Product Promotion and Pricing Strategies

Product Promotion and Pricing Strategies

Wal-Mart (WMT) is the number one seller of toys and the industry's price leader. Last year the company used a "lost leader pricing" on popular toys that lured millions of consumers from traditional toy stores. The main result of this marketing policy was the maintenance of the first position on the market but also the wounding of other toy retailers on the market, as Toys R Us, KB Toys and FAO Schwarz. Concerning the other retailers, they tried a diversification of its products and other policies to return on the, but it was increasingly difficult as the main problem that couldn't be resolved was the overstocks.

Another problem linked to the first one is that half of all toy sales take place during the holidays and according to last years statistics, the overstocks were then constituted (as most of the consumers preferred to buy at a lower price from WMT) and remained in the stores during a long period of time, therefore they should be sold at a lower price only to be sold. As a positive aspect for retailers, one can mention the video games industry. "The industry is expected to finish flat to slightly down this year at about $20 billion for traditional toys and an additional $5 billion for video games," but the video game industry is a profitable one and can be considered as a possibility to solve the "lost leader pricing" problem, as kids are getting older, younger. They're playing video games at a younger age and getting onto computers at a younger age.

The concept of getting older younger may be difficult to grasp, but it simply means that the attraction towards electronic devices sets in at a younger age and thus the videogame sector is ripping away some of the traditional client targets of the traditional toys sector. The estimates for this year in terms of the videogame sector are high for December, with new releases for the holiday. According to Anthony Gikas, "sales of video game software are expected to rise 8% this year to $6.3 billion."

Wal-Mart, even it won a lot in terms of market share and new clients using "lost leader pricing," is still not out in the open and constantly faces different price issues. According to analyst Sean McGowan, "Wal-Mart felt they left money on the table by cutting prices deeper than they needed to in order to get the sale." In this sense, "So this year, while they will be the lowest priced and very promotional, they may, for example, is only a $1 less than Toys R Us rather than $5 less on some items." In a word, comparing to what was won last year, this year Wal-Mart will win less and their position comparing to other retailers who act on the toy market can modify. Other opinions and policies of the retailers and annalists reflect a focus on bringing increased attention and value to the clients in all stores.

If we compare Wal-Mart to Toys R Us, the biggest competitor in terms of toy selling, we can point out towards the fact that there is hope for an easing of price rivalry on this market. The company was in a difficult position during the previous year, losing significantly to discounter Target or to Wal-Mart and it even had to announce that it may leave the toy industry if things are not likely to improve during the next period of time. In order to "thin inventory," the company came up with heavy discount policies and gift cards to increase the volume of sales.

According to Dhruv Grewal, professor of marketing and retail at Babson College, "it's time for Toys R Us to think outside the box." But analysts say that Toys R Us may need more ideas, such as unique gift card options and co-op branding with other retailers to survive

Another type of policy used by toy retailers is to expand the categories so that people buy at one time, including books, music, video games and DVDs (as an advantageous package). This type of policy will allow the client to benefit from a combo product and, from the part of the retailers, to increase their scale economies and revenues through these combined packages. The psychological effect of a combo category is great in ensuring that the client will not necessarily purchase only what he cam to purchase, but to induce the idea that product a works great with product B. And C.

In terms of challenges, we can state that some of the main challenges in the toy industry are related to the fact that no toy has yet emerged as a "must have." In this sense, "no toy has emerged as a "must have" to boost the $20 billion industry, raising the spectre of another holiday season of flat to slightly lower sales. If so, it would mark the industry's fourth consecutive year of poor performance."