Background Information LeapFrog Enterprises was founded in 1995 by Mike Wood. Origins date back to 1990 when Mike Wood had an epiphany. He was playing with his 3 year old son and trying to help him recognize letters. It was then Wood came up with the idea of phonemic awareness. Wood took $15,000 of his own money to invest in a patent. Upon advice from friend he had 20 mothers test the products marketability. Of the 20 mothers, all 20 loved the concept. In 1995 LeapFrog Enterprises released their first product, the Phonics Desk which integrates technology with research-based learning model for phonics instruction.
Toys R Us bought 40,000 units for the upcoming holiday season. This came out to be a $2. 4 million order and allowed Wood to leave his law practice. It was then the company was launched. In 1997 Knowledge Universe acquires 85% of LeapFrog Enterprises. KU President, Tom Kalinske joins LeapFrog as CEO and brings 30-plus years experience to the company. Also the acquisition brought $50 million of much needed capital to LeapFrog. In 2002 LeapFrog’s sales soared to $532 million which was an increase of 69 percent from the previous year. This took them to the third spot in U. S. oy company rankings. LeapFrogdominated two product categories: preschool electronic learning aids and nonpreschool electronic learning aids. It was in 2002 when LeapFrog successfully issued 9 million shares in its initial public offering. They were valued at $13 per share which raised $115 million for LeapFrog. It was also the most successful IPO of the year. By 2002 LeapFrog had introduced more than 65 learning products on 6 learning platforms. They had totaled 200 industry awards, with over 40 in 2002 alone. Also as of 2002 there have been over 8 million LeapPads sold worldwide.
By 2002 LeapFrog had become available to 30+ international countries. It was also available in 5 different languages. Near the end of 2002, 33 employees were selling the LeapFrog internationally. Sega Toys and Benesse Corporation of Japan began distributing cobranded adaption of LeapPad platforms, and similar content for home and school markets. The next year, LeapFrog gained a partnership with Stadelbauer, a leading German-language distributor. The results for sales internationally in 2002 came out to be around $54 million which is about 10% of total sales.
SchoolHouse products had become introduced into 14,000 schoools. There have been a total of over 20 awards given to LeapFrog for SchoolHouse products since the launch of the division. This division targets Pre-K through 5th grade classrooms, teacher supply stores, and catalogs. There are a total of 99 employees in sales, marketing, content development, and operations for the SchoolHouse division. Many of those employees are former teachers or learning and child development specialists. There are over 200 books and 267 skills cards created for the SchoolHouse platforms.
The SchoolHouse platform was facing a different decision process for schools than for toys. Buyers can be shown a prototype of the model and they purchase their desired amount upon approval of the product. Schools on the other hand won’t purchase the product until it is completely finished and they will only try one. Problem Statement Now the problem statement. The “seven-second rule” has been used to determine the likelihood of kids engaging in their product. A child will be placed in front of the new product and if the child is not engaged at the end of 7 seconds the product may not be a success.
The can be a major problem because all children have their own personality, there may be that one child that has not interest in the new game and just likes an older version. Some consequences to this is that the product may and could be the next biggest selling item but was not produced due to a child not gaining interest in the product within the 7 seconds. Another problem for the LeapFrog is that they are the leading provider of educational toys. LeapFrog has successfully been the leader and has soared to great heights but the door is pretty much wide open to competitors.
Competitors now have the opportunity to invent their own educational toys since they have had the time to see how successful LeapFrog has been. Competitors can even find flaws in LeapFrogs versions of toys and make a finer finished product. Online marketing had become an issue for LeapFrog. Other companies such as KB Toys had reported robust sales growth in the online market in 2002. LeapFrog was selling 2. 80% of total sales through online marketplaces. This is not where they did want to be.
They were predicting future growth but still not anywhere where they wanted to be. LeapFrog doesn’t offer platforms or prepackaged content available for purchase online. They only offer content to purchasers of the Mind Station connection which allowed them to download LeapPad content. A six-month prescription was offered free to purchasers of the Mind Station, although they were more comfortable with purchasing content at retail. By not selling their products online, they are losing their competitive advantage of being the biggest provider of educational toys.
Other companies such as Fisher Price, who is another top brand of toy making, would be able to create an educational toy and offer its product online directly after production. There have been public concerns about education. During the 1980s, U. S. was a nation at risk. There was a low performance of U. S. children on math and reading tests. They were especially low when compared to Asia. Fears of having a workforce that wasn’t as nearly educated as other countries gave parents something to worry about. This is when there became a public interest in phonics.
Various approaches were considered to this problem during the 1980s and 1990s but only caused some reading wars due to the dislike of specific reading instructions. This may become a problem with LeapFrog because parents may not like how they are instructing children. Parents may not approve of this style of teaching and not allow their children to use such phonics devices. But LeapFrog and emerged into a leader in the method of phonics. Phonics hit the news during the Bush administration and this is when LeapFrog became readily available with products to help kids learn. Managing two business models can be very hard.
LeapFrog needs to not lose sight of either of its two business models. They need to stay focused on producing a toy as well as being an educational publisher. LeapFrog focuses their toy sales to four key retailers. They include high efficiency purchasing and inventory management systems. There are a few risks that have become afloat. They include accurate planning, fulfillment execution, and product acceptance by the consumer. LeapFrog needs to accurately plan out what they want to produce. They need to look at what the consumer wants or needs and execute a plan to its fullest potential.
A prototype must be accepted by consumers before production. The SchoolHouse division probably has the highest risk. Schools are becoming so much more diverse that it is hard for LeapFrog to keep up with the different languages and culture. The overall market to schools is huge, but school budgets are becoming lower and lower. LeapFrog will have to continue to pursue these two business models to succeed. The product must be educational to be appealing to parents and look like a toy to be appealing to children. Finding the right people can be hard and can cause some problems down the road.
To continue down the right path, LeapFrog needs people based on expertise in a particular position. They need people who are nimble and flexible in their problem solving, people who can step into the unknown. LeapFrog has high standards which is good and bad for a company to have. It is good because you will be able to get people who are the most experienced and dominated at their last job, but you may not get anybody that fits the profile you looking for. If you keep saying no to people because of your high standards you may end up with nobody. For LeapFrog to keeps its vision, they need to continue to challenge its leaders.
LeapFrog has being growing at such a rate they have most of the company’s employees in a 100,000 square foot building. Staffers have been forced to change offices very frequently. They want to keep their company under one roof. They were plans to add another 30,000 square feet on to the current building. Not only was LeapFrog managing their creative process with building products, they also had the problem of focusing on managing the company’s explosive growth. They have been lucky that the senior management teams and been completely dedicated throughout. They keep in touch with the vision and creative spirit of LeapFrog.
They have had to stay in touch with the product while executives focus on managing fast growing relationships with suppliers, distributors, retailers, investors, educators, parents, and kids. LeapFrog focuses on pushing past their limits. They want a 10 percent failure rate of their products. They aren’t talking about a product failing because of a poor product, but rather failure due to pushing too far and exceeding their limits. LeapFrog needs to continue to learn from their customers. If choose to not listen to their customers, they will have no idea on where to go with a new product.
Customers want specifics and if LeapFrog doesn’t listen, the customers will go with alternative ideas. LeapFrog has been observing kids in the past for product development. They brought in children and put them inside a testing lab where researchers could observe their play patterns and assess their overall user experience. LeapFrog has chosen not to outsource yet, they have been successful with insourcing. This has lead to product extension. Wood loves having everyone located in one area; it keeps everyone in high spirits and dedication. LeapFrog combines new technology with learning methods and concepts to experiment very actively.
They are able to design chips specific to their needs, thus giving them the greatest efficiency and allows them to make large breakthroughs. Strengths A main strength of LeapFrog’s would be their superior technology. Their introduction of an educational toy is one of the greatest electronics for children and parents. The technology they have built with the electronic devices is far more superior to any other product out there. Cost-effective manufacturing is very important to LeapFrog. LeapFrog has all of its products produced by seven contract manufacturers in China.
The top three manufacturers supply LeapFrog with 58 percent of the total. Parts may have a 12 to 14 week lead time, yet they may only cost a quarter, they end up being part of a $35 product. They are able to hurry their product to the manufacturer entitling them to get the best pricing in the world on one of their key product components. Seasonality is a major strength to LeapFrog. They can focus more on the second part of the year. This is where most of their sales come. 50 percent of sales occur in the fourth quarter. In 2002, LeapFrog had approximately 81 percent of total sales occurring in the third and fourth quarters.
They are able to use a sophisticated just-in-time inventory management system that allows them to shit risk to their suppliers and lessening inventory exposure. LeapFrog has bargaining power since they are the front runner in educational toys. The electronic devices they produce exert influence of any other similar product. In being the front runner of this particular product, they are the leading supplier of educational toys on electronic devices. This gives them the opportunity to supply many different retailers with their product. Their marketing strategy can be seen as a strength.
Their product includes the platform and content. This was a major key to the design of the LeapPad. LeapFrog was able to mark up their platforms a considerable amount, but could mark up the content cartridges more. Having them separate makes it a huge seller. If you want to learn math and reading, you don’t have to buy two LeapPad platforms; you just buy one and buy the two different content cartridges. LeapFrog has made their products educational but yet fun. This appeals to parents and children. Children want to play with something cool like a Nintendo, but parents want their child to be learning something.
This works perfectly. Upon LeapFrog going international, they gained so much revenue and built their name. They were able to become acquired by international companies to improve their success. Prototyping is one of the key ideas of presenting their product. Without building a prototype, no one would really know or be able to visually see how the device with actually function. In building a prototype, LeapFrog is able to show it to retailers and ask for their feedback. They also used the prototype in the observation area with the children. They can see if he child likes the prototype before producing a large quantity.
A very experience staff is another strength to LeapFrog. Their board members include many past professors or educational staff. LealFrog has become a very high reputation product. They are a standalone product when I think of an educational toy that is electronic. They have built themselves into the greatest educational toy manufacturer. Aggressive brand management is a very important part to LeapFrog’s continuing fortunes. They need to stay consistent like they have been with colors, logos, and tagline. In 2003 people were asked which educational toy Company came to mind first and the result was 42 percent said LeapFrog.
The changing retail landscape can be seen as a weakness since LeapFrog is solely involved in selling its products in retail stores. Retail store leaders are changing all the time. Wal-Mart is able to sell many products during holiday season by discounting. But, stores like Toys R Us can entice customers by giving everyone every toy there is and by creating an educational toy section in their store. With LeapFrog only selling products to retail stores and not online cuts back on their competitive advantage. Upon LeapFrog going public, everyone now knows how well the company is doing and opens the doors to new competitors.
Companies see the rise in stock of LeapFrog, so they may get the idea of creating their own educational toy. It seems very efficient to have two-thirds of LeapFrogs products to Ontario, California but when a strike occurs there are many additional freight charges. It is nice to have that many products shipped at the same time and to one place, but if something like a strike every happens again, LeapFrog pays for it. A shift in demographics is causing the kids of today to be more involved with technology. This is the complete opposite to parents of our kids today. Toys are becoming much more appealing to children at a younger age.
LeapFrog needs to continue to evolve new products to keeps kids happy and interested. LeapFrog needs to keep up with orders unlike they did with their first year. They had an order of $6 million, but had to cancel about half the orders since they were not able to manufacture the products in time resulting in a $3. 5 million sale. A key opportunity for LeapFrog is to have their retailers be partners. LeapFrog gathers point-of-sale reports from retailers. Retailers do this to determine where their business is going. LeapFrog is attempting to become experts in their retailers’ businesses by helping them manage their own business.
They have a special relationship with their top four retailers. In the process of LeapFrog being acquired by Knowledge Universe, LeapFrog gained $50 million in capital. This was a major asset to the company when it was first starting up. Not only did they get capital, they also got years of experience from other staff. LeapFrog acquired Explore Technologies and NearTouch technology and was proven useful to the success of the products. An opportunity for them if they ever decide to get out of educational toys would be that the barriers to exit are very low. Threats
Competition is always a threat to any business whether they are creating a product or service. LeapFrog had been the only provider of a electronic educational toy. It was not until 2003 that Fisher Price announced the creation of the PowerTouch platform for preschools that was solely aimed at the LeapPad platform. More and more companies will soon evolve into educational toy making. A very large threat to LeapFrog is going to be are they able to keep current customers. Kids are getting older younger as stated by McGowan. LeapFrog has build products aimed at toddlers up to teens.
There will always be a fast changing market with products. Everyone these days are all about what’s in or the current fad. One particular model may be a big hit with the toddlers but the product aimed at teens may be losing ground because the teens are more involved with the Xbox 360 or Playstation 3. Modeling a toy as being educational, but yet fun sounds easier said than done. You don’t always know what a child is going to consider fun until they actually test the product. New technology will be a huge threat to LeapFrog, competitors have had the chance to see how well LeapFrog has be doing.
In seeing how well they are doing, competitors will find their way into the educational toy market with a new technology that may be more efficient and more up to the current fad than LeapFrog’s current model. Manufacturing is unsecure due to the long-distance manufacturing and the narrowness of its key sales season. The supply chain management is a very critical factor in the toy industry. The long-distance manufacturing refers to LeapFrog manufacturing all their products in China. Barriers to entry can be seen as low because there is only one provider of the educational platform toy.
All the top toy making companies are seeing what LeapFrog is doing with their product and this allows companies like Fisher Price to step right into the market with their own platform no questions asked. Recommendations Our recommendations for LeapFrog include focusing on the children as well as the parents. Children want some techy and popular while parents want something educational. They must keep the parents educational needs satisfied. They can continue to do this through tests. Another recommendation for LeapFrog is to listen to what your customers have to say.
Allow them to give feedback through an online forum, by email, or by phone. Customer feedback and reviews should be watched carefully to explore new ideas for models. Our last recommendation is to have LeapFrog continue to inhouse all their production. It is working for them and working very well. Why change something that is working very well for them. It allows everyone to stay really focused and dedicated. Wood commented on a group once saying, “when you have a group really focused an dedicated, they will in the long run do a lot better than if you are outsourcing to people who don’t have your spirit and dedication. Review LeapFrog enterprises was founded in 1995 by Mike Wood and quickly became a very large educational toy making company. LeapFrog was looking like a very promising idea so companies were acquiring part of LeapFrog and LeapFrog was also acquiring companies for their great add-ons. After 7 years of sales, LeapFrog went public by selling 9 million shares. They were the most successful IPO in their first year as a public company. LeapFrogwon many awards throughout the years but nothing better than Educational Toy of the Year award from 2001-2003.
