A tale of the two bears -- marketing and sales strategy in Toyland

There's battle being waged this Christmas season, a high-tech battle for the hearts and minds of not only kids but adults. For lack of a better name, let's call it ``Bear Wars.''

Most of the action centers around two teddy bears who talk -- well, one of them talks, the other mumbles -- through the use of high technology. Their paths have crossed repeatedly, not only in the aisles of Toys ``R'' Us and the pages of the Wall Street Journal, but in the lives of the two men who are promoting them, men who worked together at Atari Inc.

``Bear Wars'' has given new fuel to the $13 billion toy market in much the same way Cabbage Patch dolls did in 1983 and '84. It shows that even when flouting the traditional rules of the toy business, superior marketing and the ability to capture the imagination of the public -- specifically, parents -- can win the day.

The first high-tech bear to hit the toy stores was A. G. Bear, who sells for about $30. When you say something to A. G., he mumbles a response. A. G. is driven by a computer chip that recognizes voice and mimicks it, but at such a low fidelity that it sounds like a mumble, not words. The computer chip alone cost about $500,000 to develop, according to A. G. Bear's creator, Nolan Bushnell.

Mr. Bushnell is not new to the toy business. He started Atari with $250 and a home video game called Pong. After creating Pac Man, Asteroids, Space Invaders, and other video games, he sold Atari to Warner Communications for $28 million, of which he received $19 million.

Bushnell's new firm, Axlon Inc., has followed the rules of the toy industry. It presented A. G. Bear at the American International Toy Fair in February, where toymakers try to sell their wares to retailers ranging from K mart and Toys ``R'' Us to more expensive stores like F.A.O. Schwarz and Macy's. Axlon started shipping in July, and the bear was on store shelves in late July or early August -- not terribly early, but certainly in time for the Christmas season.

The company spent $2 million in advertising on spot (local) TV in the early mornings and early evenings -- prime time for kids, but not for adults. And the bear -- along with his friends like Pester, a cat that skitters right, left, forward, and back when you clap your hands -- is selling pretty well. Some 600,000 bears have been sold, and the company expects to have $12 million to $15 million in sales this year.

Enter Teddy Ruxpin, a story-telling bear (who, unlike A. G., has good diction). When Teddy tells a story, his mouth, eyes, and nose move in sync with his words. Kids can follow the story line with an accompanying book. Teddy, who is run by a four-track tape that fits into his back, cost about $2 million to develop, says Mark Bradlee, vice-president of sales at Worlds of Wonder, the bear's distributor.

At this point he has about a dozen different stories in his repertoire. By the end of 1986, there will be 30 more, including a tape of lullabies ``guaranteed to put the parents to sleep if not the child,'' says Mr. Bradlee.

Teddy's not cheap, ranging from $60 to $90. But the price may have helped him: It meant he could be sold not just in discount stores like Toys ``R'' Us, but also upscale stores like Macy's, which have their higher margins.

Teddy Ruxpin was the No. 5 toy in November, according to Toy and Hobby World magazine. Morinda Christopher at Toys ``R'' Us says the bears are sold out before they get on the shelf: ``As the stock people put them out, customers take them away.'' Teddy and his friends like Grubby, who plugs into Teddy and sings or talks with him, are expected to bring in $68 million this year.

Worlds of Wonder broke a couple of cardinal rules in the toy business. The company was formed in March, a month after the toy fair, so it had to market the bear to each store individually. Even more risky, Teddy started shipping on Labor Day, supposedly far too late for the Christmas season.

Why, then, is Teddy Ruxpin winning in ``Bear Wars''? In part, it was because Worlds of Wonder marketed to parents as much as kids. Teddy Ruxpin's display, which starts him talking when someone walks within 10 feet, attracts adults, who are fascinated with the technology. ``I've never seen a child stop and look at it,'' says Donna Datre at the Toy Manufacturers of America.

Worlds of Wonder also spent $6 million in advertising (three times what Axlon spent) on network TV -- both on Saturday mornings and during prime time specials like ``Peanuts'' and ``The Grinch Who Stole Christmas.'' That meant that parents as well as kids saw the advertising. And getting getting two half-hour specials on ABC this fall didn't hurt sales either.

Bushnell concedes that Donald Kingsborough, who runs Worlds of Wonder, ``has done a heck of a job in promotion and advertising.'' Bushnell hired Mr. Kingsborough at Atari, and Kingsborough was president of Atari after Bushnell left. In fact, Bushnell tried to recruit Kingsborough when he formed Axlon. Bushnell may be taking some cues from his competitor: He says he's upping his advertising budget to $7 million next year, much of it for network TV. He won't be pushing for a regular TV show, as is Kingsbo rough, however: ``Those can be a trap; if the show isn't strong, it hurts your product.''

But ``marketing can only do so much in the toy industry,'' says Paul Valentine, toy industry analyst at Standard & Poor's. ``You've got to have a superior product.''

An animal (Teddy Ruxpin) that actually looks like he's talking has never been done before, says Mr. Valentine. But ``children have been talking to the teddies for decades and having them talk to them without the benefit of technology. Turning the fantasy to reality [as A. G. Bear has done] hasn't worked,'' he says. (In defense of A. G. Bear, it has worked for this reporter, who finds him immensely amusing.)

Valentine says that ``electronic plush [animals] is one of the most exciting areas of the toy industry. The category has several good years ahead of it.''

And for now, the category is pretty wide open. The big toy manufacturers like Hasbro-Bradley and Mattel, which plan their toys a year or two in advance, are not expected to bring out a toy similar to Teddy Ruxpin in 1986.

Of course, the jury is still out on whether this is a fad: ``With any electronic product, there's a chance the child will get bored once he's put it through its paces a few times,'' says Valentine. The key, he says, is to extend the product line and the ``fantasy value.''