toys r us - what goes around, comes around

7/28/2019 Toys R Us - What Goes Around, Comes Around

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What Goes Around, Comes

Around

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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, International685 Toys Us & Babies Us Stores

Toysrus.com & Babiesrus.com

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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 Christmasgift 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 withindays dropped Elmos price to $19.99

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Case Methodology

1970s: Toys Us emerges as a toy retailingcategory killer, offering greater productselection and lower prices than its small storecompetition. 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 & becomesthe largest toy retailer. Value Proposition: Rock-Bottom PRICES

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Problem Statement

Toys Us lost the profit that they cant afford inthe 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 sold-out the popular doll at higher price @ $29.99

By Jan. 8, 2004, Eyler and his board were hiringan investment bank to explore strategicalternatives

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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 toWal-Mart

Toys R Us US market share reduced to 15%

Walmart won the 2003 price war with highprofit and strong gross margin

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Immediate Issues

Difficulties to win back the price sensitiveconsumer

Price offered is still high, while Walmart

offering the vast range of cheap toys with oneroof shopping concept

Despite big sales, Toys R Us is still postingloses

Toys R US leaders not embrace Walmartsinevitable

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Alternatives to the issues

Toys R Us needs to give people a reason tocome to the stores instead of just cheap toys e.ggood customer service, product innovation,

conveniences etc

Toys R Us need to evaluate their pricingtechniques

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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 inprice war why they are able to give very low price etc

Try another alternative rather than narrowly cutthe 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 ofhaving 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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Factors affecting Pricing Decisions

PRICING

DECISIONS

ORGANISATIO

NAL &

MARKETING

OBJECTIVES

PRICING

OBJECTIVESCOSTS

OTHER

MARKETING

MIX

VARIABLES

CHANNEL

MEMBER

EXPECTATIONS

BUYERS

PERCEPTIONSCOMPETITION

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 youdo 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 valueconsumers place on the benefits they receive

from the product and setting a price that capturesthat 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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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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Marketing Mix Strategy:

Price decisions must be coordinated with product

design, distribution, and promotion decisions to

form a consistent and effective marketingprogram.

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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External Factors Affecting Pricing Decisions

The Market and Demand:

Costs set the lower limit of prices while themarket 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

When to Use: Products quality and

image must support its

higher price. Costs of low volume

cannot be so high theycancel the advantage ofcharging more.

Competitors should notbe able to enter marketeasily and undercut theprice.

Market Skimming: Set a high price for a

new product to skimrevenues layer by layerfrom the market.

Company makes fewer,but more profitablesales.

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New-Product Pricing Strategies

When to Use:

Market is highly pricesensitive so a low priceproduces more growth.

Costs must fall as salesvolume increases.

Need to keepcompetition out oreffects are onlytemporary.

Market Penetration: Set a low initial price in

order to penetrate the

market quickly and

deeply.

Can attract a largenumber of buyersquickly and win a large

market share.

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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 mainproduct (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 becompare.

Made their own toys to become unique one. E.g.customer cannot compare price with Wal Mart if all toyare 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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toys r us - what goes around, comes around

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