Digital Transformation: Shaping Consumer Behavior in the Toy Industry

Adoption of Digital Technologies by Toy Companies

Hasbro has significantly invested in digital technologies, building studio capacity and forming digital partnerships. Senior appointments have been made to bolster digital transformation. Success in digital licensing and mobile launches, such as Monopoly Go, highlights their digital adoption. Digital gaming revenue and a richer digital mix have positively impacted operating margins.

"And as we look at the business of play, it's clear that digital is here to stay in a bigger factor than ever and how successful toy and game companies will grow and strengthen their brands. We're years ahead of our peers, having already spent hundreds of millions of dollars building out our own studio capacity and expanding our brands through digital partnerships, games like Baldur's Gate 3 show us what the future looks like." --- (HAS, earning call, 2024/Q2)

"IT Expert Dan Shull Appointed Chief Digital Information Officer Stephanie Beal Promoted to Chief Supply Chain Officer Dan Rawson to Lead Direct and e-commerce Hasbro, Inc. (NASDAQ:HAS), a leading toy and game company, announced three senior appointments today to build on the company's digital transformation and ongoing turnaround efforts." --- (HAS, press release, 2024/07/11)

"I am pleased with how we executed in the first quarter with our strength in digital licensing and Magic contributing to a more profitable business mix while our turnaround efforts in toys started to take shape." --- (HAS, earning call, 2024/Q1)

"Digital licensing, I think, has been a real win there, most recently with Monopoly Go, which is the most successful mobile launch in history in North America and Europe and Baldur's Gate III, along with our more traditional consumer packaged goods license business as well as our shift in entertainment from owned and operated to more of an outsourced model." --- (HAS, conference, 2024/05/20)

"Digital gaming revenue also saw a roughly $20 million noncash benefit from a publishing contract with an international partner.Operating margin for Wizards finished at 54.7%, up nearly 17 points versus last year, mainly driven by a richer digital mix, supply chain productivity gains, and lower royalty expenses as we lapped last year's MAGIC Lord of the Ring set.Turning to Consumer Products, Q2 revenue declined 20% year-over-year, driven by reduced closeout volume exited brands and lapping a busier entertainment slate, including last year's Transformers: Rise of the Beasts." --- (HAS, earning call, 2024/Q2)

Changes in Marketing Strategies Due to Digital Transformation

Toy companies are increasingly leveraging digital platforms like YouTube to connect with audiences and shift advertising budgets from traditional TV to digital. The growth potential in digital markets is significant, prompting companies like Hasbro to align marketing efforts accordingly. Disney's revenue changes also reflect the impact of digital transformation on marketing strategies.

"Turning next to YouTube, YouTube is focused on a clear strategy, connecting creators with a massive audience and enabling them to build successful businesses through ads and subscriptions, while helping advertisers reach their desired audience." --- (GOOG, earning call, 2024/Q2)

"But the growth market like the thing that's going to grow at high single digits, low double digits, it's going to be in digital." --- (HAS, conference, 2024/05/20)

"Lower retail revenue was due to a decrease in online sales. The increase in merchandise licensing revenue was due to higher sales of merchandise based on Spider-Man and Mickey and Friends, partially offset by lower sales of merchandise based on Star Wars." --- (DIS, sec filing, 2024/Q2)

"is continuing to benefit from a combination of strong watch time growth, viewer and advertiser innovation and a shift in brand advertising budgets from linear TV to YouTube." --- (GOOG, earning call, 2024/Q2)

"All of those shelf sets are starting to happen right now through the summer, and we've lined up our inner kind of our muscle around marketing behind that to really push that sell through." --- (HAS, conference, 2024/05/20)

The Role of E-commerce in the Toy Industry

Hasbro's appointment of an executive with extensive e-commerce experience, coupled with Walmart's global e-commerce growth and improved delivery costs, and Target's supply chain investments, highlight the critical role of e-commerce in the toy industry. E-commerce platforms like eBay are also focusing on future growth, indicating a significant shift towards digital retail.

"Dan, a former Marine Captain, has led the development and operations of e-commerce and SaaS businesses at companies such as Amazon and Microsoft, in addition to having impressive leadership stints at leading e-commerce companies Flipkart and Coupang in India and South Korea, respectively." --- (HAS, press release, 2024/07/11)

"Global e-commerce growth was 21% in Q1 and e-commerce losses continue to narrow, most notably in the U.S. net delivery cost per order, improving nearly 40%." --- (WMT, earning call, 2025/Q1)

"We discussed the supply chain investments we're making to modernize how we distribute merchandise, including the rollout of additional sortation centers to increase the speed and efficiency of our last-mile delivery." --- (TGT, earning call, 2025/Q1)

"Yeah. Thanks, Doug. So really we've focused on 3 key areas for us in remaining the future of e commerce for enthusiasts." --- (EBAY, conference, 2024/05/21)

"We're seeing those e commerce losses improve year after year after year, which gives us a lot of confidence in what the overall financial profile of this business looks like few years from now." --- (WMT, conference, 2024/06/25)

Impact of Digital Content and Gaming on Consumer Preferences

Consumer preferences in the toy industry are increasingly shaped by digital content and gaming. Companies like EA and TTWO highlight the shift towards digital purchases and in-game spending, driving engagement and revenue. Disney and Hasbro emphasize the growing consumer demand for internet-based and app-driven experiences, influencing buying patterns and product strategies.

"Increases in consumer adoption of digital purchase of games combined with increases in our live services revenue generally results in expansion of our gross margin, as costs associated with selling a game digitally is generally less than selling the same game through traditional retail and distribution channels." --- (EA, sec filing, 2024/Q4)

"Online Content and Digital Distribution. We provide a variety of online delivered products, including direct digital downloads of our titles, and access to additional offerings through virtual currency, add-on content, and in-game purchases, which drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles." --- (TTWO, sec filing, 2024/Q4)

"part, a good consumer proposition economically. But in today's consumer, used to both basically the Internet and app based experiences and ultimately AI driven experiences, wants much more than that." --- (DIS, conference, 2024/05/15)

"So it's nice to have Barbie on our side. Can you talk about how do you think about the ability to have a new digital game every sort of 12 to 18 months?" --- (HAS, conference, 2024/05/20)

"While this trend, as applied to our business, may not be linear due to a mix of products during a fiscal year, consumer buying patterns and other factors, over time we expect players to purchase an increasingly higher proportion of our games digitally." --- (EA, sec filing, 2024/Q4)

Consumer Engagement Through Social Media

Toy companies are leveraging social media to boost consumer engagement through interactive campaigns, granular monitoring, and efficient ad spending, enhancing user experience and engagement levels.

"Consumers around the world can join in on the LITTLEST PET SHOP relaunch celebration by gathering their own crew to show off their take on the dance on social media using the hashtag #BobbleToTheBeat." --- (HAS, press release, 2024/04/04)

"And by monitoring that in a very granular fashion, well, first, it gives you an opportunity to be in touch directly with that consumer, but you can obviously then measure, do you have enough engagement?" --- (DIS, conference, 2024/05/15)

"This advancement leads to more efficient ad spending and higher customer engagement levels, transforming how ads are crafted and delivered." --- (GOOG, press release, 2024/06/13)

"And we really it was exhaustive in terms of our analysis. And ultimately, we concluded that and I know I mentioned the word portfolio where it's not going to be a growth business, but it could become an important component to our ability to engage with the consumer." --- (DIS, conference, 2024/05/15)

"We see an increase in engagement, but I see this as something which will play out over time, but if you were to step back this moment there were a lot of questions last year, and we always felt confident and comfortable that we would be able to improve the user experience." --- (GOOG, earning call, 2024/Q1)

Data Analytics and Personalization in the Toy Industry

Amazon's SageMaker facilitates data wrangling, model building, and deployment, enhancing personalization in the toy industry. Leveraging large language models (LLMs) customized with specific data further supports this. However, the AI industry's data availability challenges could impact future advancements in personalization.

"think you're starting to see more and more customers standardize on our service called SageMaker to build their models, which makes it much easier to get the data in, to wrangle the data, to have an infrastructure around training, to do experimentation, to deploy into production." --- (AMZN, event transcript, 2024/05/22)

"And then related to that, do you think that the AI industry is close to or far away from hitting some kind of wall on foundation model improvement in AI training, based on like lack of availability of new data to train on. Just your thoughts on that would be great. Thank you." --- (GOOG, earning call, 2024/Q2)

"The middle layer of the stack is for developers and companies who prefer not to build models from scratch, but rather seek to leverage an existing large language model, or LLM, customize it with their own data, and have the easiest and best features available to deploy secure high-quality," --- (AMZN, earning call, 2024/Q1)

Future Trends in Digital Transformation and Consumer Behavior

Hasbro anticipates consistent growth driven by a shift towards digital, Amazon emphasizes data analysis and customer engagement, and Google highlights the expansion of user queries through generative AI. These trends collectively point to a future where digital transformation significantly shapes consumer behavior in the toy industry.

"So we expect there to be another kind of growing quarter. And then on the bottom line, again, just given the mix that we're seeing within the business and the shift towards digital, we'll see consistent trends there." --- (HAS, earning call, 2024/Q1)

"And it will search all this data, summarize logically, analyze trends, engage in dialogue with customers about this data." --- (AMZN, earning call, 2024/Q1)

"So typically, the trends we see carry over well. Overall, I think with generative AI in Search, with our AI overviews, we are definitely, I think we will expand the type of queries we can serve our users." --- (GOOG, earning call, 2024/Q1)