What Goes Around, Comes Around

Brief History of
In 1948 Charles Lazarus opened Childrens Supermarket a private In 1958, Adopted super market model and named Toys Us In 1960, Geoffrey and a catchy jingle Became public 1978
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Brands
Toys Us , Inc. is one of the leading retailers of toys and baby products with more than 1,500 toy and baby specialty stores worldwide.
Toys Us, U.S. 586 Stores throughout the U.S Babies Us 254 Locations Nationwide Toys Us, International 685 Toys Us & Babies Us Stores Toysrus.com & Babiesrus.com

Product Description, Target Market & Positioning Strategy

Worldwide specialty retailer of toys, baby products & childrens apparel Target market is for Kids and Babies Positioned as "the Worldwide authority on kids, families and fun - believes in providing a happy shopping experience to customers with the biggest selection of toys and baby products priced to offer best value for money
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Situation
Hokey Pokey Elmo was a popular Christmas gift for Toddles in 2003 Oct 2003, Wal-Mart surprised its competitor by dropping Elmo's price from $25 to $19.50, a $4.50 below what retailers had paid for it. To protect its long term market share & compete with Wal-Mart, Toys Us within days dropped Elmos price to $19.99

Case Methodology
1970s: Toys Us emerges as a toy retailing category killer, offering greater product selection and lower prices than its small store competition.
Value proposition : Selection, convenience & low price Capture 25% of US toy market

Late 1990s: Wal-Mart Emerges as toy retailer, offer pricing lower than Toys Us & becomes the largest toy retailer.
Value Proposition: Rock-Bottom PRICES
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Case Methodology (cont) Toys Us tries price matching and fails miserably, losing sales, profit, and market
2006: New owner closes nearly 100 stores to cut costs Implementing new strategy focus on topselling, higher margin or exclusive items, store atmosphere, shopper experiences, and customer service.
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Problem Statement
Toys Us lost the profit that they cant afford in the price war started by Walmart in 2003 Our choice was short-term profit vs. market share; we choose to protect the market share [former CEO, John Eyler] CEOs perspective that all store could have soldout the popular doll at higher price @ $29.99 By Jan. 8, 2004, Eyler and his board were hiring an investment bank to explore strategic alternatives
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Immediate Issues
5% drop in sales @ new Toys Us stores Net income for the 2003 fell 27% In 2005, Toys Us lost its position as Largest Toy Retailer leading 25% market share in US to Wal-Mart Toys R Us US market share reduced to 15% Walmart won the 2003 price war with high profit and strong gross margin

Immediate Issues
Difficulties to win back the price sensitive consumer Price offered is still high, while Walmart offering the vast range of cheap toys with one roof shopping concept Despite big sales, Toys R Us is still posting loses Toys R US leaders not embrace Walmarts inevitable
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Alternatives to the issues

Toys R Us needs to give people a reason to come to the stores instead of just cheap toys e.g good customer service, product innovation, conveniences etc Toys R Us need to evaluate their pricing techniques

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Alternatives to the issues (cont.)

Toys R US should also : More focus on customer value perceptions Evaluate on companys ability to recover IF the pricing strategy failed what is effect to the company,
contingency plan etc

Understand more on competitors advantages in price war why they are able to give very low price etc Try another alternative rather than narrowly cut the price to the throat aggressive branding, product &
store innovation, service enhancement etc
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What Is a Price?
Price defined: Specifically: price is the amount of money charged for a product or service More broadly: price is the sum of all the values that consumers exchange for the benefits of having or using the product or service

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Pricing Objectives
the overall goals that describe what the firm wants to achieve through its pricing efforts The objectives must be consistent with the companys overall mission and purpose

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Additional Pricing Strategies

Company survival Maximum Current Profit Maximum Current Revenue Product-Quality Leadership Maximum Market Skimming Maximum Sales Growth

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Factors affecting Pricing Decisions

ORGANISATIO NAL & MARKETING OBJECTIVES OTHER MARKETING MIX VARIABLES

PRICING OBJECTIVES

COSTS

PRICING DECISIONS

CHANNEL MEMBER EXPECTATIONS

BUYERS PERCEPTIONS

COMPETITION

LEGAL & REGULATORY ISSUES

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Price Guidelines
Dont overestimate the importance of price Value for money Is price a barometer of Quality Beware of dealing with the lowest bidder If you deal with the lowest bidder it is wise to add something for the risk you run. And if you do that you will have enough to pay something better
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Price Determinants

CUSTOMERS COMPETITION

COSTS

The Three Cs
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Major Considerations in Setting Price

Customer perceptions of value Other internal and external considerations
Marketing strategy, objectives, mix Nature of the market and demand Competitors strategies and prices

Product costs

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Customer Value Perceptions

Customer-oriented pricing:
Involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value.

Value-based pricing:
Uses buyers perceptions of value, not the sellers cost, as the key to pricing.
Good value pricing Value-added pricing
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Internal Factors Affecting Pricing Decisions

Company and Product Costs:
Fixed Costs:
Costs that do not vary with production or sales level.

Variable Costs:
Costs that vary directly with the level of production.

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Cost-Based Pricing
Cost-plus pricing
Adding a standard markup to the cost of the product

Break-even pricing Target-profit pricing

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Internal Factors Affecting Pricing Decisions

Marketing Objectives:
Company must decide on its strategy for the product. General pricing objectives:
Survival Current profit maximization Market share leadership Product quality leadership

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Internal Factors Affecting Pricing Decisions

Marketing Mix Strategy:
Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program. Target costing:
Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.

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Internal Factors Affecting Pricing Decisions

Organizational Considerations:
Must decide who within the organization should set prices. This will vary depending on the size and type of company.

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External Factors Affecting Pricing Decisions

The Market and Demand:
Costs set the lower limit of prices while the market and demand set the upper limit. Pricing in different types of markets:
Pure competition Monopolistic competition Oligopolistic competition Pure monopoly

Analyzing the price-demand relationship The price elasticity of demand

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External Factors Affecting Pricing Decisions

Competitors Strategies and Prices
How does the market offering compare? How strong is competition and what is their pricing strategy? How does competition influence price sensitivity?

Other External Factors

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New-Product Pricing Strategies

Market Skimming: When to Use:
Products quality and image must support its higher price. Costs of low volume cannot be so high they cancel the advantage of charging more. Competitors should not be able to enter market easily and undercut the price.
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Set a high price for a new product to skim revenues layer by layer from the market.

Company makes fewer, but more profitable sales.

New-Product Pricing Strategies

Market Penetration:
Set a low initial price in order to penetrate the market quickly and deeply. Can attract a large number of buyers quickly and win a large market share.

When to Use:
Market is highly price sensitive so a low price produces more growth. Costs must fall as sales volume increases. Need to keep competition out or effects are only temporary.

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Product Mix Pricing Strategies

Product line pricing Optional-product pricing Captive-product pricing By-product pricing Product bundle pricing

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Product-Line Pricing
Involves setting price steps between various products in a product line based on:
Cost differences between products Customer evaluations of different features Competitors prices

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Optional- and Captive-Product Pricing

Optional-Product
Pricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator).

Captive-Product
Pricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors).
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By-Product and Product Bundle Pricing Strategies

By-Product Pricing
Pricing low-value by-products to get rid of them (e.g., animal manure from zoo).

Product Bundle Pricing

Pricing bundles of products sold together (software, monitor, PC, and printer).

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Recommendation
Analyzing Competitors cost, prices, and offer Promotional pricing to stimulate early purchase Cutting down fix cost, expenses and to have cheaper supplier Trying to introduce some new products which couldnt find at other supermarket so that the price could not be compare. Made their own toys to become unique one. E.g. customer cannot compare price with Wal Mart if all toy are their own brand.

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Suggestion to Differentiation
Enhancing product offering and adding more exclusive mix products Renovating the toy store to freshen and enhancing shopping experience Reorganizing the store management teams into merchandise Worlds and improving customer service

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Are there any questions?

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