In view of the promising outlook of China's toy market, many Hong Kong and overseas companies are actively exploring opportunities on the mainland. Over the past few years, toy sales across all price segments have increased sharply in China. In 2003, the total toy sales by retail enterprises with annual sales exceeding Rmb5 million rose by 13.4% to Rmb2.87 billion.

Thanks largely to the positive attitude of parents towards toys and their readiness to purchase toys for their children, the mainland toy market has become more mature and promising nowadays. In Beijing, Shanghai, Guangzhou and Chengdu, parents spend an average Rmb100 a month on toys for each child, accounting for 2.5% of the total household income.

In early 2004, the Hong Kong Trade Development Council (HKTDC) interviewed 17 toy manufacturers and traders in Hong Kong. Among them, only one was selling toys in the mainland. However, in view of the excellent market prospect, four of the 16 which have not entered the mainland market said they would do so over the next one to two years, and nine indicated that they would consider doing so. The responses reflect an increasingly proactive attitude of Hong Kong companies towards the mainland toy market.

According to mainland distributors and retailers, some of the Hong Kong companies they have dealt with are aggressive while others tend to be cautious, but in general most of them lack a good understanding of the domestic market conditions. In their opinion, Hong Kong companies, in their attempt to break into the mainland market, should: (1) conduct market research and set their market positioning in terms of pricing; (2) strengthen promotion; and (3) cooperate actively with retailers to improve logistics, delivery and product display, as well as expand product range.

Distributors and retailers are more optimistic about educational toys and boy toys. Generally speaking, toys that can help stimulate thinking or mental development, nurture patience and concentration, or train the children on brain-hand coordination are the most popular among parents and children. These include four wheel drive toy cars, assembling robots, construction models, and remote-controlled cars.

Toy purchases made on regular occasions are mostly in the mid- to low-price ranges. If the purchase is made by a parent, the price tag is usually below Rmb50, but a higher price can be acceptable if the toy is very appealing to the child or parent. If the purchase is made by a child, the ceiling price is about Rmb20. Higher-priced toys are often purchased for special occasions such as birthdays and as a reward for good academic performance. Besides, such purchases are likely to take place at department stores. Parents are more ready to pay more for electronic games and educational toys with average prices at Rmb300 and Rmb244 respectively, compared to Rmb198 for general boy/girl toys. In terms of city, parents in Shanghai have the highest price acceptance level than their counterparts in Beijing, Guangzhou and Chengdu.

Apart from price, parents and children are very concerned about factors like attractiveness, quality, functionality and versatility when buying toys. In general, cartoon characters are the most popular with children. If a toy is associated with a cartoon series being broadcast on TV, it will quickly create a trend among peers and the children are more eager to buy it. Advertising is therefore very effective in promoting sales in the mainland market.

In-store promotion is an important factor conducive to making buying decisions. A survey conducted by the HKTDC has found that 50% of the parents making purchases on regular occasions have not planned to buy beforehand. Usually they are attracted to buy by interesting toys, new releases or toy promotions while they are shopping. Another 25% of the parents have planned to buy but only make their final decision to buy in the store. In-store promotions are therefore crucial to driving sales.

Auldey is a highly successful mainland brand for toys. Apart from good quality, right pricing and rapid release of new models, massive advertising and promotions play an indispensable role in its success. In addition to launching a cartoon series to arouse the interest of young children in the brand, Auldey jointly organises national car racing contests with education authorities every year. The objective is to appeal to both children and parents by associating the brand with the image that it can effectively develop children's hand-brain coordination.

According to companies which sell toys on the mainland, spending on advertising and promotions ranges from 5% to 20% of their total annual sales. Most of the companies spend 15%. If the sales are handled by distributors, most of them will work with their distributors in organising advertising and promotional activities as well as sharing the costs. The share borne by the company usually ranges from 25% to 75%, with the majority shouldering 50%.

The survey has found that about half of the companies currently selling toys on the mainland appoint distributors to develop their distribution network because the latter have their own distribution network and a better understanding of the local market operations. On the other hand, brand is an important consideration when distributors select which products to carry or which supplier to work with. They all agree that the key factors are company strength, brand recognition, quality and novelty of product, and strong advertising and promotional support.

In general, distributors reckon the biggest advantage of domestic brands is price but craftsmanship is their major drawback. For example, the edges of puzzle pieces are rough, design concepts lag behind those of Hong Kong and overseas brands, and the choice of colour and material is also less sophisticated. While the overall impression of Hong Kong brands in the mainland toy market is good in terms of design, quality and safety, Hong Kong companies should be able to identify more opportunities as the mainland market becomes more mature and places more emphasis on quality and safety.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.