Passion for Learning Case Analysis

Passion for Learning Case Analysis

Background:

Andrew Popell, founder and president of Passion for Learning, started a direct mail order catalogue company in 1994 that exclusively sold educational toys targeted at elementary-school children between the ages of 6 to 12. After sending out the company's first catalogue and receiving a disappointing .77% response rate, as well as discovering that specialty chains that focused on educational toys (such as Learningsmith, Zany Brainy, and Noodle Kidoodle) were all expanding rapidly, Popell needed to decide what strategy would fit best with the environment he was competing in.

Industry analysis:

Retail toy sales in 1993 were estimated at $17.5 billion dollars, and of those sales, approximately half were distributed amongst the five largest toy distributors – Toy's ‘R' Us, Wal-mart, Kmart, Target, and Kay-Bee. Over the past twelve years, expenditure on household toys had grown by almost 200% (from $265 in 1980 to $525 in 1992) because of the many baby boomer's with children who were entering their peak earning years. Moving forward, toy demand was expected to strengthen because of the onset of baby boomlet's that will be raising children and subsequently purchasing toys.

Competition between toy retailers was intense as they competed for lower costs. Toy's ‘R' Us expressed concern about slowing sales as they began experiencing pressure from discount retailers (IE: wall-mart and Kmart) as the discounters market share grew from 20% to 34% between 1989 and 1994 respectively. Large toy suppliers and mass merchandisers began networking and forming special agreements where they would create special discounts on volume or exclusive distribution on popular toys. Toy manufacturers wou...

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...tive advantage based on exceptional service (service that mass retailers and discounters cannot duplicate), it can capitalize on a niche market in the educational school system where word of mouth drives additional sales, and finally it can build up its reputation and brand name through educational learning centers and endorsements form the school board. Educational toy would only sell quickly if the purchase process itself was fun, and by offering different methods of purchasing products – through learning centers, retail outlets, and mail order catalogues – the company offered a hands on experience for first time buyers while also allowing repeat customers to convenience of purchasing through catalogue. Option one also boasted the highest terminal value, a net present value 4 times larger than option 3, as well as per shop revenue substantially higher than option 3.