Toys R Us Company’s E-Commerce Strategy

Abstract

This extended essay aims to examine whether Toys R us should

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Incorporate the use of online marketing in their sales plans within the vicinities of the Kingdom of Saudi Arabia or not. My scope is to scrutinize the advantages and disadvantages of using online marketing to purchase goods from Toys R Us, as well as selling them. As Toys R Us in first world countries is using online marketing extensively therefore I am interested in introducing it to Toys R Us Saudi Arabia nevertheless the problem I faced was that the officials in Toys R Us Saudi Arabia were not fond of my idea as they thought that it would lead to an increase in total costs while on the other hand, I think it would give a major increase in total sales, although I noticed that some companies in Saudi Arabia are starting to collaborate with online marketing thereby I had the passion of introducing E-commerce marketing sales for Toys R Us Saudi Arabia.

As they would not only introduce online marketing for toys; but also start to develop the new concept of the “cyber-market” to a whole new level in the region.

In conclusion, it was discovered that using online marketing would help both sides of the purchase. Where the customer would have the privilege of relaxing at home and ordering his purchases online, consequently, avoiding threats of visiting a store with empty stock.

Online-marketing would be where they would show their kids the products and would pick out which to buy.

As for the company, it might face a problem with the logistics of delivery of a product, but the solution is found in conducting a small cost for online purchased products.

Introduction

E-commerce is essentially selling and buying products or services through the Internet, Ever since the introduction of the internet, marketers are starting to sell through the internet, a lot of products in the world are available online, in fact, some companies sell their products exclusively through the internet as they are companies that are specifically focused on online marketing such as Amazing E-bay.

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Toys R Us is one of the leading companies specialized in toys for children aged 1-16 years old. Toys R Us was introduced and franchised in The Kingdom Of Saudi Arabia in 1996; it has been people’s choice of gifts for children ever since, although there are some complaints about how they have branches that are rather far from the city, so I had an idea of starting e-commerce sales in Toys R Us Saudi Arabia.

The Kingdom Of Saudi Arabia’s internet usage is increasing rapidly with 47.5% of the Saudi population online up from 5% in about 10 years, from (2001-2011) in relation the e-commerce use in Saudi Arabia is substantially low with 10% of organizations using e-commerce in 2008, however, it is shown that it is increasing rapidly with plenty of companies starting the use of e-commerce as b2c sales (business to consumer), therefore this extended essay aims to introduce online marketing for Toys R Us Saudi Arabia and to analyze whether they should pursue this idea or circumvent it.

Whilst E-commerce would be beneficial for both sides, it would benefit the customer by delivering it to his household with comfort and ease for the customer, although there are some requirements for an E-commerce strategy to be able to succeed, such as ease and stability, and security as well as a well-structured website to essentially please the customer.

For security and ease Toys R Us Saudi Arabia could cooperate with a B2B (business to business) corporations such as a bank that could assess the checkout process of a product, as well as a network that would assess the technology used to demonstrate the advertisements and promotions, furthermore, they could be providing coupons and rewards.

E-Commerce would benefit the business by introducing a new type of income which is online income, although it would not cost Toys R Us Saudi Arabia much input money for them to structure a website page for E-Commerce however it might cost them in the way of delivering the product to the customer as they have to expand their amount of vehicles used which could cost them, as some products require large vehicles for them to place the products in.

E-Commerce is used in first world countries and is well known in countries that are advanced in technology, although is noticed that some companies in the Kingdom Of Saudi Arabia are starting to develop the e-commerce strategy, where trading online is predicted to be the future of businesses in Saudi Arabia.

Any business aims to sell and gain profit, so why not develop new ways of selling products and services online.

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All in all my aim in this investigation is to get in-depth with Toys R Us Saudi Arabia using e-commerce to sell their products, I would also get into analyzing the advantages and disadvantages in detail as well as concluding a result on whether Toys R Us Saudi Arabia should engage with the idea of E-Commerce or condemn it, although if E-commerce was a suitable idea to be applied in Toys R Us Saudi Arabia I would justify how they could make the idea of E-commerce a benefiting success

Methodology

My main method used to get data was primary research which is the research that involves gathering new first-hand data for a specific study, it is also known as field research.

The primary research that was used as conduction of interviews with the head of Toys R Us E-Commerce in The United States of America as I asked Toys R Us Saudi Arabia to provide me with his contact information, as I asked him through the phone some questions about how e-commerce in the U.S such a success,

The list of the question asked for both interviews is included in the appendix (1)

I conducted 2 surveys on e-commerce:

The first survey was for the students of King Faisal School in Saudi Arabia and its purpose was to statistics on buying tangible and intangible products online.

The second survey was for Toys R Us customers as I visited 3 local branches and got 30 responses on what customers want if Toys R Us conducted the e-commerce strategy.

The survey questions are included in the appendix (2,3)

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Secondary research is used as well, secondary research involves the collection of second-hand data and information as the data already exists in another form, it is also known as desk research.

However, I found secondary research more interesting as I researched online marketing in Saudi Arabia, as well as discovering some companies that are applying the e-commerce strategy.

I also looked up some research using the IB Business and Management Cambridge edition textbook that I found interesting as it explained e-commerce’s benefits and limitations with needed detail.

Furthermore, it helped me use the e-commerce impact on the marketing mix strategy, as well as the Business and Management Paul Hoang edition, which I found helpful since it has a full coverage of e-commerce, as I found the IB business and management course companion oxford edition quite helpful as well.

To analyze the information I got through my investigation I constructed some tables and charts with percentages that were given from my surveys, as well as comparing my survey to a similar survey online to see the comparison between them.

I will focus on the key concepts used in this investigation, which include the use of marketing mix in e-commerce, which is the mix that tries to cover all of the key elements needed in the marketing of a product, it is often referred to the four P’s which are price, product, place, and promotion as well as the use of the additional P’s which are people, process, physical evidence, and packaging, they aim to reflect my topic in ways of analyzing benefits, and limitations of the marketing mix in e-commerce.

I would also conduct a SWOT analysis, which benefits the company by analyzing its Strength of the company, Weaknesses of the company, Opportunities it could conquer, and the threats it could face, then I would relate it to my topic of e-commerce in Toys R Us Saudi Arabia

I would also construct a PEST analysis which is an acronym for the Political factor which is the government’s regulations and legal issues for e-commerce, Economical factor which is the cost for the company to establish an e-commerce strategy, Social factor which is the costumers’ needs and wants to establish a safe and secure e-commerce strategy and the Technological factor which is the most important factor for my topic which can lower barriers to entry and influence outsourcing decisions.

Lastly, I will examine the e-commerce strategy in depth and evaluate the decision of pursuing the idea of introducing e-commerce for Toys R Us Saudi Arabia.

Findings and Analysis

SWOT

Strength of the Company

Toys R Us specifically specializes in toys and a range of other baby products. The wide product portfolio, which includes children’s apparel, learning, juvenile, core toy, entertainment, as well as parenting and seasonal products helps in spreading the company’s risk factor over a wide cross-sectional area. The fact that Toys R Us specializes in only toys and other baby products makes the company’s focus mainly be on quality, which attracts consumers (Toys R Us para 1).

Weaknesses of the Company

Most of the products sold by Toys R Us relate to the western culture where the company has its roots. These toys, including Barbie dolls and stuffed animals, mainly export the western culture into new markets. This has very little appeal for the Saudi Arabian market, which is strongly inclined towards the Muslim belief and culture. For instance, while Barbie dolls are always dressed in short and exposing dresses, Islam, and by extension, the Saudi culture always requires women to be dressed in long clothing that covers the entire body, apart from the face (Daily Bulletin 2).

Opportunities for the Company

The physical presence of the company within the Saudi Arabian market provides it with an opportunity to analyze the cultural influence of the market, and manufacture products that are unique to the Saudi buyers. Operating from within Saudi also presents Toys R Us with an opportunity to employ the local talent. This is critical because it helps in giving the company a local appeal. Given that Saudis are considered to highly conserve their culture, giving Toys R Us a local look will greatly appeal to the market (Shoult 293).

Threats of the Company

Toys R Us brand name is foreign and has only been exported into the Saudi market. Given the county’s conservatism levels, a majority of buyers may shun the company because it lacks any strong interconnection with the Saudi culture. Additionally, Toys R Us, being a western company, may sell toy products that have a very strong appeal for the western market, but which contravene the Saudi protocol. Barbie dolls and other kinds of toys have been banned in Saudi by the government for propagating non-Islam virtues (Malik para 1).

PEST

Political factors

Saudi Arabia is ruled by a King, whose word is almost taken as final throughout the Kingdom. A council of Ministers in conjunction with a Consultative Council helps in offering advice to the King. The appointees to these powerful advisory committees hail from the royal family. Saudi Arabia does not have political parties and, thus, never engages in electoral processes. The powers of the King are derived from and follow, the Muslim Shari’ah law from the Holy Qur’an (Cordesman 132). This means that even laws that govern the running of the business are derived from the Qur’an.

Economic Factors

Saudi Arabia is a rich country mainly due to its huge oil deposits. Up to one-third of the country’s annual budget is financed by revenue collected from the international sale of its oil. However, the country’s economy is also vulnerable especially to fluctuations in the global oil prices. Other industries also perform well in the country, even though Saudi Arabia is predominantly a desert area. The country is among the leading in the whole world in terms of production of dairy products. Many economic reforms have been undertaken in the country in the recent past, a move that has seen the economy being opened up to private investors.

Societal factors

The Muslim cultures, together with the Bedouin tradition that is heavily practiced in Saudi Arabia have a bearing on the social lives and practices of the people. A religious police system, the mutawwa, ensures that society propagates acceptable practices while abolishing evil (Long 33). Islamic teachings and rules form the basis of social practice on a day-to-day basis throughout the Kingdom. Retail stores and restaurants need to close shop daily in the evenings around the time Muslims go to the mosque for prayers. Islamic holidays and religious periods, such as Eid Al Fitr and Ramadan, can have remarkable effects on businesses.

Technological factors

There is a gradual improvement in technological advancement in the country. Quite a significant number of Saudi youth are well educated, particularly going to the West to enhance their overall education. This growing population is revolutionizing technological growth and development in the country (Cordesman 109).

Financial Study on How Toys R Us Might Benefit or Lose From E-Commerce

Benefits

Saudi Arabia has been recording constant growth in overall ICT adoption and general penetration. Studies indicate that by 2014, spending in the IT sector alone could reach US$ 5.7 billion, with the per capita spending recording US$ 200. This will be equivalent to 13% growth within two years. Overly, Saudi Arabia’s total ICT investment is 50% of the entire GCC region, with the SMEs in the country enjoying 52% internet penetration in the market (Sacha Orloff 8). This means Toys R Us will benefit from an already established and expanding online infrastructure. The company will use this infrastructure to reach the market easily and conduct its online business.

The following table draws a comparison of the GCC region countries about their B2C e-sales in 2011.

% B2C E-Sales Vs. Retail Sales

It is estimated that B2C e-commerce sales in Saudi Arabia will register a YoY percentage growth of between 30 and 35. By 2015, the market value of B2C e-commerce will likely reach the US$ 15 billion mark. In 2011, the total e-commerce sales value was US$ 3.5 billion, which was itself a 14% growth in the online retail sector (Sacha Orloff 14). It is clear from the table that Saudi Arabia remains a viable market with huge potential in e-commerce as growth continues to be registered each year. Toys R Us will benefit from this growth and make huge sales through its online marketing plan.

M-purchase behavior in Saudi Arabia is the most promising in the world. Every 100 Saudi residents have 180 mobile phones at their disposal (Sacha Orloff 9). This is a promising condition for a company like Toys R Us because mobile phones can be a perfect platform through which e-commerce can be supported. The following diagrams summarise the situation in the country.

Propensity for mobile purchases 51 yrs+male

Surveys and research indicate that both e-shopping and mobile shopping are experiencing an imminent rise because of the high penetration of the internet and mobile phones. In 2011, e-commerce grew by 14% (Sacha Orloff 10), which is a positive indicator to a marketer such as Toys R Us is willing to initiate e-commerce in the market.

Potential Drawbacks

Generally, the Saudi market and the consumers in particular regard the internet as a tool for accessing data and information only. It is never looked at as an opportunity through which they can access physical goods. This means Toys R Us might need to spend in educating its customers and potential buyers on the possibility of using the internet to conduct purchases. This is a costly affair, as it may take long before the benefits of such an affair begin to be realized (Sacha Orloff 15).

There is a significant limitation inhomogeneity between Arabic and English online content. The majority of Saudi consumers will experience communication challenges and other website accessibility issues (Sacha Orloff 16). Although it is possible to translate the medium of communication to suit the local market, it will require Toys R Us Saudi Arabia’s additional effort, and especially in terms of finances, to comprehensively make the requisite changes. Acquiring both English and Arabic language experts will be mandatory to make these changes. Maintaining the experts in terms of allowances and salaries will add up the costs for the company (Sacha Orloff 16).

Marketing MIX

Product

Information collected through the internet would enable Toys R Us to discover new markets in Saudi Arabia. The company will most likely compete with other players in the industry and market, particularly niche shops, via the internet. Thus, a business unit introduced to compete within the niche markets would perfectly be important. In particular, the niche business unit will offer quick responses to marketing-related information, indicating a smaller market segment’s desire for a product (Gay, Charlesworth, and Esen 58). The additional benefits of a niche product would allow Toys R Us’s product development laboratory an opportunity to make use of promising developments, which could have failed to achieve requisite market mass for cost structure reasons.

Place

It is unlikely that Toys R Us will succeed in its general business by introducing strategies that aim at slowing the value chain’s deconstruction. The physical Toys R Us retailer stores should be sustained to preserve how business is taking place currently. The likely strategy by the company would be to maintain its products off online sites (Ahmad and Anand 70). The success of this strategy would depend on the move by other manufacturers and sellers to follow suit and hold out. Nevertheless, no trader would risk lagging on the news channel. Toys R Us will equally find it hard to sustain its market competition by relying on online selling because not all consumers will be reached. The additional shipping costs that would be attached to each product sold online would dissuade customers (Ahmad and Anand 71).

The company requires to build its online customer base first, making sure all the products it deals in are accessed through sites that also contain other products that consumers would wish to have. It would be strategic if Toys R Us entered into alliances with different product manufacturers, especially those whose products sell out more frequently (Ahmad and Anand 71).

Price

Toys R Us must address the increased price pressures that result from online selling. Consolidating online grocery services can disseminate competitive price information, thus increasing price pressures (Ahmad and Anand 74). Such pressures, in turn, would end up benefiting Toys R Us. Physical products have the advantage of economies of scale, and this offers the incumbent companies a chance to use their experience in selling their products under price pressure constraints.

Promotion

Toys R Us needs to use the internet to promote its brand. The company needs to publish its survey results on customer taste satisfaction to enable the buyers to have a look at them. This will play a critical role in helping buyers distinguish between Toys R Us even while in the online environment (Ahmad and Anand 76).

E-Commerce

Saudi Arabia is currently among the leading Arab countries in the area of e-commerce growth. Growth rates of the country’s information technology recorded percentage figures of 9.3, with e-Commerce transactions reaching SR 12 billion (Saudi Economic Survey para 1). More than 3.5 million Saudis, representing 14.26% of the population, actively engage in e-commerce activities. These figures highlight the fact that Saudi Arabia is gradually emerging as a strong market for e-commerce transactions in the entire region (Almousa 92).

The use of credit cards for transactions carried out online has also increased tremendously as the number of internet users increases. The number of companies that use e-payment has equally increased, especially e-ticketing in the air travel industry, as well as the electronic interactive games’ growing popularity. The youth, who are mainly behind the growth of e-commerce, represent up to 50% of the entire Saudi population (Saudi Economic Survey para 1).

Recommendations

Toys R Us should pursue plans to introduce an online marketing strategy to complement its physical retailer stores in its operations throughout Saudi Arabia. The country has a reliable internet infrastructure, which would be crucial in supporting its online operations and activities countrywide. However, the introduction of online marketing should be done gradually. This is because Saudi Arabia, despite its improved internet penetration and growing tech-savvy population, still lags in terms of the comprehensive use of the internet. Wholly relying on online marketing right from the beginning would deny the company the needed revenue to compete effectively in the market.

A physical presence of the company, through brick and mortar retailer stores, is still essential within the Saudi Arabian market. Society strongly observes a culture and is likely to view online marketing, at least in the beginning, as a foreign idea.

This would affect the overall operations of the market and even end up denying its revenue. Physical Toys R Us retailer stores help in portraying the company as one with local roots because it employs Saudi workers who act as the face of the company. Additionally, buyers find it necessary to inspect physically the range of products they wish to buy before making the final buying decisions. The physical interface between shoppers and the front office personnel at the retailer stores also plays a key role in persuading and influencing them to buy the company’s products.

In introducing online marketing, Toys R Us should begin by considering a general online grocery where goods by other manufacturers are also featured. The strategy should be to choose common and frequently purchased goods because these would attract a bigger number of site visits. Developing an own online grocery might fail to have a positive market impact in the short-run. Additionally, the other related costs, such as website hosting and delivery costs would make it difficult for consumers to purchase the company’s products online. Internet promotion and general marketing should be adopted and vigorously implemented by the company.

In particular, those brands that are based on experience must be given priority when it comes to internet marketing. The best way to relay the experience is by constantly publishing user reviews for other buyers to read and appreciate. Toys R Us should also consider introducing new price models in pursuing online marketing as a strategy.

Conclusion

Toys R Us is a western brand that has been successful in its business operations, establishing itself as an international company with operations throughout the world. The company has established its physical presence in the Saudi Arabian market, seeking to serve the interests of the people in the toys and other baby products market. The Saudi Arabian market differs quite substantially from the more liberal western market. Saudis are conservative people and uphold their culture in all their day-to-day life activities and practices, including in their choice of goods and services.

The country has modern infrastructures, ranging from adequate, strategically positioned international airports, to an extensive rail network, and elaborate highways. These infrastructure networks are also connected to the port cities of Jeddah, Dammam, and Riyadh, to ease the transportation of goods shipped into the country and those that are destined for the export market. This makes the market attractive especially for business players with the magnitude of Toys R Us.

Political stability in Saudi Arabia is a strong indicator of the market’s business potentials. Despite the political uprising that affected most regimes within the Middle East region, Saudi Arabia has remained stable and continues to attract many business investors. The country’s economy is sustained by proceeds from the huge oil deposits within the country. Saudi Arabia is the world’s leading producer of crude oil and the country has managed to grow its economy using revenues from the oil industry. Other sectors, mainly agriculture, perform well in complementing the oil revenues.

The social culture of the Saudi people is one critical area that requires scrutiny from business players interested in the market. Islam teachings and beliefs have a greater influence on the purchase decisions and choices that are made by the people. Toys R Us needs to consider all the teachings and practices of the market before availing its goods. The Saudi government has constantly asked her people to shun Barbie dolls that export the western culture, and which fail to adhere to the Muslim teachings. Such a move can have far-reaching implications for Toys R Us, particularly if the company does not manufacture products that are unique to the Saudi market. Advertisements must also adhere to Muslim morals and teachings if they have to create the market appeal that they intend to.

The information technology infrastructure in Saudi Arabia is much improved and more people have access to it. The youthful population is also well educated and can use the internet efficiently for their businesses. Toys R Us can, therefore, introduce online marketing to target especially the growing numbers of computer literate Saudis. This will help the company to cut down on costs related to the physical marketing of its products.

However, Saudi Arabia cannot be compared to other developed countries in the world, whose IT situation and the population knowledge of the same are much advanced. Thus, Toys R Us cannot wholly rely on the online marketing of its products within Saudi Arabia.

Physical retail stores should be maintained to run concurrently with the online marketing strategy because they are more culturally acceptable. As the company introduces online marketing, it should consider allying with other product manufacturers to share a single online grocery. The companies to be chosen should have popular frequently purchased products. This will help the company to maintain lower website-upholding costs, as well as attract huge visits by consumers and other potential buyers. The online pricing strategy should be standardized to enable buyers to cope with the added costs of distribution. Advertising should be done online to promote the companies range of goods.

Works Cited

“Barbie Deemed a Threat to Morality by Saudi Arabia’s Religious Police.” Daily Bulletin 2003: 2. ProQuest Central.

“Kingdom Tops Arab Countries in e-Commerce Growth with 9.3%.” Saudi Economic Survey (2009): n/a. ProQuest Central.

Ahmad, Iftekhar, and Anand Mohan Agrawal. “An Empirical Study of Problems in Implementation of Electronic Commerce in Kingdom of Saudi Arabia.” International Journal of Business & Management 7.15 (2012): 70-80. Business Source Complete. Web.

Almousa, Moudi. “Profiling E-Buyers in Saudi Arabia: Demographic, Experiential, And Attitudinal Factors.” Cross-Cultural Communication 7.2 (2011): 92-100. Academic Search Complete. Web.

Cordesman, Anthony. Saudi Arabia Enters the 21st Century. Westport, CT: Praeger Publishers, 2003.

Gay, Richard, Charlesworth Alan & Esen Rita. Online Marketing: A Customer-Led Approach. Oxford: Oxford University Press, 2007.

Long, David. Culture and Customs of Saudi Arabia. Westport, CT: Greenwood Press, 2005.

Malik, Adnan. “Western Dolls are Banned from Saudi Arabia.” Observer 2004: 0. ProQuest Central.

Sacha Orloff. “E-Commerce in Saudi Arabia: Driving the evolution, adaption and growth of e-commerce in the retail industry.” Report. (2012): 5-22.

Shoult, Anthony. Doing Business with Saudi Arabia. London: GMB Publishing, 2006.

Toys R Us. 2011. Web.

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