000, just as the move to international production was beginning to bear fruit, Hornby was put up for sale, but was given a reprieve at the last moment. Instead it was to enjoy a further lease of life with a new CEO, and this was the beginning of the rejuvenated company that exists today. In 2006, the group acquired Airfix and Humbrol paints (the latter used in the decoration of models), both previously under the ownership of Humbrol, which was being dissolved. In 2008, Hornby added the model car manufacturer Corgi Classics Limited (Corgi) to its portfolio. These brand names were chosen for their natural synergy with the Hornby brand. They are carefully maintained as they are well established with their own loyal supporters. Since its creation, Hornby has maintained its headquarters in the UK, where it focuses on new product development as well as handling some of the packaging of finished products. Financial performance Despite the present circumstances of a general global economic downturn and some difficult conditions unique to Hornby, the company appears to have performed well and is in a strong financial position with good prospects for future growth. In its financial year to 31 March 2010, Hornbys turnover showed an increase of 5% on the previous year, from 61.6 million in 2009 to 64.7 million. Profits for the year, however, fell in comparison with 2009. Trading activity for the year ended 31 March 2010 generated profits before tax of 5.2 million, compared with 6.1 million the year before. It is a significant feature of the toy market generally that sales are not evenly distributed over a 12 month period. There is a significant increase in activity in Decembers build-up to Christmas. This trend is reflected in the performance of Hornby. For example, for the year to 31 March 2010, less than 40% of the total turnover was earned in the first six months (ie just over 25 million out of a total of 64.7 million). The most recent results available relate to the six month period to 30 September 2010, for which the company reported that its turnover was up 2% to 25.5 million, with a pre-tax profit of 0.5 million, compared with 0.7 million for the same period in 2009. Sales in the UK were particularly strong, increasing by 12%, while in the US sales grew by 4% to 1.2 million. The overall fall in profits is due in part to unfavourable exchange rates between sterling and both the US and Hong Kong dollars in the previous year, raising the cost of the stocks held and sold during the first half of the year. Shortages of components and some distribution difficulties had a negative impact on sales in Europe, with these falling to 4.6 million from April to September 2010, from 6.3 million in the same six months in 2009. Despite these difficulties, however, Hornby was able to reduce its debt in that period to 10.8 million compared with 14.7 million at the end of September 2009. Growth in orders and expansion both within the UK and globally contributed to an optimistic forecast for the Christmas period and the remainder of the financial year to 31 March 2011 (source: Hornby half yearly report). Analysis of the income from the first half of the year ending 31 March 2011 (ie the six months to 30 September 2010) reveals that more than three quarters (77.4%) relates to sales in the UK.
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Main brands and subsidiaries Hornby owns and operates under a number of well-established and distinctive brands and product ranges. These include the following: Hornby The Hornby range specialises in model electric locomotives and rolling stock, most notably its 00 gauge, with associated scenery, buildings and other props, largely restricted to the UK. There is high brand recognition and much loyalty attached to it. Scalextric The Scalextric brand is used for so-called slot car racing (where the cars are moved along by electric currents that run through slots in the track), with racing cars and track, bridges, lap counters and other similar items. It is the best known brand for model car racing and like Hornby is well known and widely loved. The prototypes (Scalex) were launched in 1952 as clockwork cars, while the electric version known as Scalextric arrived in 1957. Corgi Corgi is a relatively recent acquisition and Hornby is trying to restore the fortunes of this famous brand. Corgi is renowned for its toy cars and collectors items. Since takeover by Hornby the Corgi brand has been focused mainly on its Heritage collection, a range of detailed and expensive models targeted principally at adults. Hornby plans to expand the appeal of Corgi over time with the introduction of new child-oriented products. Corgi Toys was originally launched in 1956 by a company called Mettoy Playcraft Ltd. The brand changed hands a few times before being acquired by Hornby in 2008. Airfix Airfix scale models are detailed and authentic self-assembly replicas of real boats, planes, cars, ships, rockets and so on, requiring glue, paint and a fair amount of patience. Airfix models were the first British scale models accurately recreating reallife versions in moulded plastic. The original company was founded in 1939 and launched mass produced model kits in 1952. After enjoying a highly successful few decades, it suffered significant decline in the 1980s, together with heavy financial losses. Hornby acquired Humbrol and Airfix in 2006. Humbrol Humbrol is a brand name for paint made especially for hobbies and crafts, including Airfix models. It was founded in 1919 producing paint as well as model kits. It became part of the Hobby Products Group in 1976 and was joined by Airfix ten years later. Lima Lima is an Italian model railway manufacturer with a similar range to that of Hornby. It was founded in the 1950s and operated until 2004, when it ceased trading and was taken over by Hornby. In 2004, Hornby also acquired: Rivarossi, a specialist in model railway products distributed in Italy and other parts of Europe to complement electric trains; Jouef, a French manufacturer of model railway equipment; Pocher, maker of metal model car kits; and Arnold, another European model train producer. Electrotren Electrotren is a Spanish model railway company which is over 50 years old and is also an importer of Scalextric which is sold in Spain as Superslot.
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Pricing Hornbys approach to premium pricing reflects its brand image for quality products. Despite the competitive market for toys and games, Hornby tends not to compete on price. Customers are prepared to pay a higher price for the companys products because they recognise the link between price and quality. There is also an aspirational element to owning Hornby products, enabling the organisation to capture the market for high-end, high-quality classic toys and games. Channels Hornby has a network of nearly 800 independent retailers specialising in models, toys and hobby ranges. In addition, it has nearly 70 in-store concessions where Hornbytrained staff operate a dedicated area of a larger department store, providing specialist knowledge and guidance to interested shoppers. The company also has its own dedicated website, www.hornby.com, which provides users with up-to-date information about products, exhibitions and other events. It allows enthusiasts to chat with each other through a number of forums, and lists all of the available stockists for Hornby products. Most importantly, the website has an online store for home delivery. The company has other similar sites, including www.scalextric.com. Competitors Many of the competitors of Hornby and its various other brands have strong market positions outside the UK, which is Hornbys main stronghold. However, the company faces strong domestic competition from Peco and others. While it enjoys very strong brand recognition and loyalty in the UK for all of its main product lines, this is not the case in other areas where it is aiming to grow, such as the rest of Europe, the US and East Asia. Its principal competitors include the following: Peco model trains Peco is a family-owned company that commenced trading in 1946. It is based in Devon in the UK and offers a very similar range to Hornby, although it has a wider range of different railway gauges. It is also the publisher of Railway Modeller, the most popular magazine of its kind in the UK. Bachmann Bachmann Industries, originally a US company, is now Chinese-owned and based in Hong Kong. Its product range is very similar to that of Hornby trains. Bachmann is the largest seller of model trains in the world. Its main market is for low-cost but highquality train sets for the first-time user. Like Hornby, Bachmann has a range of products tied in with the childrens books and TV programme Thomas the Tank Engine and also offers Digital Command Control (DCC). Other manufacturers of similar railway products include Dapol and Heljan. Hot Wheels Hot Wheels is a very popular brand of small model cars manufactured by Mattel. Although larger models are available, Hot Wheels specialises in 1:43 scale cars that are characterised by being brightly coloured, imaginative and fast. They are designed to integrate with interlocking track components for high-speed races.
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Slot car racing There are several brands competing with Scalextric in the field of slot car racing, among them AFX, Mattel, Tomy and Tyco. The cars and other components are often interchangeable between brands, usually conforming to one of the recognised scale standards. Production In order to reduce its heavy reliance upon a single manufacturer, especially in its model railway products, Hornby has successfully pursued a strategy of diversifying its supplier base. While once everything was made in the UK, now the majority of Hornbys products are manufactured in India and China on a contractual basis. The groups headquarters remains in the UK, where a small amount of packing operations are also retained. Significant reliance has been placed upon a single manufacturer in China, and steps have been taken in recent years to reduce the risks associated with heavy dependence on one supplier by working with two other major manufacturers. This has the added advantage of greater flexibility in terms of how and when Hornby satisfies orders. In order to safeguard against foreign exchange rate risk, Hornby now enters into forward currency contracts which fix the exchange rate in advance, rather than using the prevailing rate at the point of remittance. A significant amount of business is conducted in both Hong Kong and US dollars. Unfavourable rates prevailed for a large portion of the year to 31 March 2010, affecting profitability not just in that year but also in the subsequent year, as costs absorbed by unsold stock were carried forward. New product development Hornby currently has around 650 products in its railway brand. A key driver for innovation rests in character merchandising, linking the established prototype models with other brands made successful through films, TV, computer games, books, sport etc. The company is careful to be selective with such relationships. In the first instance there needs to be some relevance of the tie-in. In the case of Harry Potter, for example, it was the important presence of the Hogwarts Express steam locomotive that made it a natural association for Hornby. With the Thomas the Tank Engine stories, which centre around an ensemble of character steam engines, it was a marriage made in heaven. The classic British movie The Italian Job, involving three Minis, themselves an iconic British motor car, was also a great match for the Scalextric brand, as is the James Bond movie Quantum of Solace and the cars it features. Additionally, the company is keen to ensure that the interest is something that will be sustained over a period of time rather than being very short-term. Nevertheless, this strategy has been criticised by some as being too commercial or diluting the traditional brand. In its defence, Hornby can readily use the results to more than justify the approach, while still achieving its core aim of appealing to children, the serious enthusiast and collector alike. Something like Harry Potter is likely to appeal to younger customers, who will then start a long-term interest in and affiliation to the brand which may continue throughout their lives. One of the earliest forays into licensing was the highly successful arrangement created in 1983 with the Thomas the Tank Engine series. The original books are considered modern classics and the animated childrens TV programmes have inspired a vast array of related products. Creating high-quality replicas for use on the
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Hornby 00 gauge track was an inspired extension to the merchandise. However, during the 1990s the range needed to be revitalised with the introduction of newer versions and additional subsidiary products, to capitalise on a fresh wave of popularity of the childrens TV programmes, as Thomas was introduced to yet another generation. More recently, Hornby was granted a licence to produce a model Hogwarts Express based on the train featured in the Harry Potter stories. Harry Potter is a worldwide phenomenon appealing to children and adults alike. Growing out of the success of books and films has come a vast range of official merchandise. Not only has the franchise proved very lucrative to Hornby, it has also been regarded as a sign that the company (and in particular the Hornby brand name) has been successfully reestablished. The opportunities to continue to sell to those customers who bought their first model train out of interest in the film are considerable over many years. In November 2010, Hornby announced a partnership with the Royal Mint linked with the Olympic Games held in the UK in 2012. Hornby agreed to make the special edition coins associated with the games available through its own chain of retail outlets. This is regarded as an excellent opportunity to leverage its widespread distribution network and attract new customers into stores, in the hope they may be encouraged to purchase other items. Additionally, Hornby is launching its own Olympics products, including collectable Corgi cars, replicas of the games mascots and a special Hornby train. Hornby initiated an ongoing campaign in January 2011 for a series of die-cast London taxis decorated with images that showcase the 2012 Olympic and Paralympic games. Other related merchandise will include London buses, a Mini, Concorde, various versions of the games mascots Wenlock and Mandeville, keyrings and a Scalextric cycling race set. The campaign will include major TV advertising. The Toy Story 3 mini Scalextric was one of Hornbys biggest sellers in the first six months of the financial year 2010/11. The model railway franchise was also hugely popular with younger children. In a similar fashion the company has secured the rights through its Scalextric brand to produce a racing set that ties in with the Simpsons cartoons, something that is loved by people of all ages. Launched in 2011, Hornby has secured the licensing rights for Olly the Little White Van. This is a character from a new childrens animation series screened in the UK from September of that year. The four-year deal includes the rights to produce a range of merchandise under both the Hornby and Scalextric brands, with die-cast models, figures, play-sets and jigsaw puzzles to tie in with the series. In addition to licensing and product tie-ins of this kind, Hornby has continued to innovate in the features of its leading brands. One of the more recent introductions, for example, has been the launch of the Hornby Virtual Railway, which enables the user to design track layouts, buildings and scenery as a planning tool prior to building the real thing. It has also proved popular as an absorbing activity in its own right, creating a virtual reality on a computer. Another technology-led product is the Scalextric race management system, to be used alongside the track to monitor the movement and performance of the racing model vehicles. Hornby has also launched a new range of 00 gauge locomotives under the banner Live Steam. These retail at a much higher price than the standard electric trains and are targeted at the serious adult enthusiast. An on-board electrical heat exchange produces a real steam effect that not only sends puffs of white steam out of the
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engines funnel but also powers the drive mechanism that propels the train down the track. Another new feature is digital sound. For the first time model trains can produce authentic train sounds, including klaxons, bells and engine noises. Hornby Visitor Centre In July 2010, the company opened a museum and attraction centre at the site of its headquarters in Margate, UK. By the end of September 2010, it had already received over 10,000 visitors. The Hornby Visitor Centre offers visitors a fascinating journey through the history of Britains best loved toys, covering not just the Hornby range but also Scalextric, Airfix and Corgi. Attractions include working layouts, demonstrations of new products, interactive models, a museum of original products and a large and well-stocked shop. There is also a Corgi heritage centre in Lancashire. Marketing Hornby has an online store which also features discussion forums for enthusiasts and collectors. The internet provides Hornby with the opportunity to offer attractive access points for brand promotion. The growth in childrens media particularly on television channels also provides Hornby with licensing and promotional opportunities. The company has recently expanded its digital presence by creating social networking sites in Facebook and tapping into the popularity of YouTube and Twitter. The Hornby group spends around 80% of its media budget on TV advertising to children, dedicated mostly to its Hornby range (nearly 40%) and Scalextric (nearly 60%). The remaining 20% of its marketing budget goes towards print advertising, a large proportion of which targets the adult enthusiast and hobbyist. The growing trend towards character licensing and related products provides Hornby with the opportunity to ensure that its brand values are promoted. The success of related media, including television and film, will also help to promote these brand values further. Risks In its 2010 annual report, Hornby highlights the following risks: Interest rate risks To fund its activities Hornby relies not just on retained earnings but also on loans from banks, usually in sterling, and subject to variable interest rates. It is able to hedge against some of the effects of large fluctuations. Credit risk The company is exposed to credit risk by the possibility that debtors may not pay on time or in full. It manages this risk using appropriate credit management processes as well as insuring itself against large losses. Liquidity risk Like all organisations, Hornby is exposed to the risk of running short of cash needed to meet its immediate liabilities. Having access to revolving credit and overdrafts enables it to mitigate against this risk. It has also been able to reduce the amount of borrowing over recent years.
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Foreign currency risk Hornby makes a significant amount of its purchases in Hong Kong and US dollars. Interest rates fluctuate and there may be adverse variances. It uses forward exchange contracts in order to fix prices at the exchange rate prevailing at the point of entering a contract, rather than at the time of payment. It also makes transactions in sterling where possible. UK market dependence A high proportion of its sales are from the UK market. It aims to expand its international operations to reduce this reliance. Some of its acquisitions (including Electrotren, Rivarossi, Lima, Jouef, Airfix, Humbrol and Corgi) have particular appeal in Europe and are part of the strategy of reducing the dependency on UK sales. Market conditions Economic conditions affect customers willingness to buy and so erode retailer confidence. Hornbys annual plans reflect realistic forecasts based on economic projections. Overseas suppliers Hornby has been reliant on Sanda Kan, a large supplier in China. The products are usually cheaper than they would be from higher-wage economies, creating a price advantage for Hornby. However the manufacturer supplies a number of other customers and so there may be delays in the fulfilment of orders placed by Hornby for new or existing products. Sanda Kan may also decide to use its influential position over Hornby by raising its prices. Hornby has been establishing relationships with a number of additional suppliers, to address these potential problems. Product compliance The regulation surrounding toy safety is understandably very stringent in Hornbys primary markets. Failure to meet those standards could result in fines by regulators, reputational damage and legal action against the company for injuries caused. It therefore has a range of measures to ensure it remains compliant and that its suppliers adhere to the appropriate requirements. Competition The company faces competition for all of its product ranges. However it has the advantage of well-known brands, often recognised as market leaders in their segment. It also takes great care to protect those brands while keeping them fresh with innovative product development. It is quite difficult for new entrants to compete in the same markets, as capital costs are high and customers remain loyal to brands. In addition, new items from alternative suppliers may not be compatible with existing systems. Second-hand market The strong second-hand market for Hornby toys and games and distribution through websites such as eBay may dilute primary sales. Corporate social responsibility Hornby is committed to ensuring the safety of its employees and customers. It is also careful to provide fair terms and conditions for staff. In particular it is mindful of the risks associated with using third-party manufacturers with respect to issues such as health and safety as well as child labour, and so it works with them to ensure compliance with the Code of Business practices set by the International Council of Toy Industries.
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The company endeavours to observe best practice with regard to sustainability and environmental stewardship. The future As a company that specialises in hobby and interactive products, Hornby is well placed to benefit from the increased interest in toys that contribute to a childs educational development. In addition, the growing trend to more involving hobbies, such as train sets, and the increased popularity of collectable ranges are further features of the market that complement Hornbys brand strategy. New electronic elements have created the opportunity for Hornby to invest in the development of more interactive and sophisticated toys, and have also been used by the company to revive some of its established products. The nostalgia-driven demand from parents to relive their childhood play through their children will further serve to popularise the products for which the company is famous. Hornby is proactively pursuing opportunities arising from the strong media presence of character-licensed products. Its brand has a strong media presence and its continued commitment to investing in high levels of branding and new product development will help to ensure that it maintains its unique position as the famous UK brand leader in the model railway market and a major competitor in the provision of other types of toys and games.
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Sources and references used www.northcote.co.uk/company_links/alpha.asp?SIT=1&ALR=H&SDL=NI01401 www.hornby.com/about-hornby/ http://www.investegate.co.uk/article.aspx?id=201011120700080520W http://online.hemscottir.com/ir/hrn/pdf/ar2010.pdf www.toynews-online.biz http://www.channel4.com/programmes/100-greatest-toys-with-jonathan-ross
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APPENDIX ONE International trade of toys and games in the UK, 2005-2009 Imports m 2005 2006 2007 2008 2009 3,913 4,149 4,906 5,394 5,425 Exports m 1,039 1,069 1,267 1,349 1,406 Balance m -2,874 -3,080 -3,639 -4,045 -4,019
Source: Redacted from Mintel, Toy Retailing, Retail Intelligence, December 2010 APPENDIX TWO UK retail value sales of toys and games, 2005-15 At 2010 prices m 2005 2006 2007 2008 2009 2010 (est) 2011 2012 2013 2014 2015 2,831 2,839 2,730 2,425 2,190 2,171 2,133 2,070 2,001 1,933 1,865 % annual change
n/a +0.3 -3.9 -11.2 -9.7 -0.8 -1.8 -2.9 -3.3 -3.4 -3.5
Source: Redacted from Mintel, Toy Retailing, Retail Intelligence, December 2010
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APPENDIX THREE Sources of imports of toys and games to the UK, 2005-2009 2005 % 42.3 17.6 7.2 1.7 6.7 2.2 3.2 0.1 2.4 3.4 13.2 100.0 2006 % 36.4 14.2 8.6 1.8 5.3 2.2 1.7 0.8 1.4 2.0 25.6 100.0 2007 % 48.2 16.0 10.7 2.5 5.7 1.8 1.4 0.8 1.4 1.9 9.6 100.0 2008 % 43.4 17.5 13.3 2.6 5.8 1.4 1.4 1.3 1.3 2.1 9.9 100.0 2009 % 41.0 18.3 13.1 3.4 4.8 3.3 1.5 2.1 1.0 2.0 9.5 100.0
Country China Hong Kong Germany Irish Republic US including Puerto Rico Netherlands France Czech Republic Italy Taiwan Other Total
Source: Mintel, Toy Retailing, Retail Intelligence, December 2010 APPENDIX FOUR The Total UK Market for Traditional Toys and Games by Product Sector by Value at Current Prices (m at rsp and %), 2009 Value (m at rsp) Infant/pre-school toys and games Activity toys Outdoor and sports and games Games and puzzles Dolls Action toys Vehicles Electronic toys Plush toys Other products Total
rsp retail selling price - does not sum due to rounding Note: electronic games are excluded.
% of total 19.7 14.2 11.8 10.9 10.6 9.2 7.7 5.6 4.1 6.3
100.0
413 297 247 228 222 193 161 117 86 131 2,095
Source: Toys & Games, Key Note Ltd 2010
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APPENDIX FIVE The UK Population by Age Band (000), 2010-2014 % Change 20102014 1.1 10.2 -4.3 2.2 -2.8 9.9 -7.5 5.9 -1.2 2.7
Age 0-4 5-9 10-14 0-14 15-24 25-34 35-44 45-54 55-64 All ages*
*[sic]
2010 3,840 3,439 3,561 10,840 8,223 8,190 8,840 8,533 7,311 62,222
2011 3,883 3,508 3,500 10,891 8,191 8,385 8,660 8,705 7,330 62,649
2012 3,901 3,603 3,433 10,937 8,155 8,603 8,460 8,853 7,225 63,074
2013 3,888 3,711 3,402 11,001 8,078 8,826 8,295 8,952 7,192 63,498
2014 3,882 3,789 3,409 11,080 7,994 8,998 8,179 9,033 7,226 63,921
APPENDIX SIX Expenditure on Toys and Games in the Past 12 Months by age of Children (% of Adults), 2008/09 Less Than 50 8.9 7.9 6.5 3.9 3.4 2.0 200 or more 1.0 2.0 1.5 1.0 1.2 1.3
Age of Children Under 2 years 2-4 years 5-7 years 8-9 years 10-12 years Over 13 years
Nothing 2.8 2.6 3.1 3.9 4.1 4.5
50 - 99 3.0 3.8 3.6 2.4 1.8 1.2
100-199 1.6 2.5 2.4 1.6 1.3 1.0
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APPENDIX SEVEN Main Media Advertising Expenditure on Toys and Games (000), Years Ending March 2009 and 2010
2009 Major brands Sub-threshold brands Total Source: Toys & Games, Key Note Ltd 2010 APPENDIX EIGHT 84,775 7,487 92,262
2010 69,535 6,446 75,981
% Change -18.0 -13.9 -17.6
Consumer expenditure on toys and games in the UK compared with other areas, 2005-2009
%
2005 m Toys and games Confectionery Childrenswear Childrens books Video games and consoles Pre-recorded video and DVD sales and rentals Pre-recorded music* Childrens magazines & comics Childrens footwear *includes downloads 2,210 7,617 5,200 489 1,783 2,716 1,847 101 941
2006 m 2,255 7,719 5,400 444 2,055 2,555 1,634 111 940
2007 m 2,303 7,991 5,112 545 2,476 2,650 1,392 129 938
2008 m 2,188 8,286 4,949 503 2,700 2,562 1,309 136 961
2009 m 2,068 9,105 5,000 515 2,295 2,541 1,300 125 964
change 200509
-6.4 +19.5 -3.8 +5.3 +28.7 -6.4 -29.6 +23.8 +2.4
Source: Mintel, Toy Retailing, Retail Intelligence, December 2010
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APPENDIX NINE Company Turnover (000) Pre-Tax Profit (000) 119 399 292 450 1,608 1,541 1,664 8,353 1,013 454 -88 -2,174 324 1,168 48 -1,006 1,050 52 -11,312 5,400 39 -98 -276 7,539 154 -227 231 516 1,461 9,755 762 116 5,215 35 -507 328 193 -463 244 18 -387 123 6,723 79 1,076 -2,232 -1,406 Year End
AB Gee Of Ripley Ltd Accessories 4 Technology Ltd Acre 689 Ltd The Amerang Group Ltd Artsana UK Ltd Astra Games Ltd Bachmann Europe PLC Bandai UK Ltd The Bear Factory Ltd Binney & Smith (Europe) Ltd Brightminds Ltd The Character Group PLC Cassidy Bros PLC Cesar UK Ltd Corhold Ltd Corporal Ltd Dacta Ltd Deluxebase Ltd The Disney Store Ltd Early Learning Centre Ltd The Entertainer (Amersham) Ltd First (UK) Ltd Flair Leisure Products PLC Games Workshop Group PLC Gaugemaster Controls Ltd Gosh International PLC HP Gibson & Sons Ltd Halsall Toys Europe Ltd Hamleys Of London Ltd Hasbro UK Ltd Hawkins Bazaar (Shops) Ltd The Hobby Co Ltd Hornby PLC Imagination Dvdi Ltd Inspirationworks (UK) Ltd Intertek Labtest UK Ltd Jumbo Games Ltd Leap Frog Toys (UK) Ltd Lego Co Ltd Magic Worlds Toys Ltd Manhattan Toy Europe Ltd Marketing & Promotional Services Ltd Mattel UK Ltd Meccano Toys (UK) Ltd Mega Brands Europe Mga Entertainment (UK) Ltd Million21 Ltd
11,607 10,556 4,361 23,625 11,742 16,283 13,814 39,729 18,833 14,283 2,726 68,622 3,897 6,701 15,170 45,613 11,359 845 100,268 183,700 52,099 539 30,742 125,706 3,217 874 3,522 29,554 40,888 136,315 29,498 6,319 64,736 1,996 1,648 8,032 6,431 16,111 58,043 1,039 2,981 2,514 78,533 4,119 11,068 22,955 2,085
31/03/09 31/08/09 31/12/08 31/12/08 31/12/09 31/12/09 31/12/09 31/12/09 03/01/09 31/12/08 30/06/09 31/08/09 30/04/09 31/03/09 31/12/09 27/03/10 30/09/09 31/12/08 03/10/09 28/03/09 31/01/09 31/12/08 30/06/09 31/05/09 30/06/09 28/11/09 30/06/09 31/03/09 27/03/10 28/12/08 30/06/09 31/03/09 31/03/10 31/12/08 31/12/08 31/12/08 31/12/09 31/12/08 31/12/08 31/03/09 31/12/08 31/12/08 31/12/09 31/03/10 31/12/07 31/12/08 30/09/09
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Company
Turnover (000)
Pre-Tax Profit (000) 53 54 57 30 526 30 2,132 276 -3,575 -676 -151 919 1,181 3,194 -583 218 925 527 819 -2,754 -789 -263 158 1,221 127 797 -3,057 182
Year End
MV Sports & Leisure Ltd Oasis Art & Craft Products Ltd Otherland Toys Ltd Overbreak Europe Ltd Playmobil (UK) Ltd The Playwrite Group PLC Pms International Group PLC The Puppet Co Ltd Racing Champions International Ltd Rainbow Designs Ltd Ravensburger Ltd Smyths Toys UK Ltd Spin Master Toys UK Ltd Sumo Digital Ltd T&G Allan Ltd Tobar Ltd Tomy Uk Ltd Toy Brokers Ltd Toymaster Ltd ToysRUs Ltd Tube Plastics Ltd Vivid toy Group Ltd Vogue Distribution Ltd Vtech Electronics Europe PLC Wild Republic UK Ltd Wilton Bradley Ltd Zapf Creation (UK) Ltd Zintello Merchants Ltd Toys & Games, Key Note Ltd 2010
4,225 12,928 1,122 824 13,157 2,777 35,648 3,162 31,375 4,600 8,494 36,753 12,087 11,523 10,594 23,709 49,027 7,237 54,438 516,321 9,811 103,372 5,702 31,832 2,449 13,907 21,127 8,813
31/01/09 31/12/09 31/12/09 31/03/09 31/03/09 31/12/09 28/11/09 31/03/09 31/12/08 31/12/09 31/12/09 31/03/09 31/12/08 31/12/08 26/09/09 30/06/09 31/03/10 31/12/09 31/01/10 31/01/09 31/12/08 31/12/08 31/03/09 31/03/09 31/12/09 31/12/09 31/12/08 31/03/09
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APPENDIX TEN Channel 4 - 100 Greatest Toys (December 2010)

1 Lego 2 Monopoly 3 Dungeons and Dragons 4 Wii 5 Nintendo consoles 6 Playstation consoles 7 Scrabble 8 Scalextrix 9 Trivial pursuit 10 Gameboy and other 11 Star wars toys 12 Transformers 13 Microsoft X-Box 14 He-Man & Masters of the 15 Cluedo 16 Meccano 17 Hornby train set 18 Connect 4 19 Airfix 20 Action man 21 Matchbox cars 22 Etch a sketch 23 Teddy bear 24 Rubik cube 25 Atari consoles 26 Play-doh 27 Plasticene 28 Subbuteo 29 Spirograph 30 Risk 31 Roller skates 32 Top trumps 33 Yo-yo 34 Teenage mutant ninja 35 Chemistry Set 36 Twister 37 Pokemon 38 Battleship 39 Hot Wheels 40 Mousetrap game 41 Sylvanian families 42 Fuzzy Felt 43 Jenga 44 Frisbee 45 Pictionary 46 Chopper Bike 47 Barbie 48 Mastermind 49 Yahtzee 50 Playmobil Play people 51 Slinky 52 Operation 53 Super soaker water pistol 54 Tamagotchi 55 Game of life 56 Tonka toys 57 Space hopper 58 My little pony 59 Kerplunk 60 Care bears 61 007 Aston Martin 62 Mr Potato head 63 Evel Knievel stunt set 64 Hungry hippos 65 Thunderbirds toys 66 Hula hoop 67 Sindy doll 68 Tiny tears 69 Buckaroo 70 Power Rangers 71 Buzz Lightyear Action 72 TY beanie babies 73 Six million dollar man 74 Furby 75 Escape From Colditz 76 Polly Pocket 77 Simon 78 Cabbage patch kids 79 Weebles 80 Trolls 81 Stylophone 82 Girls world 83 Crossfire 84 Tickle Me Elmo 85 Stretch Armstrong 86 Magna doodle 87 Dr Who Cyberman mask 88 Pop-O-matic Games 89 Clackers 90 Johnny 7 machine gun 91 Beyblades 92 Striker 93 Pippa Doll 94 Peter Powell kites 95 Bratz dolls 96 Major Matt Mason action 97 Ben 10 Action Figures 98 Holly hobbie 99 Teletubbies 100 Raving Bonkers
http://www.channel4.com/programmes/100-greatest-toys-with-jonathan-ross
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APPENDIX ELEVEN Hornby plc Year ended 31 March 2010 Italy Rest of Total Europe segments 000 000 000 5,520 8.5% 6,443 10.0% 64,736 100.0%
UK 000 Revenue 46,451 71.8%
USA 000 2,763 4.3%
Spain 000 3,559 5.5%
UK 000
Six months ended 30 September 2010 Revenue (from external customers)
USA 000
Spain 000
Rest of Italy Europe 000 000
Total Reportable Segments
000
19,768 77.4%
1,164 4.6%
1,193 4.7%
1,723 6.7%
1,700 6.7%
25,548 100.0%
- does not sum due to rounding
www.investegate.co.uk/article.aspx?id=201011120700080520W
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APPENDIX TWELVE Scalextric strikes back in drive to revive fortunes with Star Wars - June 2011 David Robertson - Business Correspondent Photo captions: Scalextric may have meant hours racing cars on the carpet at home, left, but a new range of Star Wars products aims to turn the brand into a global player It is a clash guaranteed to enliven a rainy Saturday afternoon Lewis Hamilton in a 750bhp McLaren versus Luke Skywalker in an anti-gravity landspeeder. This is not Bernie Ecclestone's latest plan to boost Formula One ratings but a Scalextric matchup made possible by the arrival of the Star Wars brand in slot-car racing. Hornby, the maker of model railways, Corgi cars and Airfix models, announced yesterday that it had been granted a licence by Lucasfilm to make Star Wars themed toys for Scalextric. By aligning itself with the Star Wars juggernaut, Hornby is hoping to revitalise the Scalextric brand and bring the racing game to a new audience. Toy industry analysts said that the Star Wars licence would be a massive driver of Scalextric sales, and Hornby's share price shot up nearly 10 per cent to 130p yesterday. The reason for the excitement is that Star Wars remains one of the most important toy brands in the world, even though the first film was released 34 years ago. Star Wars toys generated worldwide revenues of $510 million (311 million) last year, of which UK sales were estimated by analysts to be worth about 48 million. It was the second most popular toy brand in the UK last year after Toy Story. The transformative power of the Star Wars brand has already been demonstrated by Lego, which bought a licence from George Lucas, the movie's creator, about a decade ago. Lego had been struggling to gain the attention of children in a toy market dominated by computer games, but Star Wars and subsequent deals with other movie franchises such as Pirates of the Caribbean turned its fortunes around. Lego's sales grew by 37 per cent to 1.9 billion last year and it is now the world's fourth-largest toymaker. Frank Martin, the chief executive of Hornby, said: "What Lego did is a great lesson to all of us that we cannot rest on our laurels and that our brands can benefit from using films such as Star Wars as a platform to drive future growth." The first Star Wars Scalextric products will be available next year to tie-in with the 3-D release of Star Wars: Episode 1 The Phantom Menace. Hornby said that it expected to produce speeder bikes, X-wing fighters and landspeeders. Frederique Tutt, a toy industry analyst at NPD Research, said: "The mix of X-wing fighters and Scalextric is perfect and this is a huge opportunity for the brand.
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"It is a brilliant combination as dads will remember the original Star Wars movies and their own Scalextric sets, while sons will know the new movies and cartoon series but may not know Scalextric." Hornby has been working on winning the Star Wars licence for the past year, but the deal was not signed until last Wednesday. Mr Martin said that one of the main benefits would be to drive the Scalextric brand into the US, where Hornby has a much lower profile. Although traditionally known for its model railways, Hornby has been expanding its portfolio in recent years. It acquired Airfix and Humbrol in 2006 and Corgi two years later. Many of these famous British toy brands had fallen out of favour but Hornby is looking for ways to make them appeal to new consumers. "We are building a portfolio of recognisable brands that makes us a global player," Mr Martin said. "That depth in our business is what got us to the table with Lucasfilm." Hornby said yesterday that its sales in the year to the end of March had fallen by 1 per cent to 63.4 million because of problems with a supplier in China. Profits fell to 4.1 million. The Times June 2011. Reproduced with kind permission.
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APPENDIX THIRTEEN Innovation UPDATE DIRECT MARKETING Brand loyalty starts from a very early age 10 June 2010 Approaching the children's market can be a minefield, but investing time and funds to get your message across can pay off handsomely. Children's spending power is booming. Marketing consultant Martin Lindstrom estimates children's global purchase influence to be $1.88 trillion (1.29 trillion). Moreover, young people are often seen as early adopters for many digital and direct media technologies, according to last year's Buckingham Report on the commercial world and children. Direct marketers that properly research and execute work targeting children and families may well be able to build future brand loyalty among young people. The Buckingham Report indicates that children exert a lot of influence on their parents' purchasing activity as well as being consumers in their own right. And companies that spend time and money influencing children at a young age could see them retain their custom in the future. But despite all the potential, this is a thorny area for marketers. While not much legislation exists to regulate brands that market exclusively to children, this sector demands that marketers treat this vulnerable demographic in an ethical and responsible way, Any "inappropriate" transgressions end in consumer backlash, as retailer Primark discovered in April when it tried to sell a padded bikini range for seven-year-olds. Earlier this year, Conservative Party leader David Cameron warned marketers, advertisers and shops to "show more restraint in the way they operate" when marketing to children or face further regulation. Before he became Prime Minister, Cameron expressed concern that children were being "treated like adults", adding: "It's high time the children's market and advertisers show much more restraint in the way they operate. We don't want to resort to regulation, but we will make it clear that if business doesn't exercise some corporate responsibility, we will not be afraid to impose it. " Marketers have responded quickly to this threat. Social networking site Facebook, to which users can sign up from the age of 13, is used by many brands for direct marketing activity. The website announced last month that it would be introducing simpler and more powerful controls for sharing personal information, in response to user concerns about privacy. According to Facebook founder and CEO Mark Zuckerberg, these changes will include Facebook not sharing personal information with people or services that users don't want, not giving access to personal information and not selling that information to third parties. Jules Polonetsky, director of the Future of Privacy Forum, cautions: "The message that all companies should be taking on board is that managing their digital identity is critically important to internet users of all ages and backgrounds. As sites, services
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and devices grow increasingly complex, the challenge for Facebook and others is to continue to seek innovations that ensure that privacy tools can be intuitive for users." Caroline Roberts, director of public affairs at the Direct Marketing Association (DMA), advises that the Data Protection Act fails to mention children and that marketing to this demographic is fine, as long as brands go about it in the right way. "It's perfectly legitimate marketing to children of all ages, provided it's suitable. It's knowing what's appropriate and making sure that you are getting proper parental consent where you need to," she explains. Yet to optimise their success rates in the family sector, many direct marketers focus their efforts on parents, who still exercise considerable control over the purchases their children make. The Lateral Group managing director Ruaraidh Thomas, who has worked on the Government's Change4Life campaign, says: "I wouldn't say it never happens, but rarely would you engage directly with a child on a DM programme. Individuals are very sensitive - quite rightly so - about how people talk to their family. The benefits of using DM versus other marketing methods wouldn't warrant the potential effect this could have on brand value." The Change4Life campaign sends direct mail packs containing tips, tools and activities to families to help them to eat better and exercise more. While it wants to reach children, it steers clear of addressing them directly. "It isn't actually engaging with children in the sense that it works with families," says Thomas. "Children come into it because they're being supported by the programme through the contact their parents have with it." Thomas says none of the DM for Change4Life is about telling people what to do; it's about helping people achieve their aims. He says: "We try to understand as much as possible about the data through surveys that families fill out. That helps to drive understanding around specific areas that people might be interested in and has triggered complementary programmes such as Dance4Life, in direct response to consumer needs." Ian Bates, creative director at agency Indicia, agrees that making life easier for parents is becoming an increasingly important "in" for direct marketers looking to engage with the family sector. "A golden rule is don't forget who's paying for all of this, " he notes. "Unless you're talking about kids who are at an age where they are making purchase decisions themselves, your aim is to make things more convenient for the parents." Bates works with online retailer Woolworths.co.uk, focusing on creating marketing programmes appealing to women with families, making certain critical periods such as Christmas feel easier for them to manage. "That marketing technique was very much based around dynamic email, following the customer journey and making it more relevant as that journey continued, so that women saw more and more value in the dialogue," he recalls. As the direct marketing industry continues to expand to encompass new online channels and social media, marketers are increasingly using this space, in which children are often more savvy than their parents, to create brand awareness and
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engage with a younger audience. This sidesteps some of the burdens associated with data capture, used in more traditional forms of DM. Nickelodeon UK marketing director Steven Brabenec explains: "We avoid Facebook because you're not supposed to use it until you're 13 and we know that a lot of our audience is younger than that. But there are quite a few places online now that can provide social interaction specifically targeted at the seven- to 15-year-oId market. It's very much social media with stabilisers on." One of these sites is Stardoll, an online fashion and games community for girls. Children register and are given their own avatar. Brabenec says: "Because it exists online, you can go into the cinema and watch a trailer for a Nickelodeon show or sign up to the Big Time Rush [programme] Fan Club, We then deliver a package to your virtual door that has a Big Time Rush T-shirt, which you can put on your avatar and wear it to walk around the Stardoll site." Another site is Swapit, where children earn "swapit" points and exchange them for virtual stuff. He says: "We can put Nickelodeon content on there that children can watch and earn swapits that they can then use to bid for Nickelodeon goodie bags, for instance." Brabenec used to do email marketing to 70,000 children in the form of the Nick Insider enewsletter, but the implications of collecting data from children - parental consent, double opt-in processes, reminders - were wide-ranging. "You have to be seen to be following best practice, but the task became greater and greater and we had to look at it again. When I set it up four years ago, it was a very different world. Our website wasn't so great then, but it's marvellous now and children are getting everything they need from it. The job the newsletter used to do has been superseded by the website," he says. Brabenec adds that Nickelodeon does send direct mail but this is targeted at parents and is focused on the pre-school end of the sector. "We actively target the parent, but we include stuff that's very much going to be rewarding and interesting to the child," says Brabenec. Similarly, Moshi Monsters (see Client View, page 25) splits its marketing material in order to engage both parents and children on a level that is most appropriate for each. It appears that while some marketers are concentrating on the parental moneymakers, others are entering the new realm of virtual marketing direct to children. Whatever the strategy, marketers have to be careful to walk a fine line between risking appearing too intrusive, and impressing families with well-targeted, useful campaigns that can set up brand loyalty for life. Cooper, Lou. (2010) Brand loyalty starts from a very early age. Marketing Week, 10 June, Vol. 33(24), pp24-26. http://www.marketingweek.co.uk/brand-loyalty-starts-from-a-very-earlyage/3014359.article
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APPENDIX FOURTEEN Out of the doll's house Toy brands have been wary of using digital media to appeal to children, happy with familiar TV ads. But they're starting now to play with the social and technological opportunities 30 June 2010 By Nicola Smith In February the Barbie Facebook page topped 1.7m fans and attracted more than 100,000 Likes, while the doll's Twitter account grew by 5,000 followers to 34,000 (over 17%). Why? Because Mattel ran an emotive social media campaign around reuniting Barbie and long-term love Ken after a shock split in 2004. The Valentine's Day campaign culminated in a Facebook poll that saw people vote on whether the couple should get back together. "You'll be pleased to know they now share a Facebook page," says Jenny Watson, senior marketing manager for girls at Mattel, who believes the company is ahead of the curve when it comes to digital. Despite the UK being the fastest growing of Europe's top five toy markets last year at 6%, according to NPD Group, its take-up of new media has been slow. "The toy industry is relatively parochial in the way it markets," says Gary Pope, director of marketing consultancy Kids' Industries, adding that the sector is reluctant to move away from traditional media, in particular TV. It's a widely held view. David Lawrence, planning director at creative agency Brave, says many toy firms still have an outdated media model that predominantly has TV advertising at its core. But this is changing. David Becker, president of Blue Plate Media Services, affiliate partner to the Toy Industry Association, says, "The move online has been slow as most youth marketers continue to use TV to build awareness of products and content among kids of all ages. However, toy marketers are quietly seeking ways to reach and engage with their audiences online." As brands start to do this, there's a gradual shift towards building integrated campaigns around TV. Mega Brands, which works with digital media agency Media Contacts, has embraced this. In April it launched its Mega Bloks Time to Build campaign, a 60-second interactive TV ad coupled with digital activity focused on pull strategies, including a campaign site, Facebook page and Twitter account. This was supported with search optimisation, a tactic Becker says he's seeing a "significant increase" in as toy brands harness the power of marrying search with TV. "We know that TV drives web use, and kids drive mums," he says. "Search is a growing marketing tactic to employ alongside every TV campaign." According to a recent Google study, 83% of mothers who viewed an ad on TV subsequently searched for that item. Beyond driving sales, there's a growing understanding that integrating digital into the marketing mix offers a massive opportunity to deepen brand engagement and extend the play experience. Mattel is fusing offline with online for a forthcoming event with pop group The Saturdays in London. Codes on product packs will drive girls online to register for the chance to win a ticket, and they'll be able to design dresses for the band online. "Digital is a more engaging way for girls to play with Barbie," says
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Watson. "Barbie is a girl's first opportunity to play with fashion, and digital allows you to bring that to life. The online dress design creates another level for allowing them to do what they truly want to do and what their imagination will allow them to do." Mum knows best While some brands have spotted an opportunity to use digital to engage kids beyond the physical product, parents are equally important when it comes to a toy manufacturer's marketing strategy, and digital has opened up a range of opportunities to reach them. Brave's Lawrence says that because of legal guidelines and social sensitivities - as well as "adults being core purchasers" - digital campaigns should focus primarily on parents. Kids' Industries' Pope agrees, saying, "Perhaps 70% of our work is focused on parents rather than children." Social media is one platform that has created a huge opportunity for toy brands to connect with this audience, an area which is of increasing focus for VTech, manufacturer of electronic learning toys. The company launched an 'I love reading with my kids' Facebook page as part of the marketing for the launch of the Storio ereader "The page has engaged parents through interesting content focused around the benefits of reading with your children," says marketing director Clive Richardson. This year VTech will be broadening the focus of its Facebook page to grow a credible community of advocates. Toy manufacturer Galt Toys recently began working with Energy PR on a social media programme aimed primarily at gauging what parents want for their children. "We've seen an increase in parents creating Twitter profiles in the guise of their child and tweeting as their child rather than with their own voice," says Susannah Morgan, consumer specialist at Energy PR. One of the biggest opportunities within social media is the mummy blogging phenomenon, a trend reflected by BritMums, the UK's largest parents' social network and the organisation behind the CyberMummy Conference, which is nearing 3,000 members. Carli Jones, director of social media agency Roost, which works with toy brands, says the UK is following in the footsteps of the US. "The growth of the UK parent blogging scene has been significant in the past 18 months, demonstrating a very vocal, influential and approachable community," she says. Mega Brands has recognised this opportunity. "The importance of one mum's say so to another is extremely strong," says Pete Fuller, UK marketing manager for Mega Brands. "We constantly interact on sites such as Askamum and Madeformums, asking mothers to share information and review products, incentivising them with bespoke offers. What's key with this type of activity is the two-way communication process. We want to hear all mums' views as often as possible so we can make products they want and will buy and recommend." Lego's Duplo brand is also tapping into this, having launched a social media campaign last August aimed at building a relationship with parent bloggers. "Activity has included display ads on key parenting websites, with plans for more this autumn," says Claire Dorrington, Duplo brand manager at Lego. The brand will also be a sponsor at the CyberMummy Conference this month. Richardson says it's more effective to reach parents via a blog or forum. "Here you have an audience that wants to hear and discuss things of interest to parents, so you're halfway there in getting your messages heard," he says.
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Extended play It's not just the growth of digital platforms that has created opportunities for the toy industry to market its wares; the evolution of digital devices has also produced openings. Kids' Industries' Pope says the iPad has been revolutionary. "One of the things children have always struggled with is the mouse because it's an unconnected experience," he says. A touchscreen that children can interact with using their fingers is significantly easier. Entertainment One, the company behind pre-school brand Peppa Pig, has seen such devices open marketing opportunities, with its first iPhone app (launched on the iTunes Store last September) going straight to number one on the Kids Paid App chart. "Peppa Pig's extension into digital technology in the form of iPhone and iPad apps has enabled pre-schoolers to interact with the animation in their own environment in a way not previously thought possible given the young target age group," says Andrew Carley, head of licensing at Entertainment One. According to Cisco, there'll be 15bn web-connected devices by 2015, and Pope says this is forcing change. "There's a belief that the website as we know it is dead or dying, particularly for children. What's replacing it is the app." Hasbro has created a number of apps for its family board games, such as Scrabble and Monopoly, while Mattel has created numerous ones for its Barbie brand, including one that allows girls to create fingernail designs. Energy PR's Morgan notes a similar shift in behaviour. "Through our work with Galt Toys, we see parents downloading apps for their children to play with, which is so easy it'll only grow in popularity as more apps become available and other brands catch on," she says. Carley says the trend is even allowing engagement with another audience. "Apps are affording us access to an audience of fathers who may not have engaged with preschool brands on the same level before," he says. "App technology presents the brand in a format acceptable to men and is a great way to win their endorsement." Smith, N. (2010) Out of the dolls house. New Media Age, 30 June, pp18-20.
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APPENDIX FIFTEEN Top UK toy sites Unique visitors, March 2011*
*Source:ComScore
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CIM Professional Diploma Grade Descriptors Level 6 Grade A This grade is given for work that meets all of the assessment criteria at Diploma level to secure at least 70% and demonstrates a candidates ability to: Concept develop appropriate research strategies for 30% both primary and secondary research selectively identify valid and relevant information from a wide range of sources for the discipline manage own learning independently evidence comprehensive knowledge and understanding of the marketing discipline at Diploma level synthesise and analyse new and/or abstract information and data in the context of wide ranging problems, using a range of appropriate techniques engage in effective debate in a professional manner evidencing a comprehensive understanding and application of key principles produce detailed and coherent arguments in response to well defined and abstract problems using relevant vocational language express ideas persuasively and with originality, applying appropriate marketing terminology and concepts accurately apply a wide variety of illustrative examples to underpin findings supported by references to wider reading and learning resources to exemplify points evaluate findings leading to incisive conclusions and recommendations produce reliable, valid and incisive conclusions and recommendations, based on research findings and analysis plan, review and complete work within the specified deadlines/time allocated an exceptional and professional standard of presentation, format and tone
Grade B This grade is given for work that meets all of the assessment criteria at Diploma level to secure at least 60% and demonstrates a candidates ability to: develop appropriate research strategies for both primary and secondary research identify and select valid information from a suitable range of relevant sources for the discipline manage own learning with minimal guidance evidence detailed knowledge and understanding of the marketing discipline at Diploma level analyse new and/or abstract information and data in the context of broadly defined problems, using appropriate techniques evidence a sound understanding and application of key principles produce logical arguments in response to a given brief using vocational language correctly express ideas clearly, applying appropriate marketing terminology and concepts accurately apply a variety of illustrative examples to underpin findings supported by some references to wider reading and learning resources to exemplify points
Grade C This grade is given for work that meets enough of the assessment criteria at Diploma level to secure at least 50% and demonstrates a candidates ability to: develop an appropriate research strategy for both primary and secondary research identify and select information using a minimum number of resources for the discipline manage own learning with support and guidance evidence a satisfactory level of knowledge and understanding of the marketing discipline at Diploma level analyse information and data in the context of explicitly defined problems evidence a basic understanding and application of key principles produce arguments in response to a given brief using sufficient vocational language outline ideas and concepts using appropriate marketing terminology include some illustrative examples to support findings including minimum references to wider reading and learning resources to exemplify points
Grade D This grade is given for border line work that does not meet enough of the assessment criteria at Diploma level to secure a pass and is within the band 45-49%. This may be due to: an inability to develop an appropriate research strategy for both primary and secondary research insufficient sources of information being used to underpin research an inability to manage own learning effectively repeating case material rather than evidencing knowledge of the marketing discipline at Diploma level a lack of detail and argument when analysing information for a specified task a lack of basic understanding of key principles and limited application insufficient and/or inappropriate use of marketing terminology to explain ideas limited development of ideas or concepts few or no examples to support findings
Application 30%
Evaluation 30%
evaluate findings leading to informative and reliable conclusions and recommendations produce reliable and informative conclusions and recommendations, based on research findings and analysis plan, review and complete work within the specified deadlines/time allocated a high standard of presentation, format and tone Page 36
evaluate findings leading to reliable but limited conclusions produce reliable but limited conclusions and recommendations based on findings complete work within the specified deadlines/time allocated acceptable presentation, format and tone
little or no attempt to evaluate findings superficial conclusions and recommendations which lack depth work not being completed within the specified deadlines/time allowed errors in presentation, format and tone
Time Management, & Presentation 10%
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Moor Hall Cookham Maidenhead Berkshire, SL6 9QH, UK Telephone: 01628 427120 Facsimile: 01628 427158 Website: www.cim.co.uk
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DCVTM d12 Case Study

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Professional Diploma in Marketing

Professional Diploma in Marketing (Level 6)

Case Study December 2012 and March 2013

UK toys and games industry

Delivering Customer Value through Marketing Case Study

Professional Diploma in Marketing

DELIVERING CUSTOMER VALUE THROUGH MARKETING CASE STUDY

Professional Diploma in Marketing

Case Study: UK toys and games industry

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Source: Toys & Games, Key Note Ltd 2010

Professional Diploma in Marketing

Source: Toys & Games, Key Note Ltd 2010

Nothing 2.8 2.6 3.1 3.9 4.1 4.5

50 - 99 3.0 3.8 3.6 2.4 1.8 1.2

100-199 1.6 2.5 2.4 1.6 1.3 1.0

Source: Toys & Games, Key Note Ltd 2010

2010 69,535 6,446 75,981

% Change -18.0 -13.9 -17.6

-6.4 +19.5 -3.8 +5.3 +28.7 -6.4 -29.6 +23.8 +2.4

Source: Mintel, Toy Retailing, Retail Intelligence, December 2010

Professional Diploma in Marketing

Professional Diploma in Marketing

APPENDIX TEN Channel 4 - 100 Greatest Toys (December 2010)

UK 000 Revenue 46,451 71.8%

USA 000 2,763 4.3%

Spain 000 3,559 5.5%

Rest of Italy Europe 000 000

Total Reportable Segments

- does not sum due to rounding

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

Professional Diploma in Marketing

APPENDIX FIFTEEN Top UK toy sites Unique visitors, March 2011*

Time Management, & Presentation 10%

Professional Diploma in Marketing

Professional Diploma in Marketing

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