Learning and Educational toys for children: EduToy Plc

1. Learning and Educational toys for
children: EduToy Plc.
1

2. Table of content
1. Company introduction .................................................................................. 3
2. Market opportunity ....................................................................................... 4
2.1 Market size, market value and market growth ........................................ 4
2.2 Market potential and barriers .................................................................. 6
3. Customer problems ...................................................................................... 6
4. Solutions ...................................................................................................... 6
5. Product and Service ..................................................................................... 7
5.1 Products ................................................................................................. 7
5.2 Services.................................................................................................. 8
6. Business model ............................................................................................ 8
7. Marketing & Sales ........................................................................................ 9
7.1 Market segmentation .............................................................................. 9
7.2 Marketing mix ......................................................................................... 9
7.3 Sale ...................................................................................................... 10
8. Competition ................................................................................................ 10
9. Operations ................................................................................................. 11
10. Financial requirement & forecast ............................................................. 11
10.1 Budget ................................................................................................ 11
10.2 Sales/ profit projections for year 1 ...................................................... 12
10.3 Cash flow for year 1 ........................................................................... 12
11. Funding .................................................................................................... 13
11.1 Sources of available funds ................................................................. 13
11.2 Types of finance for the venture ......................................................... 14
References .................................................................................................... 15
Appendix ........................................................................................................ 17
1. Competitor analysis ................................................................................ 17
2

3. 1. Company introduction
EduToy Plc. is a start-up in London, UK and aims to produce, and distribute
learning and educational toys to children, from 1 year old to 13 years old. It
positions three special features:

Physical stores are designed as Toy Fairs;



Package and design regularly update hot trends of children films:
Frozen and Star Wars;


Besides toy selling, toy hiring and sharing are offered.

In comparison with current competitors in the educational toy sector in the UK,
for instance, Lego, Mattel, and Hasbro have not yet offered the first and the
third ideas (NPD, 2016). Hence, short-term goal of the business is to launch
up-to-date and innovative educational toys while its long-term ambition is to
build “a learning environment” for children and to become the largest supplier
of educational toys in the UK.
3

4. 2. Market opportunity
2.1 Market size, market value and market growth
o UK toy industry:

Market size: UK is the largest toy market in Europe officially. Its
sale gained more than £3.3bn in 2016 despite economic
recession and Brexit decision (Smithers, 2016).



Market value: more than £3.3bn, and expected to be £7.31bn by
2019 (Figure 1).



Market growth: 5.9% growth rate between 2015 and 2016 (NPD,
2016).

Source: Davidson, 2015
Figure 1: Anticipated growth of toy market value in the UK to 2019
o UK educational toy sector:

Market size: Educational toy is diverse, for example,
construction, puzzles, arts and crafts along with toys designed
for education only. From a survey, market size of educational
toys remains lower than other toys (about 12% of children with
high frequency to play puzzles, 20% in construction but nearly
30% in dolls and actions, Figure 2).

4

5. 
Market growth: Between 2014 and 2015, growth rate of
construction toy is 15.2%, art & craft is 2.8%, but educational
toys reduce 1.3% (Figure 3).

Source: Prigg, 2014
Figure 2: Survey result on frequency of playing toys of children
Source: Davidson, 2015
Figure 3: Growth of toy categories in the UK in 2015
5

6. 2.2 Market potential and barriers
Evidences notice a market gap that despite very high growth rate and the
largest size of UK toy market, educational toy sector accounts for a modest
share and even negative growth rate. Commercial rationale of the start-up is
to think “out of box” to fill this gap. It is supported by the forecast of
Euromonitor (2016) that educational and scientific toys will play the major role
in leading positive growth in UK toy industry. Even, negative signals of this
sector indicate there is no educational toy, which could satisfy children and
keep their long interests. However, toy, especially educational toy suffers from
a very strict requirement about safety standard (UK Government, 2012). Thus,
a prerequisite for the business is to receive a certificate of quality.
3. Customer problems
o Firstly, in a national survey of 350 British parents, more than 60% of
them shared that their children prefer touchscreen via Ipad and
smartphone to traditional toys (puzzles, construction, arts and crafts)
(Figure 3). In the primary research, the researcher observed attitudes
toward educational toys of 5 children at the age of 3, 5, 7, 10 and 13
and found that they are not strongly interested in these games due to
lack of attractive images, funs and engagements with other children.
o Secondly, another complaint is the too high price of educational toys,
from at least £30 to even £60 and upwards (National Measurement
Office, 2015). These toys are criticized to be one of the most expensive
toys to be not afforded by any household at middle and low-income
levels.
4. Solutions
“Differentiation” concept is applied to generate solutions to two above
customer problems. It means EduToy decides to think out of box and creates
the superior offerings to customers (Bacanu, 2010). Despite complaints about
high price, differentiation is still applied instead of cost leadership because of
safety demand of the customers.
6

7. 
Firstly, to increase interest and engagement of children toward
educational toys, EduToy Plc. introduces the business as a toy fair, in
which a wide range of toys, both traditional and modern ones, is
exhibited. Other than the traditional type of a shop, the company allows
children to try and enjoy toys flexibly and interestingly. In addition,
products are designed to regularly update new trends of most
demanded toys, for instance, constructions and actions and movies
such as Star War and Frozen (Davidson, 2015).



Secondly, in response to the second complaint, instead of offering
lower prices, the company adopts sharing business model for toy hiring
and toy sharing services. The reason is that innovative and superior
toys are not associated with cheapness as expected. Hence, the only
way to bring equal chances for children from low-income households is
toy hiring and sharing with other children.



5. Product and Service
5.1 Products
In line with above solutions, three product categories of EduToy Plc. are
arranged:
CreativityToy: to build and design a house, or any thing based on
creativity like Legos and other puzzle; to create arts and crafts flexibly
and dressing-ups. The aim of this product category is to enhance
creativity of the children.
LanguageToy: its purpose is to develop knowledge and skills for
children regarding numbers and letters. These toys can be stimulated
like an action figure or characters of a movie such as Frozen and Star
War.
VRToy and game: these toys utilize touchscreen of an Ipad, tablet or a
smartphone. They are designed online or even virtual reality for
children from 10 years old. Its goal is to put the children in real
situations for problem solving and guide the kids about phonetics,
sounds and music.
7

8. In each category, toys are designed in association with certain age rages:
from 1 to 3, from 3 to 6, from 6 to 10 and from 10 to 13 years old. This
classification is based on educational system of children at certain age.
5.2 Services

Basic services: customer services, warranty and return



Hiring service: to hire educational toys. It is noted that there is a limit
about certain toys for hiring. Price depends on time of hiring and value
of the toy. It is always lower than 30% of the real value.



Sharing service: to offer the parents as the buyers to sign in an online
sheet about their addresses and willingness to share toys with other
children near their houses. The demanded parents will contact them
and toys will be shared.



Community at toy fair: as “a house” for toys and children to play
together under the supervision of a teacher.




6. Business model
In application of Canvas business model, EduToy Plc. adopts an innovative
business model to act as a manufacturer, a retailer, a brokerage and a
community organization (Joyce and Paquin, 2016). This choice guarantees its
sustainability to be not only a commercial business but also a social
organization for children development. Revenue streams are comprised of:

Sale from toys: transaction-based revenue, collected as cash or credit
after buying transaction.



Fees from toy hiring: recurring-based or transaction-based revenue.
Parents could pay a monthly fee for using different toys or pay fee for
each toy separately.



Donation: to build a toy house for children to access freely and share
toys freely.

8

9. 7. Marketing & Sales
7.1 Market segmentation
In application of segmentation base regarding demographic, psychology and
behavioural bases, two specific groups of customers of EduToy Plc. are
(Anderson and Xie, 2014):
» Individuals: parents of children from 1 to 13 years old. They are
classified into high and low-income levels. High-income parents will
buy toys while low-income parents may hire or accept sharing. No
geographic boundary is addressed because of online order and home
delivery. They are interested in learning and educational games for
children development.
» Corporates: mainly schools, nursery schools or pre schools and
secondary schools of children from 1 to 13. They regularly buy in bulk
and can accept sharing model.
7.2 Marketing mix
Applying 4Ps marketing mix with four elements: pricing, product, promotion
and placing (Luan and Sudhir, 2010), specific marketing activities at EduToy
Plc. are:
 Product: regularly product development via research and development
(R&D) on the monthly basis.

 Price: premium pricing strategy because educational toys are always
perceived to be high priced toys, from £30 to £60 (National
Measurement Office, 2015). Hiring price is always lower than 30% of
real values of the toys. It is in line with differentiation concept (Bacanu,
2010).
 Placing: Via toy fair as the replacement of toy store and online website
for online order and home delivery.

 Promotion: Sponsorship at nursery, pre and secondary schools in the
rural areas in the UK. Focusing on combo for more affordable price.
9

10. 7.3 Sale
Priority of customers is corporation because they normally buy in bulk and
long-term contract. B2B deal is made officially and legally. B2C with parents is
undertaken normally at the end of a transaction. Hence, to engage future
transaction, member card is created.
8. Competition
As summarized by NPD (2016), top ten selling toys in the UK are listed in
Table 1.
Source: NPD, 2016
Table 1: Top ten selling toys in the UK
Grounded on Table 1, direct rivals of EduToy Plc. include Lego, Mattel, and
Hasbro because they offer educational toys while indirect competitors are
Flair Preziosi, Mookie and Jakks Pacific. Description of these direct
competitors is presented in Appendix 1. In comparison, competitive
advantages of the company are revealed strongly, including the exclusiveness
of sharing and hiring toys along with the creation of the shop as a toy fair. In
addition, EduToy is broader than Lego in educational toy and more
concentrated on Mattel and Hasbro.
10

11. 9. Operations

Regarding inventory management, economic order quantity (EOQ)
method is applied to ensure the efficiency and effectiveness in stock
procedure.



In addition, production process is addressed via outsourcing to save
costs and allow the management team to invest in R&D and marketing
activities.


Payment types: accepting both cash and credit.



Warranties: depending on type of toys, normally in 30 days.




10. Financial requirement & forecast
10.1 Budget
According to Smithers (2016), the affordable price for an educational toy in
the UK is £59.99. Budget is distributed to fit this price. Hence, it is clarified in
Table 2.
Action (for the initiative of the company) Budget (£)
Renting and operating cost 4,500
Equipment, facilities and decorations inside Toy Fair 5,400
Inventory for the first month 1,000
R&D 5,000
Outsourcing/ production 7,500
IT 5,200
Marketing 8,900
Other administrative fee 2,300
Total 39,800
Table 2: Budget for the initiative of the company
From table 2, the start-up cost for EduToy Plc. reaches £39,800.
11

12. 10.2 Sales/ profit projections for year 1
25000 10,000
20000 5,000
15000 0
Sale
10000 -5,000
Profit
5000 -10,000
0 -15,000
Figure 4: Sales/profit projection for year 1 (£)
For two first months, spending in marketing is addressed to generate no sale.
In month 3 and 4, sale reaches £2,340 and £6,418 respectively. Then, in the
next months, revenue is expected to increase 10% to £22,394.9 for the 12
th
month. In contrast, profit of the first year suffers from loss because of high
investment in R&D and fixed cost. Profit turns out to be positive in month 11,
of £99 and then improves by 10% to £109 in the next month.
10.3 Cash flow for year 1
Table 3: Cash flow statement for the first month
12

13. For the first year, net cash flow is normally negative while the cash balance is
positive. The reason is derived from high cash spending in this year. It is
researched from the article of Smithers (2016) about the high expenditure on
fixed assets.
11. Funding
11.1 Sources of available funds
Theoretically, financing sources for a start-up are noticed from founders’
sources to commercial banks (Figure 5).
Source: Calopa et al., 2012, p. 23
Figure 5: Funding sources for a start-up
Two types of equity sources are business angels and venture capitalists while
two available debt funds come from commercial banks and equipment lease.
Advantages and disadvantages of these sources are presented in Table 4.
Source of funds Advantage Disadvantage
Business angels No requirement for collateral Not easy and quick to
(Klabunde, 2016) Ability to access the access business angel
investors’ knowledge and May lose the business
skills share
No interest or repayment
13

14. Venture capitalists Access business expertise Loss of control
(Jackson et al., of the capitalists Sharing business power
2012) Enjoy business network and and profits
connectivity of the
capitalists
No need to pay interest
Commercial banks No involvement in company High interest
(Calopa et al., share or management Hardship to obtain loans,
2012) Tax-deductible including collateral
Equipment lease Balance cash outflow to Lease expenses
(Henderson and avoid negative cash Limited access to the
Campana, 2015) Tax benefit leasing because not all
No need to buy new equipment can be
equipment leased
Table 4: Advantages and disadvantages of equity and debt sources
11.2 Types of finance for the venture
Apart from internal source from founders, another type of finance for the
venture is commercial bank because of three reasons. Firstly, it is a personal
ambition of the founder to avoid the loss of power and control, hence, no
external equity source such as business angels and venture capitalist, is
taken into account (Klabunde, 2016; Jackson et al., 2012). Secondly,
equipment leasing may not be always applicable and can cause shortage
because of differentiation strategy to make unique educational products.
Specifically, Lloyd bank should be contracted with because of the familiarity of
the manager with this bank for many years. Moreover, advantages of bank
loan are beneficial and necessary for the company. In addition, the goal of
EduToy Plc. is to create a toy house as a community for children. Hence,
funds from this bank are most abundant. They are used for refurbishment,
advertising, R&D and website development in the case retained earning is
insufficient. Nonetheless, complex schedule to receive loans from bank can
be a challenge for the founders.
14

15. References
Anderson, C.K. & Xie, X. (2014) Pricing and market segmentation using
opaque selling mechanisms. European Journal of Operational Research,
233(1), 263- 272
Calopa, M.K., Horvat, J. & Lalic, M. (2014) ANALYSIS OF FINANCING
SOURCES FOR START-UP COMPANIES. Management, 19(2), 19-44
Davidson, L. (2015) Frozen and Lego help boost UK toy sales growth sixfold.
Telegraph, Retrieved from
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/1168197
6/Frozen-Lego-and-video-games-boost-the-struggling-UK-toy-sector-to-
staggering-growth.html
Euromonitor (2016) Toys and Games in the United Kingdom. London:
Euromonitor International
Henderson, J. & Campana, J. (2015) Equipment Leasing, or "I Thought I
Entered into a Lease?". American Bankruptcy Institute Journal, 34(7), 24-25
Jackson, W.E., Bates, T. & Bradford, W.D. (2012) Does venture capitalist
activism improve investment performance?. Journal of Business Venturing,
27(3), 342- 354
Joyce, A. & Paquin, R.L. (2016) The triple layered business model canvas: A
tool to design more sustainable business models. Journal of Cleaner
Production, 135, 1474- 1486
Klabunde, A. J. (2016) How much should an investor trust the startup
entrepreneur? A network model. Econ Interact Coord, 11, 293-312
Luan, Y. & Sudhir, K. (2010) Forecasting Marketing-Mix Responsiveness for
New Products. Journal of Marketing Research, 47(3), 444- 457
National Measurement Office (2015) Higher Priced Toys 2014. Retrieved from
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/
409032/Higher_Priced_Toys_RoHS_Report_2015.pdf
NPD (2016) UK TOY INDUSTRY GREW BY 5.9 PERCENT MAKING IT THE
LARGEST TOY MARKET IN EUROPE. Retrieved from
http://www.btha.co.uk/wp-content/uploads/2016/01/Market-performance-
press-release-.pdf
15

16. Prigg, M. (2014) How the iPad replaced the toy chest: Researchers find
children play with touchscreens more than traditional toys. Daily Mail,
Retrieved from http://www.dailymail.co.uk/sciencetech/article-2565061/How-
iPad-replaced-toy-chest-Researchers-children-play-touchscreens-traditional-
toys.html#ixzz4T67g6A8R
Smithers, R. (2016) UK toy sales 'to surge to record £3.3bn' despite economic
uncertainty. The Guardian, Retrieved from
https://www.theguardian.com/business/2016/nov/09/uk-toy-sales-christmas-
presents-children
UK Government (2012) Toy manufacturers, importers and distributors: your
responsibilities. Retrieved from https://www.gov.uk/guidance/toy-
manufacturers-and-their-responsibilities
16

17. Appendix
1. Competitor analysis
Competitors Product range Package Store
Lego Building, construction Trendy images Conventional
and puzzles about cartoon store
characters Online website
Mattel Various toys (both Normal package Conventional
educational and non- store
educational) Online store
Hasbro Various toys (both Take use of Conventional
educational and non- trendy films and store
educational) cartoons
Source: Based on official websites of Lego, Mattel and Hasbro, 2017
17

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