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«Carolina Coelho Advisor: Prof. Nuno Guedes Dissertation submitted in partial fulfillment of requirements for the degree of MSc in Business ...»

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The first one was in 2009, the Young Finicia Entrepreneur Award, and among others it also reached recognition by the European Commission, European Enterprise Awards and the British Government, with entrepreneurship and internationalization awards. In addition to that, the way Science4you promoted its company was basically word of mouth through TV, newspapers and magazines interviews and also using social networks such as Facebook, YouTube and Twitter. It chose to promote the product and build brand awareness through channels with diminutive costs. And, in order to retain the clients, to maximize repetitive purchase and to reduce seasonality it implemented a loyalty strategy named Scientist Card which consisted of an identification card that would give the client a 10% discount in the next purchase as well as future personalized promotions and campaigns.

The main target was of course children but, for the company, it was important to have a focus on parents; after all they were buying the toys. Thus, it could be said that their main focus was a mix of children from 3 to 12 and their parents. So, it had to worry about the attractiveness of the toy but at the same time about issues like safety and price. Concerning the pricing Science4you had a great 5 to €59,99 6. Science4you worked hard in order to be the diversified offer, ranging from €2,99 company with the best quality and the most affordable prices, when compared with its direct competitors (Exhibit 9). However, its main focus stayed in the upper middle class consumers.

3 See: http://www.sonae.pt 4 See: http://www.ren.pt 5 Mini Rocket, the cheapest toy of Science4you 6 Telescope HD, the most expensive toy of Science4you

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In Portugal the competition barely existed. Besides Science4you the Portuguese market had two more players: 4M Industrial Development Limited and Clementoni (Exhibit 10); and neither of them had an important role and influence in the Portuguese consumers. Despite these two being important players at an international level, Science4you was still the market leader in Portugal in the niche of scientific educational toys. Apart from that, the largest players in traditional toys and games such as Lego, Mattel and Hasbro could also be considered as a threat of becoming strong substitute products. Mattel owned the licenses of Barbie, Hot Wheels, Fisher-Price and others, whereas Hasbro owned Transformers, Monopoly, Star Wars, Mr. Potato Head, among others.

In the Portuguese market the strategy of Science4you was to consolidate the position of the brand.

Regarding the internationalization strategy the aim was to replicate the Portuguese business model:

establishing partnerships with local Universities of Science with the goal of getting certified products, establishing protocols with Science Museums in order to offer free tickets in the products, as well as offering several activities related with science. Science4you aimed to become, in the medium long term, a major player in the scientific toys market of countries where it had its subsidiaries –Spain and UK – and then to become a global reference, similarly to what already happened in Portugal.

1.3. Where can we find the toys?

In Portugal, Science4you could be found all over the country. It had three main different distribution channels: big retailers, a small retailer and several stands owned by the company located in shopping centers. Due to the partnership with big retailers such as Fnac, Bertrand, Círculo de Leitores, Staples, El Corte Inglés, Grupo Jerónimo Martins, Auchan, Sonae and Toys r’ Us, the company managed to increase its distribution and the number of points of sales as well as to increase the brand’s visibility and the products quality awareness. Large retailers represented the main source of revenues with 50,58% in 2013 (Exhibit 11). The toys could also be found in other small toy and childcare product stores such as the Portuguese company Sr. Brinquedo. Regarding the direct sales to the end 7 consumers, Science4you had its own stands spread by the country plus the online store which offered a catalogue with all the toys available in each country. It had 17 small stands (Exhibit 12) located in the main shopping centers throughout the country aiming to promote the brand’s name and catch the children’s attention. The stands represented the second most important source of revenues with 31, 75% in 2013. In Spain it had 9 stands located in shopping malls and had established agreements with a few large retailers to sell the toys, such as Fnac.es, Casa del Libro, Animal Party, Beta, Carlin, Dideco, Ler, Poly, Santos Ochoa and Universo Azul. Moreover, Science4you also sold its 7 Spain: www.science4you.es Portugal: www.science4you.pt UK: www.science4youtoys.com

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toys in the partner Museums, although the value of the sales was almost insignificant for the company.

1.4. Stay in or go out?

Due to the success in the Portuguese market, and because of its limitations as a very small market, lacking a big upper middle class, the CEO decided that it would be reasonable to start finding new opportunities outside Portugal. In October 2009, Science4you started its program of internationalization through exports to Spain. Later on, in February 2010 Science4you initiated a project called Internationalization and R&D with the goal of helping the company’s expansion and a strong focus on exporting its main products, especially for the Spanish market. The project was financed by QREN8 with more than 50.000€. The main goals were to double the volume of international business and to increase the qualified staff, for the purpose of competing in the global toy market.

In September 2010 it started selling in Angola and in November 2010 in Brazil. The process of internationalization advanced to those countries because of the language and similarities between the markets. Later on, it expanded its exports to 14 other countries like Italy, France, Greece, Mozambique, USA, United Kingdom, Sweden, Venezuela, Colombia, Cape Verde, Lithuania, Finland and Cyprus. Miguel stated that in order to maintain the sustainability of the company’s growth, internalization was the only way to go. As can be seen in Exhibit 13, in 2012 the exports were just 1, 11% of the total volume of sales whereas in 2013 they were 10, 50%.

In June 2011, a major step into internationalization was done through the opening of the first Science4you subsidiary in Spain, with 6 renewable energy toys from the EcoScience product line. In 2013 it already had 117 toys and the best sellers were the Solar Kit, Puzzle 3D T Rex, Perfume Science, Soap Factory, Dig a Dino and Water Science. It grew from an agreement with Fnac and Dideco and also the partnership with Universidad Autónoma de Madrid, which offered help with the development of the product, space for the company’s office and the certification of the products quality assured by the University logo. The main reasons to start the expansion throughout the European Union by Spain, besides being one of the five largest European markets - UK, Germany, France, Spain and Italy - were essentially because it was a market easy to reach geographically and the language was not an obstacle. Concerning the exports, Spain represented a large share of the revenues (16.441,47€) and there were strong similarities between both markets economically and socially. In 2012 the business volume of Science4you in Spain alone was 133.581€, representing 12, 8 Quadro de Referência Estratégico Nacional (Portuguese Program that supported internationalization and qualification projects)

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69% of the total. Afterwards, in 2013 it increased its sales to 314, 047€ and in 2014 it was expected to reach 500.000€. However, Science4you faced challenges related to the competition. When it entered the market there were already well stablished companies operating in the niche of educational and scientific toys: Cefa Toys and Clementoni in the big retail, and 4M, Mini Land and Sentosphere in the small retail. The company faced a situation where it was not a pioneer in the market like in Portugal; on the contrary it was only “one more company”.

1.5. The Toy Industry in Europe According to the Toy Industries of Europe (TIE) association, the European Union was the largest toy market in the world in 2011, meeting the demand of 78 million children under 14 and with a total consumer spending of €16.5 billion, these. 1,8 billion9 were spent in educational toys. The second was the United States with €15.6 billion and in third place was Japan with €4.3 billion, followed by China with €3.9 billion and Brazil with €2.2 billion. In the EU toy sector, small and medium-sized enterprises (SMEs) had an enormous importance since they represented 99% of the 5.000 toy companies and 88% of them had less than 10 employees. Europe represented around 27% of the total toy sales in the globe and within Europe the countries which registered higher sales were the UK, France and Germany. In 2011, the exports for countries outside the EU represented €1.1 billion, the main markets being the USA and Russia. The imports represented €5.5 billion, the majority from China.

The main sale channel in Europe was the retail outlets, such as specialized toy stores which held a market share of roughly 40%, followed by supermarkets. Online sales were experiencing an increasing trend. However, there were differences between countries. While Germany had 13% of online sales, in Spain they only accounted for 0,3% (Exhibit 14). The toy market in Europe was extremely seasonal, the majority of purchases occurring during the Christmas period, approximately 60% in November and December. This industry is one of the most dynamic economic sectors in Europe; about 60% of the toys on the market each year were new products. In 2011, more than 90% of the toy companies operating in the EU launched new products on the market. In order to meet the demanding children’s needs, the toy industry invested massively in Research & Development, market studies and protection of intellectual property. European families valued more the infant and preschool toys. The second most popular category on the European market was dolls, followed by outdoor and sports, followed by games and puzzles. These four categories represented 50% of total sales in the EU.

9 Source: EU Commission 2010

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The toy industry faced some challenges like the economic recession, the increasing of safety and environmental legislation leading to an increase of testing and administrative costs, the intensification of competition from illegal and fake products, short life cycle of toys and high failure rates of new toys, faster maturity of children and intense competition from electronic entertainment.

The demographic developments in EU showed that the society was aging and there were fewer children because the number of children by couple was decreasing. Nevertheless, as an opportunity, for each child the number of toys was greater, coming to a trend of less children and more toys.

Lastly, the increasing of the digital gaming and the growth of virtual stores during the years of 2012 and 2013 showed an important trend in the European shopping habits.

1.6. UK Decision/UK Market There was a reason for Science4you being called like this and not CiênciaParaTi10. The internationalization to the United Kingdom has always been part of the company’s strategic plan.

Since day one, Miguel knew that in order to conquer the rest of Europe and later on the rest of the world, he had to go to the UK. This choice was made due to the importance of the country regarding the toy market at both the European and the global level. Basically, the four major reasons for choosing this country were: 1) the English language, because it would reduce the costs of product changes and adaptations for other countries in the future, 2) the fact that the UK market alone represented 25% of the total toy market in Europe, with people spending a lot of money in toys which translated into a great weight on its GDP, 3) Miguel believed that the UK market would be able to open the doors for other significant markets such as Australia, Canada and the USA which together meant more than half of the global toy market and 4) there was a significant and well stablished upper middle class in the country. This decision was made only with the positive references and experiences in the Portuguese and Spanish markets, despite knowing that the UK market had some specific characteristics namely the strong competition and the big number of players.

The UK’s total population in 2010 was over 62 million people and the percentage of children between 0 and 14 years old was 17, 5%, with an average of live births per woman of 1, 94, in contrast with 1, 32 in Portugal and 1, 40 in Spain, corresponding to a children’s percentage of 15, 2% and 14, 9% respectively (Exhibit 15). Concerning the UK toy market, small and medium sized shops were still an important reality, spread throughout the cities and small towns, coming together to fight and survive the big distribution chains. Compared to Portugal, the development of the online market was huge and their every retailer was in direct competition with each other, from independent shops to the big chains, either by direct delivering to the consumer or by click and collect. This was 10 “Science4you” translated to Portuguese

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