The market for educational toys can be divided into two distinct segments:
Individual consumers: this group is parents or grandparents who are purchasing the toy for a specific child.
Wholesale purchasers: this segment is schools, daycare centers, etc., commercial businesses that are buying the product for their clients to use.
ToyLearn has decided to sell direct to the consumer instead of using the traditional layered distribution system that uses wholesalers to sell to retailers. While this creates more work for ToyLearn in terms of generating sales, it provides better margins. Additionally, this process will be more costly for the first few years, however, once relationships are developed with individual consumers as well as the wholesale purchasers, the marketing cost per sale will dramatically decrease as the original customers become familiar with ToyLearn's outstanding product line and continue to make purchases.
4.1 Market Segmentation
As mentioned in the previous section ToyLearn has segmented the market into two distinct customers, individuals and businesses.
Individuals: this segment is people buying a single product for their child or someone that they know. The demographics for this segment is a household income of >$50,000, have high aspirations for their children in terms of education and development and want to get started as soon as possible. Generally they have at least an undergraduate degree with 41% of the segment having a graduate degree.
Businesses: this group is buying the toys for children who are the business' clients. These organizations typically are either day care based, or school based such as nursery school or pre school. The number of children that they care for generally ranges from seven to 25.
4.2 Target Market Segment Strategy
ToyLearn will focus on individual consumers and wholesale customers for several good reasons:
Better margins. Although sales volume will be less relative to using wholesale distributors, margins will be higher.
Closer contact with customers. By selling direct to consumers, a stronger relationship will be developed. This is advantageous because it provides a more accurate feedback loop which is instrumental in product development.
More efficient. Fewer layers involved in distribution.
4.3 Industry Analysis
The toy industry is characterized by many different toy manufacturers. Within the larger toy industry, there is a niche of educational toy manufacturers. This niche is fairly new (within the last five years) as the convergence of toys and educational tools becomes more legitimized. For years there was no awareness that a toy could have educational value, it was assumed that a toy was a mindless way of occupying a child's time and attention, giving the parent a break. Only recently has there been studies published that clearly show the ability to design a toy that captivates a child's attention while teaching them constructive skills.
4.3.1 Competition and Buying Patterns
The small niche educational toy industry is comprised of two market leaders and several smaller, primarily regional manufacturers. The two main competitors are:
LeapFrog Enterprises. An Emeryville, CA company. They currently have one main product line that teaches phonic.
Knowledge Universe. This company was founded by financier Michael Milken and Oracle President Lawrence J. Ellison. Knowledge Universe has a total of seven different products.
In addition, ToyLearn competes with products produced by large game manufacturers.