05 April 2013 ~ Comments Off

The Importance Of Building Brands In The Toy Business

Importance of Toy Brands In The Toy Industry

Many independent Toy companies struggle away for years slowly and relentlessly building their businesses, until they reach a point where they have a very solid business, with great retail relationships, strong product line and are generating significant profit. However, what many companies miss when they only focus on sales and profit, is the opportunity to build Brands or intellectual property.

The benefits of building your own Brands  are numerous: Firstly, if you create a successful Brand, you are in control and are not responsible to any other 3rd parties on derivative products and you will not be likely to lose the rights, in effect the opportunity arising from the Brand are yours to control and exploit. With your own Brands you do not pay royalties, so if a company usually pays an average of 10% royalty, you effectively save yourself that 10%, leading to greater profitability. Moreover, if you create a very successful new property, other companies may license rights from your company and pay you a royalty. Finally, your company may eventually be able to sell your Brand for a large one off payday – for instance the Cranium Brand was reportedly sold to Hasbro for $77m, and Mattel recently paid a reported $680m to buy the Hit Entertainment business and Brand portfolio.

So with all these benefits, why don’t more companies successfully build Brand portfolios? Well there are 3 main reasons in my experience: 1. It takes significant investment of both money, resources and focus, which not every company is willing to apply. 2. It is very difficult, and for every new Brand which is significantly successful, at least five or ten more fall by the wayside. 3. Short term P&L focus – some companies (rightly) focus on driving sales and profitability, but rather than over layering a Brand building approach they just think short term and fail to maximise long term value.

Those companies who focus only on the short term tend to exhibit an over reliance on licensing and/or transient technology, neither of which act to effectively lay down solid, dependable, long term foundations for their business. Technology can provide a short term boost to sales and a competitive advantage, but even patented technology has it’s limitations in terms of true protectability.  Licensing is a powerful and normally essential part of a Toy company’s product approach. However, once a company enters the licensing ‘treadmill’ it tends to rely on a significant proportion of it’s revenue coming from hot licenses, and retailers also rely on the company to supply less licensed merchandise. When the company has a weaker year for licenses, revenue falls as do retail listings on other non licensed products.

For the sake of perspective, we must be clear that the most successful Toy companies exploit the opportunities offered by licensing and technology, albeit prudently. The critical point though, is that few Toy companies enjoy long term stable success without their own Brand portfolios. If we look at the major corporate companies such as Hasbro, Mattel and Lego, they all devote significant resources to licensed products and technology driven products, however, they also deploy significant resources to nurture and grow their own Brands often utilising technology and licensing in the process! In other words, for them the end is not solely the sales revenue, they are ALSO heavily focused on building their own intellectual property.

So now we have established the need to Brand build, how can a company actually do it? That’s the difficulty, it isn’t easy, and it’s not possible to provide a full answer in a short article, however, here is one powerful solution which I have seen work magnificently: Focus and resources – one of the most powerful actions independent companies can take is to adopt a Brand management approach, which in practise means turning ‘Marketing’ people into ‘Brand’ people, and necessitates a message of Brand evangelism throughout the company and beyond. This one suggestion can have the greatest effect. If you give a talented marketing person the title of ‘Brand Manager’, then effectively you conjoin the success of the Brand with the success of their career. That individual will move mountains to ensure success, to persuade sales people and retailers to support your Brands and also be more likely to deliver winning consumer communications. For sure there is much more to building new Brands than that, but that is a very effective first step!