Some of the other posters have been thinking about Hornby's strategy. I thought that they might like to read what Bized, one of the leading A level Economics and Business Studies subject sites has on the firm. It might be used in lessons, as a piece of revision, or used by a student to illustate key Business ideas, without using hackneyed text book examples. Tutor2u.net its main rival also covered Hornby in a similar article in January.
In the News
15 November 2005
Value Added
Hornby, the firm that makes model trains and owns the Scalextric brand, has seen its fortunes turn round in recent years. The company was formed in 1907 when the owner, Frank Hornby, saw success with a construction kit based on metal parts called Meccano. Since that time it has become known as a firm that supplies toys and models for hobbyists with its train sets being at the forefront of its business.
It did suffer a decline in fortunes during the latter part of the 1980s and early 1990s but has since consolidated its position in the toy market by diversifying its product range to cater for different market needs and also the production of Scalextric. It has had to cope with changing demand, especially the growth of computer games, and has targeted its market not only at children but also serious adult collectors and model makers.
It managed to boost profits on the back of the Harry Potter brand by making a model of the Hogwarts Express and has also tapped into the small children's market interest in the Thomas the Tank Engine brand. The company expects difficult trading conditions over the Christmas period but did report profits for the first six months of 2005 of around £2.6 million and its share price valued the company at £82.9 million.
Hornby has also acquired business interests in Spain and Italy. In Spain it acquired Electrotren and in Italy, Lima, both model makers in their own right. In 1995 Hornby reacted to the difficulties it was having in trading by moving its manufacturing to China. It is also planning to do the same thing with its Spanish and Italian operations. The move to China did not bring instant results. As late at 1999, Hornby was contemplating selling the business but in the longer term it certainly believes that the move to China was the right one.
Outsourcing its manufacturing has meant that its costs of production have dramatically reduced. In addition, it believes that the quality of the manufacturing and the detail it is able to bring to its models have helped improve its product. The detail is certainly an important factor in the reason why its more mature customers will spend money on buying these models. It currently has a range of products ranging from £50 to £500.
However, the company has been keen to point out that despite moving its manufacturing to China it has still retained the value added sectors of its business in the UK. Value added is the difference between the input price and the value placed on the product by the market. It is an abstract concept in that it is often difficult to measure or pinpoint where this value added comes from.
Hornby suggest that its value added operations are the design and planning stages of its business. The difference between the cost of the raw materials and the price of the model - whatever it is - is not really that important to the firm. In simple terms it is relatively easy for them to manufacture any sort of model train. But crucially, how much is the customer prepared to pay for the end result? The answer to that question depends on the desirability of the model and the value which consumers place on having it.
A model of the Eurostar train, for example, could come in different forms. It could be a bog standard replica or could go into more detail in the construction and design to try to replicate as much as possible the real thing. The skill in this is not in the manufacture but in the design process and the planning for manufacture - the value added. It is this that makes the difference between a customer being prepared to pay £25 for a model and £250. It is about knowing your market and knowing what they place a value in.
It is well worth looking around as you shop and thinking about what the value added of the goods and services you pay for actually are. What is it that makes you willing to part with your money to acquire that product or service?
Pasted from <http://www.bized.ac.uk/cgi-bin/chron/chron.pl?id=2475>
