toys r us - what goes around, comes around
TRANSCRIPT
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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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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 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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