INTERNATIONAL MARKETING PLAN TOYS `R` US INC.

Toys ‘R’ us8

INTERNATIONALMARKETING PLAN: TOYS ‘R’ US INC.

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InternationalMarketing Plan: Toys ‘R’ Us Inc.

Abstract

Toys‘R’ Us Inc. is a multinational toy and baby products retailer forchildren below four years old. It was founded in 1948 in New Jersey.Its main products include educational electronics and developmenttoys games, construction toys, seasonal products, creativeactivities and imagination products among other related products andservices. The company operates 1871 stores internationally. However,over 62 percent of the 2016 income and profit was attributed to itbusiness within the US market alone. Also the entrance of otherpurely toy retailers and retail stores like Wal-Mart and Tescocoupled with an aging population and falling birth rates has resultedin reduced profitability for the business. This has prompted researchinto four new emerging international markets for the company toselect a new destination for its products in either, India,Sri Lanka, Nigeria, and Russia.

1A.Environment Analysis using PESTLE

Political

Thetoy industry is not very restricted in any country. However, laws arecurrently being developed in the different countries to ensureconsumer protection on among other things, safety regulations, agelimits, and level of supervision. The four potential countries havebusiness laws that govern them that are not individual to the toyindustry. Business entrance by a foreign company into thesecountries must comply with the individual laws of the country withthat regard.

Economic

Accordingto a December 2016 report produced by The NPD Group and InternationalCouncil of Toy Industries (ICTI), the toy industry grew by 4 percentto close at $87.4 billion in 2015. The same report projects that in2016 the industry will surpass the $90 billion mark. Russia has thehighest GDP per capita income (PPP) at $ 18,100 followed distantly bySri Lanka at $6,500 (Index Mundi, 2017). India and Nigeria have thelowest per capita incomes in the countries of the four potentialtarget markets as seen in Appendix 1. Among the potential targetmarkets, only Russia appeared as the fifth in the world in a list ofcountries’ average per child spending on toys at $300 per child.The volatile inflation and exchange rates across the global marketshave negatively affected the toy industry.

Social

Indiahas the highest population of the four countries followed by Nigeria,Russia, and Sri Lanka respectively. However, our target marketincludes children under the ages of four years. Given the countriespopulations, their birthrates and the infant mortality rates in thecountries of interest will help us estimate the number of children inthe individual countries as seen in Appendix 1. The population trendpersists in the number of children in the potential targets withIndia leading with approximately 25.56 million children. It isfollowed by Nigeria, Russia and Sri Lanka with 6.76, 1.69, and 0.34million respectively. The aging population, increasing divorce rateand the woman’s role in the family are some of the most notablesocial influences on the toy industry.

Technological

Theglobal technological climate has greatly favored the toy industry inseveral ways. Technological advancement has proliferated into the toymaking machines that have evolved to become more efficient in allmanners. This has led to the faster manufacturing of better qualitytoys at a lower cost. The ubiquitous internet and higher smart-phonepenetration across the globe have enabled more effective marketing oftoys and increased the reach of the market.

Legal

Theglobal Toy industry is expected to grow after the passing of theInformation Technology Agreement by the WTO in July 2016. Thisagreement grants a duty-free status to additional 200 informationtechnology products that include certain types of electronic toys. Toys such as learning devices, video game consoles, games operatedusing payment and those that are used with a television, received thenew status (ICTI, 2016). This is expected to reduce shipment costsfor toy companies and also grow the size of the market.

Environmental

Thetoy industry contributes an immaterial amount of waste to affect theenvironment negatively. However, there are some acceptable guidelineson environmental protection. Some markets may require themanufacturer to specify the collective mode of disposal for theirtoys after the end of their useful life. Eco-friendly packagingmaterials are also encouraged in some markets.

1B.Market Analysis using Porters 5 Forces

Thesuppliers of Toy R Us Inc. include toy and other baby productmanufacturers. The company does not have exclusivity contracts withtheir supplier. This gives the suppliers some negotiating power giventhe increasing number of retailers that offer them alternativemarket. In 2011 the company was asked to pay 1.3 million as a penaltyfor asking their suppliers details of their sales to other retailers,which was prohibited in the USA. Despite the increased customernumbers in the industry, there is a proportional or higher change inthe level of competition in the form of retail outlets for similarproducts. The buyers have also increased their bargaining power dueto the availability of numerous outlets in general retail stores likeWal-Mart and the emerging specialty competitor retail storesglobally.

Wal-Martsurpassed Toys ‘R’ us Inc as the leading toy and childrenproducts retailer in the US. Other retail giants like Tesco, Target,ASDA, Costco’s and even e-commerce giant Amazon have challenged theposition of the company in the global toy market. This is becausethey attract clientele using other products that purely toy specificretailers lack and thus threaten the existence of these stores likeToys ‘R’ us. The general retail outlets also use customer loyaltyto attract their loyal customers for the other products in the toyand children product segment. Amazon has even challenged the broadrange of products advantage that the company boasted within theindustry.

2A.Analysis of Toys ‘R’ Us Inc. using Porters Value Chain

PrimaryActivities

InboundLogistics

Suppliesare received by the company centrally at distribution facilitiesbefore distribution to the stores. &quotIn-Store Pick Up,&quot&quotShip from Store “and” Ship to Store&quot strategies, hasled to the use of the available stock in stores to fulfill onlineorders. This means that supplies from the central distributionfacilities to the store locations will be increased considerably tosupplement depleted inventory levels used to support the onlineorders and avoid stock out. The delivery of inventory from thewarehouse / central distribution to the store is out-sourced to BHunt Transport and Performance Team Freight Systems.

Operations

Thecompany operates approximately 1871 toy and children products storesin at least 38 countries globally. Initially, the company operatedseparate stores for toys and other children products. However, thenew strategy intends to combine them for the synergy. The stores willrequest for replenishment of stock from the central stores. Thestores will use this inventory to fulfill walk-in sales and otherchannels especially the online orders. A worker has the right to usea toy that is on the shelf to fulfill an online order. To strengthenits e-commerce platform, Toys ‘R’ us Inc partnered with Amazon,which is also its emerging competitor especially in having a broaderproduct range.

OutboundLogistics

Thenew strategy that incorporates the e-commerce side of the businessinto store operations converts them to be ‘outbound distributioncenters.’ In-Store Pick Up,&quot &quotShip from Store “and”Ship to Store&quot strategies ensure that the closest store fulfillsonline orders from their locations to reduce the distance and thetime required to effect a delivery. The numerous store outletsglobally guarantee that it will be faster and more efficient to usethem as dispatch points for online orders. This strategy may benecessary to avoid the 1999 Christmas delayed deliveries situationbut threatens the stores’ walk-in businesses.

Marketing&amp Sales

Thecompany uses several channels to market its products including directmails to loyalty program members, e-mails, print media, andtelevision and radio advertisement spots. Targeted door-to-doordistribution and in-store marketing also form part of the company’smarketing. The new strategy wants to mix all the company productsinto individual stores to markets the other products like babyproducts to toys customers – possibility of cross-selling. Salesare also conducted through multiple channels including the multiplephysical stores, online marketing, and mobile phone orders areaccepted in some areas.

Services

Toys‘R` Us has a policy that allows sales – especially online to bereturned by customers upon fulfillment of the conditions in thecompany’s return policy. The store also offers their customers astore locating services – store finder based on the client’sdistance to the closest physical store. The store also has a systemin place to alert the customers whenever an item that was previouslyout of stock is in stock at the store or online. This ensures thatthe business does not move to the competitor’s stores consideringthe level of competition

SecondaryActivities

FirmInfrastructure

Toys‘R’ us Inc has a central system of ordering its products, whichare to be sent to the distribution centers for dispatch to storelocations internationally. The company has a total of eighteendistribution centers – eight to support the US market and ten forthe international market. The stores serve the physical walk-incustomers as well as fulfilling online orders.

TechnologyDevelopment

Theopportunities created by technology within the toy industry have beenpositively received by the company. However, it is accompanied withits fair share of competition. The company has embraced e-commerce asa critical part of the business. Online advertisements and marketinghave become essential in the modern business environment. However,competition from online stores like Amazon, have however threatenedits market position.

HumanResource Development

Inthe recent past, Toys ‘R` us announced that it was cutting back onits head office staff by 10-15 percent. It resulted in the loss of250 jobs as a cost-cutting measure as well as to ensure that theimplementation of the new strategy will be supported by employees ofthe expected qualifications. Since 2007 the company has had a totalof four CEO’s which is not normal given it is a fortune 500company.

Procurement

Thecompany sources its products or inventory internationally with somecontracts to support longer contracts. It is, however, open to newersuppliers with more innovative products so as to maintain the broadvariety of products and to attract young parents. Toys ‘R` Us has aprocurement team led by a director. This team researched on products,latest technology, and other supplies and established businessrelationships with the suppliers. The team analyzes the transactionsto the point of delivery of the supplies to the company.

2B.SWOT Analysis of Toys ‘R’ Us

Strengths

• The broad range of products in the company stores cannot be matched to any of its other competitors despite Amazon’s threat.

• Toys ‘R’ us’ the length of business operation and experience within the toy industry is not comparable.

• The company also operates at least 1,871 toy stores and other children products which make them physically present in a lot of global markets.

• The company has a massive online presence with other channels supporting sales. The online orders from the four online stores are fulfilled by the physical stores increasing convenience.

• The long-term logistical relationship with B Hunt Transport and Performance Team Freight System has established a mature distribution channel.

• The company has a huge labor force of well-trained and enthusiastic staff globally

Weaknesses

• A reducing competitive advantage is currently being experienced by the company evidenced by Wal-Mart taking over as the biggest toy retailer in America

• Differentiation strategy is not possible considering substitutes of its main products are easily found in other stores and retail chains.

• The toy business is seasonal, and this is the primary source of income for the company, unlike its other competitors.

Opportunities

• The strategic alliance with Amazon has considerably improved its e-commerce platforms and overall online presence which promises future business for the company.

• The growth of the business into previously untapped markets like the potential target markets that are having broadening middle classes with increased disposable incomes promises a positive going concern assumption.

• The synergy expected from the combination of all the company’s products under one roof in the new stores will attract customer traffic into the stores.

• The company also has the opportunity of marketing themselves through donations and charity as proved by the recent success of recent activities.

Threats

• Increased competition from the general chain stores like Wal-Mart and Tesco. This is in addition to the online competition from e-commerce platforms like Amazon threatens the future of the business.

• The laying off of the 250 head office staff sends a negative feedback the stakeholders and may also attract litigations. It may also result in motivated staff due to the questionable job security.

• The threat from low costs toys manufacturers from China are expected to offer very competitive prices given that differentiation in the toy industry is almost impossible.

• There is a threat of new entrant considering the size of the market and the low entry cost.

3.Target Market Analysis using 12C Framework

Country

Thevalue of India’s toy industry is estimated to be $850 million withat least 1250 mainly small manufacturers. The Sri Lankan governmentdoes not involve itself with commercial businesses much except wherethe international standards on the imports are not adhered to.Nigeria does not have any restriction on toy importation (Ahmed,2014). There is an established toy manufacturer and retailer inNigeria – Auldon Limited. Russia is the fifth highest spender on toysand children products globally on a per-capita basis. Its urbanpopulation – especially in Moscow spends approximately 25 percenthigher on toys and kids products as compare to the rural parts.

Culture

Indiais multilingual with the major religious groups being Hindus followedby Muslims. The Indian is the market is driven by innovation andquality despite price playing a key role. Sri Lanka’s demand forproducts is brand driven. The country’s culture is a mix of thelatest and traditional aspects, and its demand for toys and otherproducts is brand driven. Nigeria is a wealthy country regardingculture and traditions with relatively low literate levels. The menmake the most decisions within the households in Nigeria, a factorfor success in the toy business. In Russia, toys are mostly bought inspecialist stores and the kids between the ages of 3 and six yearsconstitute the biggest market.

Concentration

Indiais the second most populous country in the world and has a populationof approximately 1.3 billion people with 32 percent of them being theurban. There are at least 452 people per square kilometer with amedian age of 26.9 years. There are at least 62,702 people per everysquare kilometer in Sri Lanka with a median age of 32.6 years.Nigeria is the eighth most populous country globally as seen inAppendix 1. The in Nigeria population if 49.9 percent urban and has amedian age of 18 years. There has been a booming birth rate in Russiasince 2007 which has boosted the demand for toy products (Ahmed,2014). The population consists of many young people and equally manyfirst time parents. At least nine people are found in every squarekilometer within Russia.

Communication

Indiahas a very advanced media communication and advertisementinfrastructure and includes television, newspapers and magazines,radio and the internet among others. Sri Lanka has a very elaboratesystem of communication consisting of mainly mass media includingprint, radio, television and interpersonal correspondence. The accessto the internet in Sri Lanka is very limited at only 29 percent ofthe population (Ahmed, 2014). The media and advertisements platformsare mature in Nigeria with print, television and online mediapresent. However, approximately 46 percent of Nigeria’s has accessto the internet which is almost the size of the urban population asof 2016 (Internet Live Stats, 2017). Russian’s are visual andprefer spoken work in business relationships than written. Thecommunication channels and infrastructure in Russia are verydeveloped and mature with an internet penetration of at least 72percent.

Channelsof Distribution

Indiahas poor infrastructure networks that connect markets, and more thanone distributor may be required to cover the entire market. Almost 90percent of the international trade stops at the capital city –Colombo due to the weak channels of distribution. Nigeria is vastand with poor infrastructure which requires a very maturedistribution channel to ensure the products reaches the farthestmarkets. A combination of local distributors to cover the differentsegments of the whole market is advisable for foreign multinationalsentering Nigeria. Russia has very advanced channels for distributionof products to almost every market include roads, air, water andrailway transportable despite being the biggest country. E-commerceis an acceptable has gained a lot of popularity due to internetpenetration.

Capacity

India’stoy industry – which is largely unorganized – is consideredinsufficient given the size of the population and the country’s GDPper capita incomes. India’s economy and the disposable incomes areleading to a growing domestic demand. Sri Lanka has a GDP per capitaincome of $4000 which is higher than India and Nigeria. The majorityof the population in Nigeria lives below poverty, and approximatelyonly half of the country have access to clean water. Nigeria is,however, one of the most corrupt countries in Africa. Russia has thefifth highest per capita toy and children products consumptionglobally and the highest per capita GDP of the potential targetmarkets.

Currency

India`scurrency is the Rupee and is the acceptable medium of exchange in themarkets. Recently a temporary self-imposed cash shortage resultingfrom the recall of the 500 and 1000 Rupee notes by the Central Bank.The Sri Lankan Rupee is the national currency for the currency. Thecurrency is not very strong but is relatively stable. Nigeria`scurrency, the Naira, is supplied by the Central Bank and is anaccepted legal tender since 1973 (Ahmed, 2014). As seen in Appendix2, the Naira has been losing against the dollar since 2013 and ispegged on the movements in the oil industry. The Russian Ruble is thenational currency that has been on a dropping trend recently againstthe dollar mainly considering it pegged on the struggling oil prices.

Controland Coordination

India’sregulatory framework is considered burdensome with a weak legalsystem to enforce laws. Sri Lankan toys are subject to theinternational standards on quality and safety including EN 71, CE andASTM. The country is also a signatory to the UN and ILO conventions.The judicial and regulatory systems in Nigeria are however seen to bebiased against the foreign business. The Russian governmentguarantees the quality of inland toy producers. This is after the’Chinese poisonous toys scandal’ that has led Russia to approve thequality checks and standards in the country of origin.

Commitment

Indiaimposes some international standards on Toys and other electronicimports into the country. The global health standards on toys andother electronics apply in the country evidenced by the ban onChinese toys. Sri Lankan toy safety standards 88/378/EEC dictates thetoy quality standards in the country. It was later amended by93/68/EEC. Nigeriaimposed a set of laws in 2005 to govern the importation of electricalappliances including toys. Intertek has been approved to providepre-shipment certificates that confirm the details of the toy adhereto the country’s quality standards. Russian produced toys aresubject to medico-psychological tests for health approval. Thegovernment also ensures that imported toys meet the country’ssafety standards.

Choice

Indiahas at least 1250 manufacturers of toys who specialize in traditionalthemed dolls. The Indian market highly prices sensitive consideringthere is also an influx of Chinese toys, Mattel, Lego and Hasbro asthe main competition. Sri Lanka manufactures soft and wooden toysmainly destined for the export market. The Nigerian Toy market has amajor local player – Auldon Limited that develops African themedtoys and dolls. These toys have a cultural edge over imported ones inthe market. Russia guarantees the safety of locally manufactured totoys which affect demand for the imported but especially from China.The country`s toy industry has been growing with local manufacturesand imports from China and other markets to supplements the demand.

ContractualObligations

The Indian Law of Contracts of 1872 is used in contract creation andexecution. However, some others laws accompany this one including thesale of goods act and the companies act. Nigeria adopted the UnitedKingdom sale of goods act of 1893 and the Sales of Goods Act of 1958into their sales and contract laws. The customary law applies afteran agreement of both parties mainly locals otherwise, the common lawapplies whenever there are external parties. Verbal contractsdominate the Russian business transactions and follow the contractualguidance in contained in the constitutional law.

Caveat

Politicalinfluence on businesses in India is not limiting. However, morecontrol in the toy industry is required. There are local players inthe Indian toy market who enjoy the benefits of a cultural edge intheir production. The Chinese toys have also entered the Indianmarket with cheaper products. The toy industry is important to theSri Lankan government but only for export purposes. Nigeria ispolitically stable with fixed terms elective presidency. However, thecountry is affected by a local terrorist group – ‘Boko Haram’that threatens the stability of businesses especially in the northernparts. Only the younger modernized business people in Russia have agood command of the English language

Conclusions

Basedon the population, economic conditions and general marketenvironment, I would recommend Russia to be the target market of thefour potential markets. The GDP has been experiencing growth afterthe oil crisis, and the population is growing. The business law asand rules governing the toy industry are fair, and the governmentdoes not involve itself in this industry. The US Dollar has alsogained against the Russian Ruble which makes the market beneficialupon remittance conversions from the joint venture.

4.Recommendation

Ajoint venture is a strategic alliance business arrangement for themutual benefit of the companies in a common market. Joint venturewith a leading distributor in Russia will be the selected as the modeof entry into this market. Toys ‘R’ us will source the productsaccording to the demand and then supply them to the Russian partnerto retail the products across the market. Given that the US andRussia are not in very good terms diplomatically it would be betterto use a local company to perform local distribution and retailing.This has also been selected because of the vastness of the marketwhich requires an established or familiar system of distributing toreach all the corners of the market. The language barrier that existswith the older business people who are not conversant with Englishwill be better handled by the domestic company.

5.Marketing mix

Products

Russia’stoy and baby product market is dominated by kid’s products for 3 to6-year-olds. This is the best range, considering Toy`s ‘R` weproduce for those between 1 and four years, which matches perfectly.Thus the only changes that may be made on the products includere-packaging the language on the manual. The market is also driven bybrands and thus changing the products for the market may affect itsdemand negatively.

Prices

TheRussian toy market demand is not price-elastic which gives thecompany some freedom in setting prices. The prices will, however, beset in consultation with the local partner to ensure that itoptimizes the sales and profits for the business.

Placeor distribution

Dueto the high internet penetration in the market and the uptake ofE-commerce, the company in will select a partner with a very welldeveloped online retail platform. Due to the size of the country andthe level of internet penetration, the distributor/partner shouldhave a system that ensures online orders are supplied on time. Thepartner should also have a chain of physical retail stores or ensurethat the locations are lucrative enough to support the company’sprofit motive.

Promotion

Onlineadvertisements will be used widely to promote the products give theinternet penetrations. This will be achieved through the targetedemails suggested by the partner and social media advertisements.Also, kid events and media campaigns will be organized across thecountry to ensure a verbal message is conveyed – which is preferredwithin this market.

References

Ahmed,F. A., M. Absar. (2014). BUSINESSENVIRONMENT: Indian and global perspectives.[S.l.], Prentice-Hall of India.

Harrison,A. L. (2013). Businessenvironment in a global context.Oxford: Oxford University Press,

ICTI.2016., InformationTechnology Agreement`s Duty-Free Treatment In Effect For CertainElectronic Toys.http://www.toy-icti.org/news/DutyFree.html, (Retrieved on 30^thMarch 2017).

IndexMundi. 2017., CountryComparison &gt Birth rate.https://www.indexmundi.com/g/r.aspx?v=25,(Retrieved on 30^thMarch 2017).

InternetLive Stats. 2017., NigeriaInternet Users.http://www.internetlivestats.com/internet-users/nigeria/, (Retrievedon 30^thMarch 2017)

TIA.2016., Globaltoy market to surpass $90 billion in 2016.http://www.toyassociation.org/PressRoom2/News/2016_News/Global_Toy_Market_to_Surpass_90_Billion_in_2016.aspx#.WN-IA7glFpg,(Retrieved on 30^thMarch 2017).

Worldometers.2017., Countriesin the world by population.http://www.worldometers.info/world-population/western-europe-population.(Retrieved on 30^thMarch 2017)

Appendices

Appendix1: Target Markets Statistics

Appendix2: fluctuation of the Naira