When I was head of finance and operations at Kidco, a toy manufacturer, we were about to launch our first major product, the Burnin’ Key Car.  This toy was like a Matchbox/Hot Wheels vehicle, but was very different.  You could insert a key into the rear end, then squeeze the key and the car could shoot across the room.  Boys and girls would now have keys like their moms and dads and could race their cars with their friends without having a motorized race car system.

This product idea came from an outside inventor.  Unlike our previous products, this toy was unique.

An important decision was how to price the product.  Up to this point, we had a cost +plus mentality.  This would have pegged the retail price at about $2.

But that would have just represented an internal view, which leads to my point:

Take a Look Outside

Before we made a decision, I did my own research and visited Toys R Us and other toy stores.  At that time in the market I saw two major categories:

·         Low end- Matchbox/Hot Wheels miniature die cast vehicles selling for about $1.

·         High end- 4x4 penlight battery operated vehicles that retailed at $4-$5.

I saw a big gap in the market and room to price the Burnin’ Key Cars to retail at $3 instead.  I presented the idea to our head of sales and president.  I give them credit for going along with the idea and executing on it, which is as important as or even more important than the idea itself.

The higher price worked out very well for us and added over $5 million to our margins during the year we launched the product.  Considering our prior year sales were $5 million, that’s a pretty huge impact!  We did so well that we paid off our bank line during the summer that year, something unheard of for toy manufacturers.  The product was a big success, becoming the number 4 seller in the industry that year.  It was a challenge, but we increased our tooling capacity and kept up with demand.  Had we been priced lower and sold more units, I am not sure we could have kept pace.

It ‘s always a good idea to take a look outside before you leap, especially when you have a new product coming out that is a step away from your norm.

                                        
                                                             (photo by mike1727 on flickr)