«Carolina Coelho Advisor: Prof. Nuno Guedes Dissertation submitted in partial fulfillment of requirements for the degree of MSc in Business ...»
Compared to Portugal, in the UK the traditional trade was still very important. There were several small and medium sized toy shops spread throughout the cities and small towns that faced the big distributions chains and survive in the market. On the other hand, the online market was much more developed when compared to Portugal. Both small shops and big chains adopted the strategy of online shopping with direct delivering to the consumer or click and collect, because online purchases was a greater trend in UK. Concerning the consumers’ characteristics, they were very demanding with the final product in terms of packaging and content, given the wide-ranging offer from the huge number of players in the market and the strong competition between them. In the UK there was a much more significant and well established upper middle class and British consumers were not price sensitive; they valued the quality of the products over other features like price, while Portuguese consumers were very price sensitive and have the power to lower the prices. UK people were heavy consumerist especially for new and innovative products; for them what is different is attractive! UK’s saving rate was 6.0 while the Portuguese saving rate was 9.8. Moreover, regarding the legal environment, there was a lot more bureaucracy in the UK compared to Portugal, when we talk about the rules of opening a company in the country.
According to the Offstede website (Exhibit TN 2) I can conclude that Spain is much more similar to Portugal socially and culturally than the UK. Concerning the six dimensions used to evaluate the difference between each country culture, the dimensions where Portugal and the UK differ more are Individualism and Uncertainty Avoidance. Portugal is classified like a collectivist country where loyalty and strong relationships are considered to be important values within the society. On the other hand, the UK is considered one of the most individualist countries where people just think about their own personal fulfillment and interests, individually. That is why Portuguese people are a
38Science4you in the UK: a toy story
lot more likely to become loyal to a brand or company than British people. Moreover, the UK has a really low score on Uncertainty avoidance when compared to Portugal (35 vs 99). It reveals that while Portuguese doesn’t like to risk and don’t feel comfortable with the unknown, British are more open minded and receptive to new things and situations, therefore, British consumers are more likely to buy and try new products and experiences. Therefore, S4Y needs to have different strategies for both countries. It should invest a lot more in R&D and innovation in the UK than in Portugal to come up with new and better (higher quality) toys more often, in order to attend the consumers’ needs, keep them interested in the brand and be a step ahead from the competitors. While in Portugal it should invest more in the complementary activities such as birthday parties and workshops in schools in order to have a higher level of contact with the children and gain their loyalty towards the brand.
4. Describe the competitive environment in the UK.
The toy industry is an industry with intense competition and while in Portugal the competition was barely any, with just two direct competitors which didn’t have much importance in the market, in the UK, S4Y had to deal with 9 strong players in the educational toys sector that were already well established in the market. Apart from the direct competition, companies like Lego, Mattel and Hasbro that could work as substitute products becoming an important indirect competition to take into account, also because these big players were starting to evolve in the world of technologies and have a strong power on influencing the market.
In order to evaluate the degree of competition in the toy industry in the UK, I used the Porter’s 5
forces model and concluded that the degree of attractiveness of this industry is low:
Threat of new entrants: is medium. There are not many barriers to entry that prevent other companies to enter the market. The initial investment is not that high and there are no switching costs. Nevertheless, the market was already saturated and the degree of competition could work as an entry barrier. Also, there are legal barriers related to bureaucracy in the UK and the European Toy Safety Directive (2009/48/EC) that could avert some companies to enter.
Bargaining power of customers: is high. First of all, toys are not a primary necessity good and the pressure from the end consumers is really high because they can demand higher quality, safety and better service which can pressure companies to increase the prices and spend in constant innovation. Secondly, they benefit from the low switching costs in the industry due to the wide
39Science4you in the UK: a toy story
variety of products, including substitutes, and the large number of companies that compete among each other. Consumers are getting more demanding with the final product and the post-purchase service; and the substitute products such as video games and electronic gadgets are gaining importance among children. Also, customers like the big retailers have a strong power over S4Y because the company depends a lot on them in terms of source of revenues (Exhibit 10).
Bargaining power of suppliers: is low. S4Y needs many different types of materials to produce their toys and there are a huge number of very diversified suppliers in the market so the switching costs are low and the company doesn’t need to order large quantities from just one or a few suppliers, which gives them no power to change prices.
Threat of substitute products or services: is really high. Substitutes of S4Y products are everything that is related with entertainment and children, including traditional toys, video games and electronic gadgets. The offer is endless in terms of quality and prices and there are not switching costs for substitutes. Moreover, children get bored easily, making them to search for something new and easily change to a substitute.
Rivalry: is high. Apart from the traditional toys, there are a huge number of players (9) fighting for their market share in the educational toy sector, especially in the UK, and some of them are already well established with strong brand awareness, longer history and represent an important reference among the consumers’ choices, since they invest a lot more in marketing and have a stronger presence worldwide.
From the 9 direct competitors in the UK market, the ones S4Y should worry the most are Wild!Science, EDU-Science and 4M. Wild!Science is one of the world’s leading educational science toy maker, therefore it has a strong importance in this niche not only in the UK but globally. EDUScience competes directly with one of the most important competitive advantage of S4Y, the instruction books with scientific information about the toys and the experiences provided. Lastly, 4M also competes with S4Y’s main competitive advantage, the logo of a Science University that guarantees the reliability and quality of the products. Still, the other 6 companies also actively participated in important toy fairs, exported worldwide, won several awards and had partnerships with important retailers, science museums and toy associations (Exhibit TN 3).
Given that scenario, I can conclude that it is not a market where S4Y could easily differentiate its products and its brand name. Especially with an offer of only 28 different toys similar to the
competitors’ and with low prices. If S4Y is targeting the upper middle class consumers, it should have a positioning of high end products.
5. Identify the strengths and weaknesses of Science4you’s strategy in the UK market.
Identify the threats and opportunities in the UK market.
Similarly to Spain, the company replicated the strategy already established in Portugal. It opened its second subsidiary in the UK through a partnership with the University of Oxford. S4Y got the University’s logo in its packaging to ensure the quality of the products and benefited from the Oxford scientists assistance in terms of new product development and improvement of the scientific information of the booklets. Furthermore, apart from the partnership with retailers like Toymaster, Staples, Toy Galaxy, and Chelsea Toys, the company signed a partnership with the big retailer Aldi which allowed the toys to be available in more than 600 shops in UK and Ireland. Also, the products could be found online in Amazon and in the company’s UK website.
Through the SWOT analysis (Exhibit TN 4) I can identify the Strengths and Weaknesses of the company and the Threats and Opportunities of the UK toy industry.
(1) The partnership with Oxford University allowed for the utilization of its logo to work as a certification of quality and loyalty and it also provided assistance in terms of writing the booklets, space for the S4Y offices and help in new product development.
(2) S4Y had a very young and diversified team in terms of backgrounds where 80% were graduated.
(3) The booklets that came with the toys are a strong competitive advantage, since most of science kits in the toy stores teach little science or don’t teach science at all. Usually they only include the instructions to construct the toy. They were carefully designed to be very simple, appealing and fun. Therefore, children at an early age understand the scientific methods and parents are encouraged to be involved in the children’s activities.
(4) The partnership with the big retailer Aldi allowed the toys to be available in more than 600 shops in the UK and Ireland. Moreover, they established partnerships with retailers like Staples, Toy Galaxy, Chelsea Toys and science centers where the toys could be purchased.
(5) e (6) Only 28 toys available.
(7) The promotion was made only through bloggers, reviews and contests.
(8) All the production is made in Portugal and the management decisions are concentrated in the CEO Miguel who lives in Portugal. The other vice presidents in the subsidiaries should have more autonomy. After all, they are the ones who fight in the field daily and have more knowledge about the market.
(9) The most expensive toy cost only 14, 99 pounds. The prices are considered too low for the UK market because consumers value more quality over price. It is a mistake to use in a market with different characteristics the same pricing as in Portugal. This way the products are perceived as low quality toys.
(10) Strong direct competition in the niche of scientific educational toys and indirect competition of traditional toys.
(11) 9 national and international players in the niche of the scientific educational toys already well established.
(12) Substitute products such as the traditional toys, video games and electronic gadgets.
(13) Industry with low switching costs for the consumers.
(14) e (18) The evolution of new technologies, video games and gadgets market work both as a threat and an opportunity, depending on how the company decides to deal with it.
(15) The UK market represented 25% of the total toy market in Europe.
(16) British consumers’ characteristics such as quality-sensitiveness and open mindedness about new ideas and experiences can give S4Y the opportunity to be more creative and increase the prices without the risk of decreasing sales.
(17) The English language can open doors in terms of further internationalization.
6. How do you evaluate the decision of entering the UK market?
When entering the UK market, Miguel had to face important trade-offs. In one hand, he had pros like the English language, the size and importance of the market in the European toy industry (representing 25%), the opportunity of going into further English speaking countries such as Australia, USA and Canada more easily and the opportunities related with the society’s characteristics (significant and well established upper middle class). On the other hand, Miguel faced cons like massive competition in the toy industry, huge number of players in the niche of scientific
educational toys, huge differences between the two countries socially and culturally and the tough bureaucracy.
The UK market is not similar to the Portuguese market in terms of competitive environment, consumers’ characteristics, the importance of the country in the worldwide toy industry and toy consumption weight on the country’s GDP. Hence, entering this market with the same strategy as in Portugal was a mistake. The company cannot expect the same results it had on the Portuguese market or even in the Spanish market that was a market similar to the Portuguese. The Blue Ocean strategy adopted in Portugal was a success for many reasons. S4Y didn’t have to worry about competition because it had barely any, only two more players (4M and Clementoni) that didn’t have any importance in the educational toys sector. Still, Portuguese consumers were very price sensitive and there was a lack of a big upper middle class. In the UK market S4Y didn’t have the right conditions to adopt a Blue Ocean strategy. Instead, it was a Red Ocean (Exhibit TN 5) because it is the most developed toy market in Europe, with a lot of players well established and a strong competition among them, where all the toy companies are attracted to. It was a rough environment where S4Y needed to fight in an existing market, beat the competition where the competitive advantages were not hard to copy and exploit the existing demand where there wasn’t much space to differentiate its products from the competitors. Concluding, the company should either choose a low cost strategy or a differentiation strategy.
Giving the British consumer’s characteristics – early adopters17 and quality-sensitive –, a low cost strategy wouldn’t catch their attention because they don’t look for cheap toys. It should go for a differentiation strategy offering innovative products of high quality and high prices because these are the two features they value the most: superior quality and innovation.
7. What are the alternatives for the future development of S4Y?