Hello skwilder-ga,
You’ve identified one of the few bright spots in the current depressed
economy. Leapfrog’s award-winning Leap Pad and other interactive toys
propelled the company to one of the few successful IPO’s this year.
Figuring out development and manufacturing costs of the Leap Pad and
all it’s ancillary products is very tightly held and vigorously
defended proprietary information.
Since the information you’re looking for is available only from
Leapfrog, I’ve collected some alternative resource to help you
estimate the costs of creating and manufacturing this type of product.
I’ve divided the results of my research into two sections. Section 1
gives you information about creating a successful toy, including how
to estimate manufacturing costs. Section 2 gives you information about
Leapfrog to help give you insights into their operations.
Enjoy your explorations and let me know if you need any
clarifications.
czh
SECTION 1 – TOY DEVELOPMENT AND MANUFACTURING
These resources give you some “rule of thumb” estimates of what the
cost of manufacturing should as well as lots of information about how
to develop and market an electronic toy. I’ve also included some
resources for the toy industry.
http://www.times.cc/webs/times/t6/toys.html
Toy Manufacturers of America
TOY INVENTORS & DESIGNERS GUIDE
This is an excellent article that provides lots of links and an
extensive bibliography.
See their take on manufacturing and pricing:
Generally, the simpler the technology the less expensive the item will
cost to produce. As a rule of thumb, most items are sold at retail for
3-5 times their cost. However, since most toys must be relatively
inexpensive to sell, the markup from production cost to retail is
usually much lower than for most consumer products, so toy
manufacturers strive to keep production costs low.
http://www.cbsc.org/alberta/tbl.cfm?fn=product_fail
Reasons Why Product Fails to Succeed
Excessive manufacturing costs.
If your product costs too much to produce and sell you won't make a
profit. A rule of thumb is a "product can't sell for more than its
perceived value." Another principle is the manufacturing cost should
be "less than 1/4 of the products suggested retail price." This figure
is suggested to allow for associated costs, such as distributors,
retailers, marketing, administration and sales costs, among others.
This gives you a chance to make a profit while making the price
attractive to your distributors/retailers.
http://www.costik.com/whycost.html
Greg Costikyan – Consultant to the game industry
Why Games Cost What They Do
This article provides insights into developing an intellectual
property-based consumer product. The table on how to figure out
pricing could be used for Leap Pad-like products.
http://tnpfc.tripod.com/davehampton/davequestions.htm
This interview with the creator of the Furby gives you insights about
developing and manufacturing an electronic toy.
http://www.outsourceinasia.net/why_outsource.html
Why Outsource -- Lower Price
This article discusses Asia-Pacific manufacturing and comments
specifically on outsourcing to China..
http://www.manufacturing-sites.com/links/toymanufacturing.html
MfgQuote – Manufacturing Sites -- Toy Manufacturing
This is a portal site that has a lot of resources for buyers and
suppliers of manufacturing services
SECTION 2 – LEAPFROG
In this section I’ve collected some information about Leapfrog, their
marketing strategies and their position in the marketplace.
http://www.leapfrog.com/
Leapfrog Home Page
http://finance.yahoo.com/q?s=LF&d=t
Leapfrog (LF) financial profile
http://hoovers.10kwizard.com/filing.php?repo=tenk&ipage=1908113&doc=1&total=&back=2&eRid=&type=&attach=on
Since Leapfrog is a public company , you can review the SEC filings to
glean as much information about this as the company is willing to
reveal. Here are some relevant sections from the 10-Q filed on
11/12/2002. The key items of interest are that the company fiercely
protects its intellectual property and proprietary technologies but
there are some competitors looming on the horizon.
Page 15
Research and development expenses increased by $5.6 million, or 65%,
from $8.6 million in the third quarter of 2001 to $14.1 million in the
third quarter of 2002. As a percentage of net sales, research and
development expenses increased from 7.6% in the third quarter of 2001
to 7.8% in the third quarter of 2002. The bulk of the increase came
from increased content development expense related to the development
of significant new content for our platforms.
Page 19
We expect to sell our content products in over 12 countries in 2002.
In these countries, we plan to introduce U.S. versions of 23 of our
LeapPad and Quantum Pad books, and localized versions of 8 of our
LeapPad and Quantum Pad books. Further, we expect to introduce
additional platform, content and standalone products in 2003.
Page 20
We currently rely, and expect to continue to rely, on our LeapPad
platform and related interactive books for a significant portion of
our sales. …Our LeapPad platform and related interactive books
accounted for approximately 54% of our net sales in 2001. …
Our products are shipped from China and any disruption of shipping
could harm our business. We rely on three contract ocean carriers to
ship virtually all of the products that we import to our primary
distribution centers in California. Retailers that take delivery of
our products in China rely on a variety of carriers to import those
products.
page 22
Our intellectual property rights may not prevent our competitors from
using our technologies or similar technologies to develop competing
products, which could weaken our competitive position and harm our
operating results.
Our success depends in large part on our proprietary technologies,
particularly our NearTouch technology, which is at the core of our My
First LeapPad, LeapPad and Quantum Pad platforms, as well as our
Explorer interactive globe series. We rely, and plan to continue to
rely, on a combination of patents, copyrights, trademarks, trade
secrets, confidentiality provisions and licensing arrangements to
establish and protect our proprietary rights.
For example, we are aware that a product using technology very similar
to our NearTouch technology has been produced in China, and we have
written a letter to the developer of the product advising that we will
not tolerate infringement of our intellectual property rights.
However, we may not be able to enforce our intellectual property
rights, if any, in China or other countries where such product may be
manufactured or sold. In June 2002, Toshiba Corporation began selling
an interactive educational platform product in Japan under the name
“Ex-Pad”, and we are currently evaluating whether this product
infringes our proprietary rights.
.For example, based on information from industry sources, we believe
Mattel, Inc. has demonstrated to retailers a prototype product having
functionality similar to that of our LeapPad platform for possible
introduction in 2003 under Mattel’s Fisher-Price brand.
page 23
We rely on a limited number of manufacturers, virtually all of which
are located in China, to produce our finished products, and our
reputation and operating results could be harmed if they fail to
produce quality products in a timely manner and in sufficient
quantities.
We outsource substantially all of our finished goods manufacturing to
five manufacturers, all of whom manufacture our products at facilities
in the Guandong province in the southeastern region of China. For
example, Jetta Company Limited was the sole manufacturer of all our
LeapPad platforms and related books in 2001.
We depend on our suppliers for our components, and our production
would be seriously harmed if these suppliers are not able to meet our
demand and alternative sources are not available.
Some of the components used to make our products, including our
application-specific integrated circuits, or ASICs, currently come
from a single supplier. Additionally, the demand for some components
such as liquid crystal displays, integrated circuits or other
electronic components is volatile, which may lead to shortages
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