Case Study 1: Specialty Toys
Specialty Toys, Inc. sells a variety of new and innovate children's toys. Management learns that the pre-holiday season is the best time to introduce a new toy, because many families use this time to look for new ideas for December holiday gifts. When Specialty discovers a new toy with market potential, it chooses an October market entry date.
In order to get toys in its stores by Oct, Specialty places one-time orders with its manufactures in June or July of each year. Demand for children's toys can be highly volatile. If a new toy catches on, a sense of shortage in the market place often increases the demand to high levels and large profits can be realized. However, new toys can also flop, leaving Specialty stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet anticipated sales demand.
If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales.
For the coming season, Specialty plans to introduce the new product called Weather Teddy. This variation of a talking teddy bear is made by a company in Taiwan. When a child presses Teddy's hand, the bear begins to talk. A build-in barometer selects one of five responses that predict the weather conditions. The responses range from "It looks to be very nice day! Have fun" to "I think it may rain today. Don't forget your umbrella." Tests with the product show that, even though it is not a perfect weather predictor, its predictions are surprisingly good. Several of Specialty's managers claimed Teddy gave predictions of the...