Taking their cue from the Beanie Babies mania, some start-ups hope to create the next big consumer fad. Plus: QA with the man responsible for importing the Teletubbies craze to the United States.
Wanted: Compulsive Consumers
Taking their cue from the Beanie Babies mania, some start-ups hope to turn their products into a faddish fixation
Obsession is big business these days -- and no, we're not talking about the pungent Calvin Klein cologne. Such well-known companies as Martha Stewart Living Omnimedia, Krispy Kreme Doughnuts, eBay, and Ty Inc. (maker of Beanie Babies) have cultivated a decidedly devoted, frenzied, and often downright rabid fan base -- a significant competitive advantage. And then, of course, there's PokÉmon.
Now numerous start-ups are trying to copy the gotta-catch-'em-all strategy. "Since the success of Beanie Babies, everybody thinks that they might have the next big thing," says industry expert Kenn Viselman, chairman of New York Citybased Itsy Bitsy Entertainment Co., the company that imported the Teletubbies craze to the United States from Britain.
Depending on your stomach for risk, milking a megatrend in this fashion is either foolish or fearless. But proponents argue that they prefer fanatical consumers and a huge spike in sales to deliberate incremental growth. "The risk is greater," says Toy Craze Inc. CEO Scott Harris, who hopes to turn his Cleveland-based company into just such an overnight sensation, "but I think the reward is also greater, both professionally and, hopefully, financially."
Practitioners of obsession marketing try to create a frenzy for their product because, well, it's exciting to be at the center of an obsession. Only two years ago, for example, Harris ran a dowdy distributor of toys, tools, and electronics. Now he thinks he may have the next PokÉmon on his hands. "One day I woke up and decided I was tired of doing me-too stuff," he explains. "I wanted to put together a team of people who were geared to hit the next home run."
The product that animates Harris's work life is Crazy Bones -- packs of small, brightly hued plastic figurines that are used to play a variety of games similar to jacks or marbles or dice. "Crazy Bones is a phenomenon," says Viselman, who chronicled his own Teletubbies success in the new book Global Domination in Eight Giant Steps (McGraw-Hill). "They've been able to take a very basic item and make it new."
Three years ago, when Harris was looking to start a new business, he discovered the European antecedent to his product. After watching his grandmother and his two young daughters play with Crazy Bones, he moved swiftly to obtain the U.S. rights to the trinkets. He even persuaded a manufacturer based in Barcelona to provide him with inventory for no money down in return for a 50% share of all future profits from Crazy Bones' U.S. sales. Later, as soon as he had profits to reinvest in the business, Harris renegotiated the deal; he now pays the manufacturer a royalty. In this way Harris launched his company with roughly $500,000 in capital -- a lot of money by most standards but a paltry sum for a national consumer-product rollout.
Yet Harris's company, which has grown to nearly $17 million in revenues in just two years, has thrived. Distribution is no longer terribly difficult because in this post-Beanie era, a network of independent gift and novelty stores across the country exists with the sole purpose of identifying and milking the next obsession-marketing cash cow. There's also the Internet, on which die-hard fans can set up sites to fuel their fixations and engage in speculative trading.
Another boon for Toy Craze has been its ability to keep marketing costs low -- no small feat for what is essentially just a marketing company. Though advertising and promotional expenses normally total 20% of sales in the toy industry, Toy Craze's costs in those areas have been close to 10%.
Here's how Harris pulled it off: In place of traditional print and television ads, Harris sends his staff on a demo tour of Boy Scout meetings and school playgrounds. Harris started his campaign in Ohio and New Jersey test markets. As the company succeeds in attracting young collectors in one area, its teams move on to other cities, traveling in colorful vans Harris calls "moving billboards." In each locale the two-person teams give kids free samples and then teach them games to play with Crazy Bones. To date, the company has distributed nearly 4 million free-sample packs of the product to kids in this fashion.
Harris cleverly creates lingering interest in the product even after the pitchmen have motored on to another city. Some of the games the Toy Craze folks teach kids are winner-takes-all. But if kids lose all their Crazy Bones pieces, Harris figures, they'll probably push their parents to buy them some more. And like Beanie Babies, each Crazy Bone has a different name and identity. Some pieces are produced in smaller batches than others, and such scarcity tactics enhance some of the pieces' street value. In addition, the product line consists of more than 300 characters in seven different series, including whole groups of aliens, mutants, and even characters from Disney's Toy Story.
Harris's in-house research suggests that once kids buy about three packs of Crazy Bones, they start looking for peers with whom they can trade. Those little bartering markets attract interest from other kids, who then start buying the product in order to have something to trade -- a textbook display of word-of-mouth marketing.
That grassroots interest has paid off. Recently, Toy Craze inked a promotional deal with McDonald's, the perfect partner for companies that want to transform a somewhat successful collectible into a national pop phenomenon. In October the fast-food chain's 13,000 North American restaurants will tuck two supersized Monster Crazy Bones pieces into each Happy Meal. Ty Inc. became the plush-toy giant it is today partly by leveraging a strategic relationship with McDonald's to distribute its Beanie Babies in Happy Meals.
The beauty of the McDonald's deal is that Toy Craze isn't saddled with any onerous contractual obligations. The restaurant behemoth will arrange to manufacture, distribute, and warehouse all the merchandise. At the same time Harris's 20-person outfit will collect a minimal licensing fee -- and get priceless marketing exposure. The CEO's only concern is whether his company will be able to satisfy its traditional retail accounts if, as he anticipates, the Happy Meal rollout stirs up sizzling consumer demand. Harris expects that the deal will help lift revenues skyward to $30 million.
Even without the McDonald's bump, however, Crazy Bones has found an impressive national following. A recent scan of eBay revealed 166 listings from aftermarket sellers peddling unopened packs. Still, that's only a blip on the obsession-marketing radar compared with, say, PokÉmon, which accounted for some 33,795 auctions on eBay during the same period. However, consumers are fickle -- they will drop one fad and embrace another very quickly. That's one hard fact that businesses publishing Beanie Babies newsletters or making Beanie accessories have had to learn, and they've either changed their product mix or shut down.
