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Learning business from a toy story

By Nick Easen for CNN

Product development is an important factor for success in the toy sector.
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(CNN) -- Launching a range of new toys has never been a riskier business proposition.

Toy makers now have to compete with an explosion of video games, interactive dolls, action figures and gadgets that appear to come alive when hooked up to a television set.

Toy sales are down, traditional hobbies are being dropped at ever-younger ages and children have increasingly sophisticated tastes.

"To have a universe entirely populated by the nice people really limits the appeal to three year olds and under," Greg Rowland, a brand expert told CNN.

Over the last few years these factors have driven toy companies to become more like other consumer goods makers.

Toy brands and their images are now handled with the same savvy intuition normally reserved for the latest automobile or sports footwear.

And for smaller companies -- in an industry dominated by U.S. giants, such as Mattel and Hasbro -- success has come in the form of tie-ups.

Links to movies, cartoon and television programs have breathed life into ailing toys, now a majority of sales involve some form of licensing.

One British toy maker, Hornby, turned to the Harry Potter films to boost its model railway products.

The firm got a license for Hogwarts Express, the train featured in the movie "Harry Potter and the Chamber of Secrets," produced by Warner Brothers (like CNN, a division of Time Warner).

"I think what we have that by offering a license that is relevant to kids we can actually attract new entrants into the hobby of model railways," says Frank Martin, CEO of Hornby.

Outsourcing to China, instead of manufacturing in the UK, has also made Hornby more competitive -- now children pay less for extra features.

And the company is now going from strength to strength, the publicly listed Hornby shares nearly doubled in 2003.

More 'light and sound'

Continual product development is another important factor for success in the toy sector.

Hornby launched a new steam-powered model train last year, which sold out within seven months and the company has three new developments of its Scalextric racing brand on the shelves this year.

Swedish toy maker Brio -- made famous by its traditional solid wood trains popular down the generations -- has also realized it has to move with the times.

"Of course you have customers who just prefer to have (toys) the old fashioned way ... but you need to have some light and sound," Tomas Persson, CEO of Swedish-based toy company, Brio.

"Now we have interactive trains, we have remote-controlled trains, everything. So it is a development thing."

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