Imagician’s Competitive Strategy: Building a Challenger Brand in Indian Toy Industry
While no one would dispute the importance of toys for children, the companies manufacturing them would be scrutinized for their financial prudence, market share, ROIs, etc. Having worked in toy Industry for about 2 decades and convinced with its imminent business potential, Adnan Chara (Adnan), CEO and MD, established Imagician Playthings LLP (Imagician) in 2016 and clocked in a revenue of INR10 crore within a year. While the organized players command 30% of the Indian toy market, it is the small and local players that have 70% of the Indian toy market.1 Buoyed by the initial success and the growth potential Adnan set out for himself the target of clocking in revenues of INR100 crore by 2022. However, with both domestic and global players charting aggressive market penetration strategies and being present for more than a decade, and with the ever-changing kids’ toy requirements, would Adnan be able to succeed in making Imagician a challenger brand in Indian toy industry?
Indian Toy Industry
History of Toys in India
India had a glorious tradition of toys since the days of Harappa and Mohenjadaro civilizations (5000 years ago). Toys were designed on the basis of how a child would react to them. They were not just meant for a child’s entertainment but also to develop their minds, social development, impart learning, and its application to real life. Indian traditional toys and games were simple, easy to use, colourful and took inspiration from nature, the surrounding environment and people’s lifestyles, prevalent tradition and culture of the region (toys of gods & goddesses, puppets, dolls, miniatures of various items like carts, utensils, pots, cups, fruits, animals, birds, vehicles, etc.).
There was huge diversity in the style of traditional toy making across India because of its varied cultural and traditional practices. Toy making was majorly a cottage industry, where toys were produced by local artisans and craftsmen communities spread across India. These communities worked with many materials, including terracotta, wood, clay, reeds, glass, pith, bamboo and paper-mâché.
Every state or region produced different kind of toys. While many art forms of toy making got lost in history, some regions still carry on the tradition of manufacturing ethnic toys and keeping the tradition alive (Annexure I)..............
The Toy Industry in India
As of 2017, the global toy market was pegged at around $85 billion-$90 billion – dominated by five major players namely Mattel, Namco Bandai, Lego, Hasbro and Jakks Pacific – and was projected to reach $166.2 billion by 2024, driven by innovation, technological developments and launch of smart toys and educative games. However, India’s share in the global toy market was just about $400-$425 million i.e., only 0.5% of the overall market. The Indian toy market, as of 2017, was valued at INR8,000 crore – with market share owned in the ratio of 3:7 by the organized and unorganized sectors respectively. However, the industry was expected to grow at a CAGR of 20% and be valued at INR24,883 crore by the year 2020.8 Quite a few reasons are often cited for the potential growth of Indian toy industry................
The China Factor
D S Rawat (Rawat), Secretary General, ASSOCHAM, said, “Only 20 per cent of the Indian market is served by Indian manufacturers and rest by import of toys from different countries mainly from China and Italy.” Between 2001-2012, Import of toys from both China and Italy expanded at a Compound Annual Growth Rate (CAGR) of over 30%..........
Competition
The organized toy sector in India was dominated by only a few home-grown and MNC brands, with Funskool (established in 1987) being the market leader with revenue of INR220 crore in 2017 (Exhibit IV). Apart from its own brands, Funskool also manufactures and distributes products in the Indian market under license from foreign toy brands including Hasbro, Lego, Disney, Warner Bros., Takara Tomy, and Ravensburger.
However, some of the MNC brands that entered India through joint ventures (JVs) and marketing arrangements with the Indian companies earlier (as they lacked knowledge of Indian market and had no distribution network), have now either established their own subsidiaries or have taken up to local sourcing and manufacturing...........
Imagician Playthings LLP
The germination of Imagician took place when Adnan participated at a B2B Toys Fair in Mumbai, in 2014, where all organized players of toy industry had put up their product offerings. There were 130 booths of MNCs, importers and domestic manufacturers put together. Upon further research Adnan found that all of them represented just INR650 crore of organized toy industry with top 5 players grabbing INR300 crore, and the remaining 125 players just making an average annual turnover of INR3 crore...............
Imagician’s Business Model
Imagician operated as a distributor for various global toy brands (B.K. Balloons, Kiddy Mat, Mookie, Safsof, RenArt, Tekno, Tosy, Wedgits, WavePlay, Welly, etc.) as well as manufactured its own labels (Craftival, Imagi Builder, KidsVilla, Kratos, ThrillPort and Wepon) across various toy segments, each fulfilling a special edutainment need of the kids (Exhibit VI)...........
Building a Challenger Brand
Kids and their playing needs have changed rapidly over the years. Traditional toys (toys made out of wood, clay, metal, glass, etc.) were replaced by colourful and cheap plastic toys, which were again replaced by electronic and remote-controlled toys.......
Changing Consumer Preferences
One of the biggest challenges for the toy industry is the emergence of video/mobile games that have eaten into the market shares of traditional and modern toy manufacturers like Mattel, Funskool, Lego, etc. However, Imagician stayed away from the mobile gaming products and says that rest of the categories/segments would continue to have large market.............
Increasing Competition
In 2018, Sony Pictures Networks India (SPN) had decided to enter the Indian merchandising business – pegged at INR2,200-2,500 crore37 – like its rivals Walt Disney (Hungama, Disney Channel, Disney Junior), Turner International (Cartoon Network and Pogo) and Viacom18 (Nick, Nick Junior and Sonic). SPN had signed a multiyear licencing deal with Mumbai-based brand licensing company Black White Orange Brands (BWO) to exploit the portfolio of its kids’ channel: ..............
Increasing Government Support for Indian Toy Industry
High import duty on the raw materials and low import duty on finished toys was affecting the small and medium manufacturers of toys in India. However, in September 2017, the Government of India had come heavily on the quality norms/criteria and mandated to have a ‘certification of compliance’ by accredited agencies. With this, the industry had witnessed a drop in the imports..........
Market Opportunity for Imagician
Adnan supported the government’s move and had his hopes high that the recently-rolled out GST (in 2017) would massively increase the size of the organized industry. He reckoned, “Unorganized players thriving on importing with under valuation and evading taxes will get hit hard.”
Adnan said, “In Imagician’s blue-print, GST implementation by the current government was always a critical milestone by way of which the unorganized players (thriving on importing with under valuation and evading taxes of the land) would have a substantially weakened base and our carefully sourced own labels give the first option to the retail channels across India to replace their unbranded and unsafe consumer offerings with the legit, synergistic looking, laced with global packaging standards, child-safe toy labels with aggressive consumer prices and with mouth-watering variety...............
Assignment Questions
I. Discuss the nature and business dynamics of Indian toy industry using Michael E. Porter’s Five Forces Model.
II. What is a business model? What is Imagician’s Business Model? Would this business model help Adnan achieve his target of INR100 crore by 2022?
III. ............
Exhibits
Exhibit I: Toy Industry Value Chain
Exhibit II: Large Toy Manufacturing Units and Clusters in India
Exhibit III: Import of Toys in India
Exhibit IV: Share of Various Brands in the Indian Toy Market
Exhibit V: India’s Competencies as a Toy Manufacturing Hub
Exhibit VI: Toy Segments and Brands – Imagician’s Brands (in Bold)
Exhibit VII: Imagician’s Operating Model
Exhibit VIII: Indian Toy Standards Prescribed by BIS
Exhibit IX: Market Opportunity for Organized Players
Annexures
Annexure I: Traditional Toy Clusters in India and product categories
