Leapfrog Strategic Analysis
————————————————- LeapFrog Business Proposal ————————————————- Table of Contents Major SWOT issues identified3 Strengths3 Weaknesses……………………………………………………………………………………………………………………………………. 5 Opportunities7 Threats9 Strategy Selected12 Strategic Alternatives14 Strategy Selection Criteria18 Information Systems/Infrastructure24 Controls25 Brief Management Summary LeapFrog Enterprises, Inc. was founded in 1995 in Emeryville, California.
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They design and develop products that are technologically and educationally based for consumers from the time they are infants until they complete grade school. Their products are available domestically and internationally. In order to further expand the distribution of their products, LeapFrog plans to partner with Disney Interactive Studios to develop and release games based on the LeapFrog educational model for use on popular gaming systems such as Wii, XBox, and Playstation.
LeapFrog’s strategy for future growth is to decentralize their distribution and game delivery system from being exclusively proprietary to being compatible with systems consumers already own and use for entertainment purposes. This will allow LeapFrog to take advantage of the popularity of these gaming systems, as well as to reach new consumers who might not otherwise consider LeapFrog products for their children. Current Company Problem A key issue for LeapFrog is bridging the gap between education and entertainment. While their products are highly educational, their products re not entertaining enough to keep children interested once the novelty of the product wears off. An identified weakness in LeapFrog’s current operating strategy is the short product lifespan, on average, about two or three years. LeapFrog currently depends on the shorter product lifespan, coupled with the continual release of new products, to combat the affect of product age on consumer interest. LeapFrog’s electronic gaming competition includes Nintendo Wii, Xbox360, and PS3, which all use a single console for their products and games.
LeapFrog’s learning products, however, each require the consumer to purchase a separate platform with which to run the software. This reduces LeapFrog’s overall perceived and real consumer value for their products and has the potential to alienate the lower-income segment that may not be able to afford to update their electronic learning equipment as frequently. Major SWOT issues identified Strengths Name Recognition LeapFrog has leveraged itself as a fun and functional education provider, and because of this, is widely recognized as an internationally accepted maker of learning tools by parents and educators.
Learning Path System This system, which connects through the company’s Scout and Violet products, allows LeapFrog to develop a close relationship with the customer and user. Based on personal learning information of each child, Learning Path makes recommendations for advanced learning software for that specific child, with the goal of maintaining a long-term learning partnership Strong Cash Flow Although sales during the first three quarters of 2009 were hard-hit by residual inventory from 2008, net sales in the fourth quarter alone rose an impressive 36. 9% at $188. 6 million.
Primary factors contributing to this rapid increase were the absence of 2008 inventory, as well as the unprecedented sales from LeapFrog’s new Tag and Scout lines, and their software based books. LeapFrog has since reduced its inventory levels, and continues to actively market these new products under their largely successful new Learning Path strategy, which has substantially lowered the company’s marketing costs. In 2009, a major reduction in LeapFrog’s cost structure reduced LeapFrog’s operating expenses by 31. 1%, or $75. 3 million. This has dramatically lowered LeapFrog’s cost of doing business.
As the company continues to gain valuable market share, these strategies, lines, and operations overhauls will be a strong source of cash flow and savings in the future. Brand Equity LeapFrog also has excellent brand equity, held in both their name and in their logo, which allows it to be a strong contender in the market place, therefore giving it a competitive advantage. Product Portfolio Because LeapFrog has a broad range of educational development activities, it can successfully reach children with different learning types, including: tactile and kinetic, visual, and auditory.
Patents LeapFrog also prides itself in individual child development, allowing the child to develop at their desired rate. LeapFrog strives to maintain a portfolio of patented products. These patents contribute to their competitive advantage. Educational Connections LeapFrog’s School House has allowed them to be the fastest growing K-12 instructional software publisher, which has increased their market size and overall brand awareness, as well as made them known as an educational partner. Strong Marketing Strategy LeapFrog succeeds through direct marketing on LeapFrog. om. Sales through this channel are strong, and provide the added benefit of generating user/company connectivity through the Learning Path System. This helps LeapFrog target specific users based on current usage and estimated future need, and can keep users loyal to the company. Strong Product Lines LeapFrog also does well by inventing new lines of products. The Scout toy line has become a large franchise for LeapFrog, and acquires consumers at a young age. This increases the customer lifetime value. Attractive Balance Sheet
LeapFrog did well by reinventing their cost structure and focusing on fewer and more strategic projects to attract consumers. Tag Line Reading System LeapFrog’s Tag Reading System, created in 2008, sold more than 2 million books. This book is a handheld device that brings real books to life. Now in 2010, it has been named “Best Interactive Toy” at the prestigious 2010 International Consumer Electronics Show. LeapFrog is headed in the right direction by further expanding the book to incorporate geography, music and science. Weaknesses Short Product Life Cycle
One of LeapFrog’s key weaknesses is that each of the consumer learning systems is only used for 2-3 years. This is a price disadvantage and quality disadvantage. Products need to be designed so that children can use them for multiple years. When products are priced higher, the perceived value from the products needs to correspondingly increase in order to ensure that customers continue to see the products as a sound educational investment. Small Manufacturing Base Another weakness for LeapFrog is that it only depends on a few key manufacturers to produce its educational products.
While this can be an advantage, it is also a large weakness because the suppliers can demand more from the company and there is little flexibility. The suppliers are able to gain leverage over LeapFrog and its prices. While the products that are produced in Asia lower costs significantly, obstacles such as moving materials and products from one country to another can be a time-consuming and expensive disadvantage. Safety Risks LeapFrog is targeted towards young children and the potential for misuse and safety risks are high.
LeapFrog, like other children’s toy and educational product companies, has had product recalls, which ultimately erodes their brand image. High Price Structure LeapFrog’s prices for its products are above the average of other products in the industry. This could exclude certain market segments based solely on price, as well as make it more difficult to convince consumers that the products are a good value. Lack of a Year-Round Focus on Marketing LeapFrog’s primary focus on selling products has been mainly in the last two quarters of the year, encompassing back to school and holiday shopping surges.
While this has its advantage through the holiday season they still need to produce and sell new products through the first and second quarter as well. Translation Barriers LeapFrog has been faced with a huge disadvantage because some of their products are not translation-ready. This affects their market share in countries outside of the United States because their products need to be designed in the native language in which the product is being sold. Creating Balance Between Parent and Child LeapFrog has been put in the shadows.
While their products are similar to those currently on the market, their prices are higher. LeapFrog needs to learn and design products that focus on a children’s need and desire, not necessarily exactly what the parent wants for their child. LeapFrog needs to create a balance as to what the parent wants for their child educationally but still adhering to what attracts a child. Finding this delicate balance is important in any industry where the customer is not necessarily the end user of a product or service.
Small Vendor Base Carries Risk of Vendor Leverage In 2009 and 2008 the United States represented net sales of 81% and 79% respectively. However, of those percentages, Wal-Mart, Toys-R-Us, and Target accounted for an aggregate of 65% and 69% of gross sales in 2009 and 2008 alone. With a significant majority of the U. S. segment’s sales going to a select few large retailers, LeapFrog runs the risk of large buyers such as Wal-Mart leveraging their services and demanding lower prices, thus reducing LeapFrog’s margins and profitability.
Opportunities More Child-Geared Focus Groups While LeapFrog resonates strongly with parents, the child is the primary user of the product. Therefore, LeapFrog would benefit greatly from focus groups tailored to the child’s needs and expectations, rather than the primary focus being on the parent. Creating Differentiation Through Flagship Characters With the success of the Tag and Scout lines, LeapFrog has the opportunity to capitalize on this success by creating franchises for its characters such as Scout and Violet of the Scout line.
Much like the “Dora the Explorer” franchise, which started with a cartoon, and has since spurred various Dora merchandise such as backpacks, clothing, dinnerware, and various other school products, franchising their characters could increase LeapFrog’s cash flow as well as spread awareness of their brand. Strong Cash Flow Facilitates New Product Development LeapFrog’s product success relies on equipping its products and services with the newest technologies, as well meeting the demands of an ever-changing market. As LeapFrog’s cash flow continues to grow, their cash reserves will also.
Thus, LeapFrog can use its strong future cash flow (from its operations overhauls, new product lines and strategy) towards R;D in order to develop of new, state of the art high-margin products. Expanding Advertising LeapFrog advertises, but not as heavily in traditional media, such as television. As part of LeapFrog’s new Learning Path strategy, the company put an emphasis on direct marketing towards current customers via the Learning Path system. This system has helped the company twofold: since its implementation, brand awareness has increased significantly, as has brand perception.
Furthermore, based on data collected by LeapFrog, the company “now [has] 3 million connected customers to [the] Learning Path system, up from 1 million customers a year ago. ” Although this marketing strategy has been successful within its current customer base, it would highly beneficial for the company to increase their media presence so as to draw in new customers; the more aware their potential market is of the products available, and where they can be purchased, will allow LeapFrog to sustain their success in the future.
Expanding Market in Europe and the Asian Rim To increase market share, the brand should partner with a well-known character such as Mickey Mouse. The partnership with Disney can expand market share within an instant. Learning the ABCs with Mickey Mouse is inviting. This partnership of “name recognition” along with the software translation partnership with Microsoft will instantly allow the brand to be sold in countries that the brand is currently not in due to the language barrier. Growing interactive reading segments facilitate growth
In 2009, LeapFrog invested in Tag, a school reading system that offers stories and skill-building activities to develop early literacy skills and engage students in the learning process. Upon investing in Tag, LeapFrog launched Tag Junior in order to further expand their reading-aid market. As one of the fastest-growing learning platforms, the Tag franchise increased sales in LeapFrog’s interactive reading segment by 41% in 2009 alone. Additionally, the software to hardware ratio of Tag sales was approximately three-to-one, thus greatly contributing to the gross segment margin.
This investment provides new channels for LeapFrog’s interactive reading business, as demand for electronic reading products is continuing to grow. Grow Sales by Capitalizing on Innovative and Attractively Priced Products in Product Portfolio High retailer inventory levels at the end of 2008 negatively impacted overall sales by 40% during the first three quarters in 2009. However, during this time, LeapFrog saw their attractively priced Scout line grow to 33% of net sales by the end of the period.
This showcased the growing trend of price-conscious decisions by consumers, which will likely continue into 2010 and drive revenue growth in the future. Not only can the provision of lower-priced products increase sales from current customers, but it will also make LeapFrog’s product more attractive to the new buyer, who might otherwise be deterred from LeapFrog’s high-end pricing. New Distribution Channels Competition is getting stronger within the industry, and with the debut of many new and successful products, LeapFrog is in a great position to diversify its distribution channels as it expands its customer base.
While they maintain their presence at the three big retailers (Wal-Mart, Toys-R-Us, and Target), an increased focus on electronic stores, department stores, and online retailers would greatly boost their market presence, accessibility, and brand awareness, in order to further penetrate and expand its market and acquire new customers. This would also help to eliminate some of the complications related to having limited distribution points: by decentralizing distribution to include smaller stores, electronics stores, and department stores, LeapFrog can resist pressures from big-box stores to lower prices, and prevent erosion of their margins.
New Marketing Channels A very important component in LeapFrog’s product marketing and customer relationship design is that of LeapFrog’s recently-debuted Learning Path strategy. Started in 2008, this strategy allows the My Pal Scout and My Pal Violet learning toys (of the Scout line) to be personalized, connecting the toys to the online Learning Path system and providing connected customers with customized feedback on their children’s learning progress. This system also allows LeapFrog to start building relationships directly with these connected customers.
In doing so, LeapFrog is able to tailor their product offerings to each individual customer, according to his or her preferences and their child’s educational progress. In this way, LeapFrog’s Learning Path is able to monitor the child’s development, graduating the child to more advanced learning platforms as necessary. Not only has this new marketing channel been successful so far, it continues to grow at a rapid pace, from 1 million connected customers in 2008, to over 3 million in 2009.
Threats Competition In both the U. S. and internationally, LeapFrog’s competition rests primarily in the pre-school and electronic learning aids categories of the toy industry. Competition is significant in these areas, measured in terms of performance, quality, brand recognition, price, and learning content. LeapFrog positions itself as a product leader, selling “products [that] are sometimes viewed by consumers as premium goods, more expensive than our competitors’ products. As such, it faces the challenge of competitors who can undercut LeapFrog’s pricing by offering similar products of a lesser quality and caliber, while also benefitting from the research that LeapFrog invested into the product. Additionally, much of LeapFrog’s competition has existed in the industry long before 1995. Thus, a competitive advantage exists in terms of better infrastructure and brand recognition. LeapFrog’s main competition include Mattell, Inc. operating under its Fischer-Price brand, Hasbro, Inc. under its Playskool brand, and Vtech Holdings, Ltd.
Other industries in which LeapFrog faces stiff competition are those of computer products, electronic and online games, and interactive gaming systems. These include gaming platforms such as Sony’s PS3, Microsoft’s Xbox, Nintendo’s Wii and Apple’s iPhone and iTouch, as well as the software available for these various devices, as many include online gaming and interactive services, not unlike LeapFrog’s. Threat of Imitation Products LeapFrog relies on various trademarks, copyrights, patent rights, and contracts in order to protect their brand, products, and differentiate themselves from their competition within the industry.
However, as many of LeapFrog’s property rights include licenses from third parties, there is a possibility that these licenses and related technologies could be shared with competitors, which could severely weaken LeapFrog’s competitive position within the market. Poor Economy As mentioned earlier, decreased demand due to a poor economy caused major miscalculations in LeapFrog’s production forecasts. As LeapFrog primarily positions itself as a high-end producer of educational electronics, it runs the risk of alienating an evolving market and finding many of its products with weak demand.
Thus, failure to predict accurately and respond in a timely and efficient manner to customer demand can harm LeapFrog’s business and operating results. Limited Manufacturing Contracts LeapFrog currently has a limited number of manufacturers with which they do business. Mostly based in China, these manufacturers were selected few in number in order to “maximize the use of outsourced services, particularly with respect to the actual production and physical distribution of our products. LeapFrog does not currently hold any long-term contracts with these manufacturers, and is thus subject to periodic renegotiations of terms and conditions regarding manufacturing, purchasing, pricing, and production standards. Furthermore, the absence of long-term contracts opens the manufacturer up to prepositions by competition, leading to the possible loss of a key manufacturer. Supply Shortages Some of LeapFrog’s products require components that are currently sourced from single suppliers.
Because of this, LeapFrog has had to deal with emergency shortages, such as in 2009, when they learned that one of their sole-source suppliers of a computer chip used in one of their products was closing its operations, thus forcing LeapFrog to negotiate a license to use the chip’s technology and purchase it directly from the chip’s plant. These emergencies and subsequent market day transactions significantly increase production costs. Furthermore, it is possible that in another event such as the one in 2009, LeapFrog could be forced to redesign a product’s technical makeup in order to continue production.
LeapFrog sums their problem up well in their 10-K report, stating, “We depend on our suppliers for our components and raw materials, and our production or operating margins would be harmed if these suppliers are not able to meet our demand and alternative sources are not available. ” Highly Changeable Consumer Preferences and Toy Trends The nature of LeapFrog’s industry means that their products have very short life cycles, subject to the current technology and consumer demand trends. Furthermore, development of a new, cutting edge product may mean long periods of R;D before the product is ready for the market.
As such, it is essential for LeapFrog to be able to correctly identify and forecast changes in the marketplace and future consumer trends. Without properly identifying these elements in the product development process, LeapFrog runs the risk of launching a failing product. Seasonal Fluctuations in Sales A large amount of LeapFrog’s sales during the year occur during the holiday season, with a substantial amount of the company’s annual operating results depending on that period. Consequently, the company has experienced (and foresees in the future) operating losses in the first and second quarters of the year.
As such, if the economy experiences a downturn during the third and fourth quarters, LeapFrog’s operations for the entire year could be severely hurt. Furthermore, if LeapFrog’s retailers misjudge holiday demand and do not sell all of their inventory during that time, LeapFrog’s operations will be hurt further during the off-season, as happened in 2009, causing a 17% loss in sales. Web-Based Success LeapFrog has been moving many of its products to a web-based platform, and many of their products now require Internet access and installation of software by the customer on their home computer in order to use the product.
Although the number of web users in the U. S. is increasing, LeapFrog still runs the risk of alienating the part of their customer base who may not have internet, or may not want to buy products requiring software installation and computer knowledge. As the company continues to move forward with their web-enabled product strategy, this strategy may hurt their returns and sales in the future. Furthermore, in other Loss of Key Company Officials With the onset of the current recession, many companies are laying off personnel and overhauling their operations in order to increase efficiencies and increase profits.
Consequently, successful key personnel are in high demand. As a smaller company than many other key players in the industry, LeapFrog faces the possibility of losing high caliber personnel to competitors such as Mattel or Hasbro. With an unexpected loss such as this, LeapFrog’s competitive advantage and position in the market could be severely compromised. Brand Image Affected by Product Recalls LeapFrog has experienced several product recalls in the past couple years, ranging from product decals that came off of their products to battery chargers that had the potential to overheat and burn the consumer.
These recalls have been relatively minor in comparison to others in the industry. However, as LeapFrog’s brand is recognized for quality educational products and sells premium goods, more expensive than our competitors’ products, this isn’t good for their image, and could hurt their sales in the future if the company errs in product testing. Furthermore, as the company operates using manufacturers who are mostly based in China, LeapFrog runs the risk of utilizing a manufacturer who does not adhere to the strict production standards that exist in the U.
S. Strategy Selected In order to fully capitalize on the popularity of gaming consoles such as the Wii, Playstation 3, and Xbox 360, LeapFrog will partner with Disney Interactive Studios to develop learning products for all three consoles. These products would allow LeapFrog customers to experience the educational benefits on a whole new level, and would allow Disney Interactive Studios to put their name and programming strength behind products that are respected for their teaching ability and benefits to children.
LeapFrog will therefore be decentralizing its product lines, from proprietary-console based, to third-party console capable, in order to create more value for their consumers. The learning products offered will include basic introductions to math, science, reading and language skills, and foreign languages, as well as more advanced versions of the aforementioned topics. This will allow parents to find the appropriate challenge level for their children, as well as the opportunity to help their children remain interested in learning and to provide appropriately-designed educational challenges.
Making a connection to third-party consoles is ideal, because the products are internet capable, which will mesh nicely with LeapFrog’s already-popular Learning Path system. Utilizing the internet as a learning tool has been very important to LeapFrog’s current successes, and in moving away from separate-console type products, connectivity to the internet is very important. SWOT related to strategy Strengths Brand Equity LeapFrog hopes to capitalize on the strength of its name and branding with the development of new software designed for third-party consoles.
Additionally, the strong brand equity of Disney Interactive Studios will only serve to aid in marketing and selling LeapFrog/Disney Interactive Studios products. Parents and educators can trust that the combination of the two will produce a product that parents and teachers can feel good about encouraging their children to use. Learning Path System LeapFrog has already embraced customization and internet connectivity in the Learning Path System.
This system would be integrated into all new products developed with Disney Interactive Studios, and would make the software user-friendly, as well as allow LeapFrog to track user demographics to better serve customers in the future. Name Recognition Similarly to its strong brand equity, LeapFrog will take advantage of it’s strong name recognition to build customer awareness and confidence in it’s new venture with Disney Interactive Studios. The Disney name is also a strong one, and that strength is a key reason that Disney Interactive Studios was chosen to develop the new software. Weaknesses Safety Risks
Safety risks have posed issues for LeapFrog in the past. This weakness will be mitigated through the development of learning software, because there will be fewer parts involved, and therefore, the products will be safer for users. Limited Manufacturing Base Because LeapFrog is so dependent on a limited number of key suppliers and contract manufacturers, the impact of events pertaining to those suppliers and manufacturers on LeapFrog is difficult to mitigate. By selecting a strategy that will allow for a close-knit, mutually-beneficial business arrangement, LeapFrog can reduce the impact their manufacturers can have on their business.
Releasing software, instead of proprietary consoles, means that LeapFrog will have a line of products that is less supplier and manufacturer dependent. Short Product Life Cycle LeapFrog’s current portfolio of products has a limited lifespan, as children can quickly outgrow them. LeapFrog aims to correct this issue with the development of software that is highly interactive and that allows users to progress educationally without purchasing a separate new console each time. High Price Point Some might consider LeapFrog products too expensive, or unreasonably pricey.
One of the major benefits to designing products for third-party consoles is that people already own them. They do not need to commit to a new system – just purchase the products like they would a game, and they are set to go. Additionally, because LeapFrog will not be creating a separate console system to go with the new products, there is not the added expense for consumers of purchasing a system and games, only to have the child outgrow the system (and therefore all of the software with it). Opportunities Strong Cash Flow
LeapFrog’s positive business results will enable them to spend to improve their business. By developing new products that are both user-friendly and parent-friendly, they are investing in future business growth, which will help them weather any lingering effects of the economic down-turn. Threats Supply Shortages Because of the intricacy of the LeapFrog console systems, part shortages could be crippling. Moving to a software, instead of hardware, focus, will allow LeapFrog to balance the risks associated with supply shortages with products that are more easily made from any number of producers.
Web-Based Success It would be possible for the success of LeapFrog’s internet-based Learning Path System to alienate some customers, but those customers are really outside the market LeapFrog is pursuing. Because of the success of the Learning Path System, LeapFrog will be further utilizing it in the new software. Since the third-party gaming consoles are already internet-capable, the pairing of student and path will be simple, and beneficial to parents, children, and LeapFrog analysts, who can use the data collected to develop better products. Strategic Alternatives
Strategic Alternative #1: Market Expansion through the change of LeapFrog into a Green Company This strategic alternative is dedicated towards reaching to a new market; specifically, those consumers who will only buy green products. According to Central Penn Business Journal, “90 percent of Americans said they sometimes buy green products. ” According to another article, “in a study of 200 organizations worldwide found that top-performing sustainability programs enable organizations to reduce their carbon footprint by 9%, facilities costs 7 percent, energy costs 6 percent, and paper usage 10 percent.
Such organizations also have improved customer retention by 16 percent. For most best-in-class firms, sustainability drives all or some of their overall business strategy. ” It is essential to their long-success that companies provide evidence of their positive social and environmental impacts. Becoming an eco-friendly company starts within the actual organization and must be deeply embedded into its business culture. LeapFrog will encourage workers to bike to work, or at least to carpool.
Bike racks will be built by entry points and changing and locker rooms will be built for workers to keep their bikes and change if they so desire. Special parking will also be employed close to entry points for carpoolers. Workers will be educated and trained on recycling and waste reduction. LeapFrog will then focus on corporate efficiency. LeapFrog will collect rainwater on the roof tops and use this to irrigate or install a plumbing system that uses the rainwater collected of the roof to flush the toilets. This water is not drinkable so it is only for toilet usage.
LeapFrog will also install high efficiency fixtures that have a low flow rate so water is not wasted in faucets. These fixtures will also contain motion detection so that water does not go unused for faucets left running. These motion detectors will also be used on all light switched so lights are only on when movement is detected. Unnecessary lighting on the exterior of the building will be removed to avoid light pollution and to save money. Next, to guarantee that the mechanical equipment is performing to the best of its abilities, the heating, cooling, electrical and plumbing will need to be check biannually.
An energy commissioner can be hired by the company to do this check and guarantee the equipment is functioning at peak efficiency. For more precise control as well, individualized ventilation and thermal control will be provided. LeapFrog may also invest is solar panels or photo-voltaics on the rooftop collecting solar energy that can by transformed into electrical power for lighting and heating. While these costs will be expensive up front, the long-term benefits to the company, the environment, and the general population will offset the costs.
Additionally, companies can buy “green power” by investing in the green program of their energy provider. Nearly all large energy companies, such as WE Energies, have this green option; essentially, a company purchases credits to offset actual energy usage. Finally, a recycling program will be implemented and organized with the city for pick-up. All different recyclables materials need to have separate, centrally located disposal areas throughout the workplace so that all workers have access and understand their uses.
During the building use every day, the building should reuse material and get materials from local companies. Using local companies supports the city infrastructure and reduces pollution from material transportation to and from the buildings. All products will be made from post-consumer products and recycled materials to support an eco-friendly company. The cost of becoming an eco-friendly company is different for every organization. The construction department has informed us that going green is 12-15 percent of the operating expenses.
Operating expenses in 2009 were $166,400,000 with 12% would result in $19,968,000. However, after the initial costs are invested, going green will save the company 1% each year. As research stated previously, customer retention can be increased by 16 percent through the development of going green. Using post-consumer products, recycled materials, educating and training employees, focusing on corporate efficiency and making sure that LeapFrog’s building and operations are eco-friendly, is the key to successfully implementing this strategy.
Strategic Alternative #2: Adaptation to current economic trends-Pricing strategy LeapFrog products, while educational, are still discretionary purchases. Furthermore, LeapFrog currently has a higher-than-average pricing strategy. Of LeapFrog’s products in its industry market, its prices are almost three times higher than that of their competitors, making purchasing a LeapFrog product a greater commitment and investment–one that may intimidate the average consumer.
In order to make their products more attractive for consumers, LeapFrog should take advantage of their low-cost manufacturing contracts in China and pass on savings to their consumers. Studies show that the packaging of some products can be as high as 40% of a product’s selling price. LeapFrog’s pricing would benefit from the development of a low-cost product packaging system that would use significantly less plastic (thus requiring less energy to make), and thinner cardboard on the boxes.
Not only would this take advantage of the current green trend around the world, but it would also decrease the product prices while not sacrificing the quality of the product itself. Taking into account the poor state of the current market both nationally and internationally, this strategy would not only express their commitment to consumer value, but it would greatly benefit the consumer, as this will allow customers to experience greater value from their LeapFrog products. Strategic Alternative #3: Market Expansion through product line geared towards High School and College Prep
The intent of this strategy is to broaden LeapFrog’s market from primarily ages 3-12 to include the entire high school and college preparation demographic. Students utilize all sorts of study aids in high school to study for classes and prepare to take national exams, such as the ACT, SAT, and AP class tests. Since at last count, there were approximately 16. 4 million high school students in the United States, this would afford LeapFrog with an excellent opportunity to provide interactive learning aids for students in grades 9-12.
These products would need to span a wide range of topics and would be formatted to be compatible with technology familiar to students, such as the I-pod Touch or I-Phone, as well as internet capable, since teens already utilize the internet for schoolwork on a regular basis. Because teens are often trend-focused and image-conscious, a separate LeapFrog console would not be the best way to deliver LeapFrog’s learning software. To develop applications for I-pod technology, LeapFrog would need to hire several software engineers and support personnel to research and design the learning material.
This would cost LeapFrog an estimated $70,000 each. Assuming that a team of 6 people would be able to complete the projects, this would cost $420,000. Assuming that some technology would need to be purchased as well to support this project, LeapFrog could expect to spend around $1 million for the development of the applications for one year. If the application were sold for $1. 99 on the I-Tunes store, LeapFrog would be able to make about 4 times their investment assuming that 25% of all high school students purchased the application.
Distributing the application through the I-Tunes Store would have the added benefit of enabling web-based feedback, and would also be a means of appealing to tech-savvy parents. Developing an online, paid-account site for online learning would also allow LeapFrog to reach students who are not Apple product users. This would really be a short-run plan, taking only 3 years to fully implement, but it would allow students who grew up with LeapFrog to stay with LeapFrog products through high school.
LeapFrog would be capitalizing on a market that is well-served in terms of study booklets, but that has fully embraced technology, and would likely seek out higher-tech means of prepping for the ACT, for example. Strategy Selection Criteria The strategy that was our company selected was for LeapFrog was to partner with Disney Interactive Studios to develop learning products for the three main consoles (Wii, Playstation 3, and Xbox 360. ) To do this LeapFrog will decentralize its products and hire both software and design engineers to transform the LeapFrog learning system onto a third-party console.
First, we decided to go into the third-party gaming industry as it is becoming widely used in a large range of ages (as noted in the chart below). Figure 1 – Age Demographics For Leading Gaming Consoles http://www. wiitalk. co. uk/forums/general-wii-discussion/14866-demographics. html When selecting the software developing company to partner with we first looked at popular companies and then looked at companies that had a centralized appearance of “family friendly”.
After this we realized that LeapFrog currently has a partnership with Disney and as Disney has its own software development system decided it would be beneficial to partner with Disney Interactive Studios. Also, as emphasized in a 2003 press release “by combining Disney’s classic characters with LeapFrog’s leading educational products, parents who grow up with Winnie the Pooh can help their children learn with Pooh in an entirely new and interactive way. By Disney characters into education software for the three main counsels LeapFrog can capitalize on both the overall awareness of Disney and the Disney characters and also on the current video game market which as you can see from the chart below is projected that between 2006 and 2011 gaming sales should grow by 38 percent. Figure 2 – Projected Us video game revenues (in Billions) http://arstechnica. com/gaming/news/2007/08/gaming-to-surge-50-percent-in-four-years-possibly. ars Although there will be a significant cost involved in this implementation we feel that the benefits will outweigh the cost.
According to an article on Ubisoft (a competitive software development company) it is expected to cost $18. 8-$28. 2M to create a video game for PS3 and Xbox 360, another $7. 8-$9m to create a Wii game and another $500 K for marketing and sales development. To look into the approximate revenue of this implementation we must first look at how many people own one of the three gaming systems. According to Deloitte 60 percent of U. S. homes own a video game console. With this information and the information from the Real Estate Bloggers (the United states has 129. 4 million homes- 18. million of whom are vacant (The Real Estate Bloggers:United States Has 129. 4 Million homes- 18. 6 Million of Whom are vacant. It is guessed that there are about 66 million homes that have the necessary system to play these games. Although it is known that not every game console player will purchase these games it can be guessed that approximately 20% will purchase one of these games, 15% of the gaming population will purchase 2 of these games and 10 % will purchase 3. Game| Development cost| marketing/sales | Selling Cost| Intro to English| 6 million| 250K| 39. 9| Intro to math| 6 million| 250K| 29. 99| Intro to Science| 6 million| 250K| 29. 99| Intro to German| 6 million| 250K| 39. 99| Intro to Spanish| 6 million| 250K| 39. 99| Intro to Italian| 6 million| 250K| 39. 99| Intro to French| 6 million| 250K| 39. 99| Intro to ASL| 10 million| 300K| 49. 99| Intermediate English| 5 million| 200K| 39. 99| Intermediate math| 5 million| 200K| 29. 99| Intermediate Science| 5 million| 200K| 29. 99| Intermediate German| 5 million| 200K| 39. 99| Intermediate Spanish| 5 million| 200K| 39. 99| Intermediate Italian| 5 million| 200K| 39. 99|
Intermediate French| 5 million| 200K| 39. 99| Advanced English| 4. 5 million| 200K| 39. 99| Advanced math| 4. 5 million| 200K| 29. 99| Advanced Science| 4. 5 million| 200K| 29. 99| Advanced German| 4. 5 million| 200K| 39. 99| Advanced Spanish| 4. 5 million| 200K| 39. 99| Advanced Italian| 4. 5 million| 200K| 39. 99| Advanced French| 4. 5 million| 200K| 39. 99| Advanced ASL| 8 million | 300K| 49. 99| | | | | | | Although this seems like a significant amount of money the development and overall prices will be spread throughout a 5 year cycle and as shown in the 2009 Quarter 4 Financial Reports LeapFrog Inc. as had a 37% increase in net sales and therefore has had a growth of 188. 6 million in the 4th quarter alone which would be more than enough to financially support the implementation of the learning software Also, by partnering up with Disney they will also be partially financially responsible for the financial expense going into creating the game. Initial costs associated with overhauling operations and changing manufacturing processes will be high. However, the cost savings outlined above that LeapFrog will gain by eliminating and condensing operation costs will greatly benefit the company in the long run.
Additionally, with a product tied to the Nintendo name, PS3 and X-box 360, LeapFrog will be able to share success from the gaming industry boost their own. The partnership with Disney Interactive Studios will greatly benefit LeapFrog because they are already currently working with this company and ties can only increase. Implementation Our goals for partnering with Disney are to combine their being known as the standard for children’s entertainment and LeapFrog’s being the standard in education to provide one power-packed combination.
Disney Interactive gets more publicity and a positive brand connection, and LeapFrog gets the advantage of working with a kid-friendly, parent-approved developer for their games. Marketing will be implemented through a variety of different television commercials and advertisements in family-oriented magazines. One of our strategic goals will be to implement an interactive character profile that will track the users age, location and previously owned or played games to track what users are using specific software.
This will allow LeapFrog to develop higher levels of software in topics that are popular, and could help plan for inventory levels as children finish basic levels, and would be seeking a new challenge. Year 1 During year 1 LeapFrog will establish a partnership with Disney Interactive to produce software formatted for the three major consoles in the market: Nintendo WII, Sony Playstation 3 and Microsoft Xbox 360. In year one, LeapFrog and Disney Interactive will analyze the gaming market to figure out specifically what consumers are demanding.
Once the specific requirements of the user needs are defined, LeapFrog and Disney Interactive will begin the design of all software listed below for the three platforms previously listed. Software to be designed 1. Introductory software for English, Math and Science as well as introductory software for languages: German, Spanish, Italian and French. 2. Beginners software for sign language According to SignGenius. com, American Sign Language (ASL) ranks sixth in the United States after Spanish, Italian, German, and French, with up to ,000,000 “speakers” of the language in the U. S. alone. 3. Reading Book The reading book software will be accompanied by a book and workbook. The user will read the book and then follow instructions on the TV screen to hear the page that the user read. Focus will be given on pronunciation and meaning. The user will also have the opportunity to go along with the TV as the story is being read. The software will be interactive in that it will tell the user “good job, do you have any questions? et’s try this again,” and will allow the user to move forward, go back and help the user understand the story. The workbooks will contain questions related to the stories as well. The user will be able to fill in the actual workbook and then check the answers on the TV. 4. Intermediate software for English, Math and Science as well as Intermediate software for languages: German, Spanish, Italian and French. 5. Advanced software for English, Math, and Science as well as advanced software for languages: German, Spanish, Italian and French and advanced software for sign language. Year 2
The design for all software will begin: English, Math and Science, Introductory, Intermediate and Advanced Languages, Reading Book, and sign language technology. The software for introductory English, science, and math as well as introductory software for languages will be completed by end of year 2. Year 3 Marketing for all introductory software will be held in year three from January to August. All introductory software will be launched by September due to LeapFrog being a seasonal business with high sales in the 3rd and fourth quarter as well as students going back to school in September and shopping for the holidays.
The design for all intermediate software, Reading Book and beginners sign language will be completed by end of year 3 Year 4 Marketing for all intermediate software, Reading Book and beginners sign language will be held in year four from January to August. All Intermediate software will be launched in September as well as the software for Reading Book and software for beginners sign language due to LeapFrog being a seasonal business with high sales in the 3rd and fourth quarter as well as students going back to school in September and shopping for the holidays.
The design for all advanced software will be completed by the end of year four. Year 5 Marketing for all advanced software will be held from January-August. All advanced software will be launched in late August due to LeapFrog being a seasonal business with high sales in the 3rd and fourth quarter. This trend is based around back-to-school time, as well as holiday shopping patterns. All software will be fully interactive to bridge the gap between education and entertainment. Operations/Logistics/HR Developing software for gaming consoles is complicated business.
In order to keep costs down, LeapFrog will be outsourcing the development of the products to Disney Interactive, because, in lacking the applicable expertise currently, it would be more cost effective to source development through a company with more experience. Disney Interactive would be responsible for executing the code development for the plans set by LeapFrog. Specifications would be written as precisely as possible to streamline the development process. LeapFrog will, in this way, avoid having to hire an in-house team of developers and designers, and would instead rely on the programming abilities of the Disney Interactive team.
LeapFrog will handle the marketing and promotion of all of the Disney developed products, but will be outsourcing all of the game production to Disney Interactive. Finance Accounting As mentioned in the SWOT analysis, LeapFrog spends a great deal of money on research and technology development in order to stay on top of the industry. Additionally, changes in technology lead to changes in the products that the company manufactures. Changes such as these cost the company money, and hurt their profit margins as operating costs increase.
LeapFrog’s research and development expenses are currently $34,981,000–approximately 22% of LeapFrog’s revenue in 2009. By partnering with Disney Interactive Studios, LeapFrog will increase its net income substantially, as Disney Interactive will now be developing the software. This increase in net income will significantly help LeapFrog’s bottom line, and be a wise investment in terms of market capitalization. According to the 10-K report of EA Games, a major game development company, a typical game cost around $10,300 to make.
Considering that Disney Interactive Studios will not be focusing on state-of-the art graphics while producing these games, but rather the games’ content, this number resonates well. This strategy will help the LeapFrog company twofold: By partnering with Disney Interactive Studios, LeapFrog will be able to see its games formatted for all three major gaming consoles, as Disney Interactive Studios produces games formatted for Sony’s PS3, Microsoft’s Xbox, and the Wii. Furthermore, with a partnership with “The Big Three” (Sony, Nintendo, and Microsoft), LeapFrog will not need to invest as much in manufacturing overhead and operations.
Additionally, as Nintendo will be the ones doing most of the technological research for their playing consoles, LeapFrog will have extra cash flow to invest in creating better games for their customers. LeapFrog’s main focus is on margins. As the company makes most of their margins in the software they sell—and not the learning platforms needed to run the software—a partnership with the gaming industry is a feasible and economical idea. In order to market these educational games LeapFrog will need to originally spend approximately $250,000 per game.
This is half of the normal marketing/sales development because it is a educational game and with that the commercials and advertisements can be more simple then the customary intense graphic (design) that goes into these types of media. Secondly, after the first sets of games are produced the amount needed for marketing/sales will decrease by about $50,000. This decrease is due to the ability to not only using some of the designs of the current ad’s but to also rely less on marketing to create a new campaign.
Information Systems/Infrastructure As part of LeapFrog’s strategy relies on the collection of data from its customers, it will need to implement a fairly extensive management information system into their operations to keep their goals in sight and meet their customers’ needs. Furthermore, as part of LeapFrog’s goal in the long run is to pass its cost savings on to its customers, implementing a MIS infrastructure will ensure that LeapFrog’s information management and customer relationship management will be handled as efficiently as possible.
Working with SAP to implement a MIS will help the company in many ways, firstly being that it will better identify customer preferences and demands. Not only will this aid LeapFrog in their software development, but the information gathered from the customer can be used to identify future marketing strategies. Secondly, a good MIS will have the controls necessary to clearly define tasks. This will help both reduce redundancy in operations, and rid operations of duplicate costs associated with redundant tasks.
Another benefit of a good MIS is that it will increase productivity, and streamline the business support system landscape. These benefits will aid the company twofold: from a finance standpoint, increases in productivity will increase LeapFrog’s savings and margins, as the ROI will be much greater. Secondly, from a customer relationship management standpoint, a streamlined business-support system will help the company address customer issues and ameliorate problems that may arise with products or services.
One of LeapFrog’s tactics is that it will be collecting demographic and preference data from the consumer as he or she plays LeapFrog’s products. Implementing a MIS system to meet these objectives will improve and automate customized offers and incentives to potential customers based on collected data, thus enabling marketing professionals to spend more time on strategic tasks. Furthermore, it will also provide provide increased strategic control by providing access to global statistics, including aggregated data, thus reducing research lead time.
Lastly, as LeapFrog will be working directly in correlation with Disney Interactive Studios the companies will need a good way to share data, work, and information with each other as they pool their resources and specialty personnel to develop these games. As such, LeapFrog’s information technology will provide a flexible, scalable system that would enable common content management activities between the two companies, but at the same time allowing each company to handle their own operations. Controls
To determine the effectiveness of the overall software satisfaction, marketing process and sales distribution a variety of controls will be set into place. First, to check the effectiveness of the marketing campaign for the various educational games LeapFrog will include an address at the bottom of the magazine advertisements that will direct the reader to go to a website and fill out information. To encourage people to go to this site and fill out the information a reward of a $5 off coupon will be marketed as well.
Secondly, Similar to the magazine advertisement log-in there will be a phone number that parents can call to receive more information on the products as well as pre-purchase/register for the games before they are sold to the general population. This will monitor the overall effectiveness of the TV commercials. Thirdly, so LeapFrog can better understand their current demographics so they can better cater their primary audiences (i. e. Are they younger kids, middle school children or adults) when creating the software LeapFrog will add a Character profile page that will allow the users to fill out general information about themselves.
With this information LeapFrog will better know how to focus on their targeted audience, whether it be to add characters that reflect the past or if its primary audience is younger kids then to possibly look into implementing playhouse Disney characters into the lessons. The fourth control will be the overall sales of the intermediate and advanced software. With this data LeapFrog will know if their products were successful as people are purchasing the next product in the line and were thus happy with the first. The final control that will be implemented is the overall sales in the LeapFrog industry.
Although sales are continuing to increase if there is a dramatic increase in the sales of the LeapFrog products they will know that they have positively increased into a new market segment by introducing the educational software/games for the 3 consoles. Contingency Plan Our contingency plan for LeapFrog will be strategic alternative #3; to broaden LeapFrog’s market from primarily ages 3-12 to include the entire high school and college preparation demographic. Students utilize all sorts of study aids in high school to study for classes and prepare to take national exams, such as the ACT, SAT, and AP class tests.
This strategy was selected based on a short implementation period as well as low costs. Providing applications for the entire high school and college prep demographic, would allow LeapFrog to gain a significant market share as there is a need for such applications. There is an implied notion in today’s society that one must attend college to become successful. If LeapFrog can successfully deliver these entertaining yet educational applications through various platforms, they could compete with current software and resources for students preparing for college. Bibliography
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