Michihiro Maeda, President & CEO of EPOCH Co., Ltd., the company behind Sylvanian Families, which are known as Calico Critters in North America, and Aquabeads discusses the global success of their most famous toys.
Michihiro Maeda, President & CEO of EPOCH Co., Ltd., the company behind Sylvanian Families, which are known as Calico Critters in North America, and Aquabeads discusses the global success of their most famous toys.
Established in 1958 and best known for manufacturing Barcode Battler and Doraemon video games, EPOCH has been part of the video game era since the beginning. Also, you have been present as one of the leading toy companies in the region. Can you please tell us a little more about what you consider to be the key milestones of EPOCH during this half-century history?
One of our biggest turning points was 1985, which is the year when we launched Sylvanian Families. We invented this product line and concept within EPOCH. Before that, we were mainly a game company targeting boys as consumers. Once we founded Sylvanian Families and introduced it to the Japanese market and later the world, our target consumer changed to girls and their mother. This was a huge change for us.
The second milestone was in 2008. Before that year, we made efforts to export our products and become more global, but without great success. In 2008, we acquired the company that had been our distributor for Sylvanian Families (which is called “Calico Critters” in North America) in North America since 1999; that was our turning point. During that same year, we bought a Chinese factory from a Hong Kong owner as we wanted to control our own line of production. This strategy changed everything! From that point on we were able to produce our own products, control the production line. We now owned the production and distribution of our product line. It was at that point we were able to develop and control the marketing strategy for the US market. This was the start of our successful international strategy planning.
When we outsourced production and the factory was under a different owner, it was difficult for them to know how many employees they would need. Once we had our own factory, we could define the right number of people needed, and how many injection machines we were in need of. All these decisions had to be made by us in order for us to control the sales planning and how to invest in the factory.
It was after investing in our own factory that we started expanding our global strategy further, and decided to get into the US market more in-depth. We had already thought about this before acquiring the US sales company and the factory, but it was not until we were completely independent that we had the ability to truly become an international company.
Sylvanian Families just recently celebrated its 30th anniversary and has a presence in more than 50 markets. Today we live in a very digital world. A very successful analogue toy that's still alive today that is not only for the young, it is for older people as well and collectors. Please tell us more about Sylvanian, but overall what is the quality value behind the brand and the company; what makes Sylvanian different?
The main difference with Sylvanian Families is that we are aiming to create a product that is not only targeted towards girls or kids, but also for adults. This means that the level of value, or quality, has to be higher.
During one’s childhood, kids love many toys, but as they get older and become teenagers, they look back at that toy they once loved and cannot remember why they loved it so much. This means that the toy is too childish for the child to remember what made them love it; it has lost its magic. We want to create the kind of magic that stays all the way to adulthood, so that even adults can feel and remember the beauty of the toy.
The level of beauty is one of the most important criteria that even an adult can respond to and fall in love with again. This is quite different from other toys. It is not easy to achieve, but the benefit we can get is considerable. Sylvanian Families are loved all over the world by girls that eventually become teenagers, and adult mothers, and they still love our products. Then they will share their passion for these toys with their daughters and the cycle goes on. This is an important point for us.
This magic has been created for the last 30 years – more than one generation – and I believe the key has been that we have always put the standards higher in order to please adults as well. Indeed, our main target is children, but somebody needs to be the one buying the toys.
A study showed that 93% of the mothers having a child from 3 to 10 years old know about the Sylvanian Families, which is an impressive number. How do you spread the magic? How do you let people know about your products?
There are several marketing strategies behind those numbers. First of all, is that we have a strong display in stores. We try to introduce displays showcasing the world of the Sylvanian Families, because it is not very easy to show only from the packages. Our second marketing strategy is what we call “mascot shows”: the rabbit mascot appears to meet the children during big events or in the toy stores in order to make it all more alive. What is important is for the children to say, “I saw the real rabbit!” And this is what allows them to dream. It is really important for kids to relate to the real characters. I want for little girls to believe that the Sylvanian world exists and is located somewhere in the world, in a magical place. That is why we create maps – we are making the toys alive.
The third strategy is TV advertising. This is another way to bring life to the toys. We are producing short stories talking about what is happening in Sylvanian Village. It can be about a birthday party, a Christmas party, or just something happy to create and spread the feeling that the Sylvanian world in fact does exist somewhere in the real world.
Do you brand it to be originated from Japan? I knew this figurine when I was a child but I didn't know it was Japanese. Do you use your Japanese roots to be synonymous of quality, of innovation, of creativity?
Many people believe these toys are British. In fact, we do not try to emphasize our origins for the fact that we want to showcase this as a Utopia – not originating from anywhere. The good thing for us is that people respect Japanese products. Thanks to brands such as Sony, Panasonic, or Toyota, many big companies created great products and along came a great reputation. Today, people associate Japanese products with good quality.
Perhaps this is true, and even from our usual standard of living, we can feel that Japanese products have high quality, but the most important thing is that people around the world thinks so. Nobody doubts the Japanese quality, and that is beneficial for us. I believe the reason we have such good quality is because the Japanese society as a whole – not only Japanese companies, but everyone in general are thinking long-term. This is our Japanese mindset: we are always thinking through a long-term perspective. There is no need to rush to get results; we can go step by step. Even shareholders and other stakeholders are thinking long term. That is why we can take the time to create real quality and not having to work against the clock. If we had to make results based on a short-term perspective, it would be more difficult for us to make a difference in terms of quality. In that sense, we are quite lucky. That is why Japanese companies are able to export quality products all over the world, and that is probably also why people associate Japanese products with high quality. Of course, it is important to constantly prove ourselves in order to meet expectations.
EPOCH as a company is recently in more than 50 countries around the world. Can you tell us about your experience from going abroad, and the impact of your Japanese products in other markets? Are you looking to open business in more countries?
Expanding the business has two meanings for me. One is to set up our sales company, or to expand the territories controlled by us as a company. The other is to export to more countries only through distributors. If we can set up our sales company and distribute by ourselves, we can apply our own strategies, and this is more effective for us.
When working with distributors, on the other hand, they may have their own financial objective, or they may have other products that are more important to them, which is less efficient for us. That is why I would like to expand to more territories that our sales company can control. Gradually, I see those territories expanding over many European countries.
Also, there are so many emerging countries in the world. Two or three years ago, we started in the Middle East. I had been hesitant whether Sylvanian Families would be accepted in the Middle Eastern countries, but the truth is they were very well received. Despite different religions and cultures, our toys are well accepted. The success made me confident that we can expand into more countries than we had initially thought, regardless of culture, because the toys are animals, and that will not offend anyone.
Indeed, we are already distributing in Russia, and having a sales company in Brazil, but there are so many other emerging countries we have not approached yet. Gradually, I would like to introduce Sylvanian Families into many more countries, especially in the Middle East, but perhaps also in the future entering North African countries. We are present in South Africa, but have not approached North Africa at this point. There are many markets for us to explore in the future.
When we enter new countries, we always start very small, but gradually it keeps growing and growing, and after three to five years, our presence has become huge – even in small countries. That is why I am confident we can do well in more emerging countries. Today, we are distributing to approximately 55 countries, but we are looking at approaching perhaps 5 to 10 new countries in the next five years or so.
Another important part of your business is the licensing business. You have Star Wars and Disney characters for instance. Number one, this is difficult to get because these huge companies need to trust in your manufacturing process; trust that you will preserve the values and preserve the brand overall. Can you tell us a little bit more about this licensing business in terms of the toys?
At first, I would like to explain the arts and craft business, as we are using the Disney license for our product called Aquabeads. Beads are a very popular hobby or activity, especially for women. 12 years ago, one of our employees within R&D thought about creating a beads weaving machine. This is a quite complex mechanism, but he made an attempt. Then, a supplier came to him with a specific kind of plastic material that melts when it is in contact with water. He thought of how he could use this material but was too stuck on his weaving machine idea. Then, suddenly, he had an idea of placing beads together, and pouring water so that the plastic melts. When it melts, the beads stick together. It turned into a great invention. There were already the regular beads that stick together once you iron them, however, this method is not safe or good for children, and it has to be supervised by a parent. That is why our invention was so great, because children can use it without the supervision of the parent: just spray water and the beads will stick together.
Since people were already familiar with the method of ironing beads to melt them, we realized there must be many different designs that consumers would like to create, so we started doing business through licensing. Our turning point was when we started the Frozen campaign.
Before that, we did other licensing projects, such as Pokemon, Nintendo Mario, Doraemon and Sanrio. All of these had been successful, but the Frozen campaign was phenomenal.
Before 2014, we had mainly focused on the Japanese market for those licenses, but once this phenomenon happened, I found the meaning with licensing. For me, it is about what the customer wants to make. The customer may want to make Elsa, Olaf, or whomever, and we can show directly that this is what they want to make and how to do it. This is different from how it used to be; before, we just showed the possibilities of what to create: a tiara, a butterfly etcetera. That is not a bad strategy, but popular licensing is so strong, and little girls are crazy about the Frozen characters – that is what they want to make. This was when I realized that this could be a worldwide strategy. I happened to know the people at Disney and we started negotiating with them, and within one year, we started to do business in the United States and then in Europe.
Although our licensing business is strong, our standard business is still the non-license, which accounts for over 80% of the total. The licensing is an important starting point, or touching point. The consumer may love Frozen, so she creates a character from it with Aquabeads. Afterwards, she realizes she can make whatever she likes.
Aquabeads is such a unique product, and that is one reason Disney gave us the license, because we are the only ones doing this. Of course, I have a good relationship with many people at Disney, which helped, but the main thing is that they respect the features of our products as they are so different from the others. With the great support from Disney, we are able to distribute to many countries. Indeed, we can use the distribution network that we have built with the Sylvanian Families, but first, as we have this great relationship with Disney, we are now distributing Aquabeads to around 35 countries.
Since we are using the same marketing strategies as for Sylvanian Families, we tend to compare Aquabeads with Sylvanian Families, but it is not really fair, because when we invest in TV commercials, the effect is so much stronger when displaying Aquabeads because people react. It is easy to show how to play and use it by just spraying the water, and it is easy for the audience to understand.
As for Sylvanian Families, we are showing this magic world and how happy it is, which is good, but it is not as direct as Aquabeads. Aquabeads can easily reach the mass market in another way than Sylvanian can. In terms of business, the features are different. At first, we thought we would use the same strategies for both product lines, which worked fine. However, the reality is that Aqua Beads can reach the mass market much faster and easier. It is strange to say, but we made a kind of channel distribution through Sylvanian Families at the first stage, as a base, but using that foundation, we realized that Aquabeads much faster in the near term.
In some countries, such as Germany, Aquabeads reached the mass market first, and through that relationship, the consumers get connected with the Sylvanian Families. We see the different synergies in different markets. In that sense, perhaps we have to change our mindset and the characteristics of our marketing strategies for the different products.
Sylvanian Families is more about starting with the niche, the specialty retailers, and then gradually reaching the mass market. Aquabeads, on the other hand, we can reach the mass market straight away. We will probably have to invest more in the production of Aquabeads considering its fast growth.
Actually, the production is very important for us because we are producing in our own factories. That is why we need to invest, or else we cannot supply the demand sufficiently. Because of this, we need to look at how the products grow in each market and at what rate, so that we can decide on the investment needed for production.
Within your time leading EPOCH, what has been your main challenge, and what do you think should be your main legacy for the next generation?
I am not quite sure if this is a challenge or not, but we decided to be a global company; we wanted to show that even a small Japanese company can be global. This is not easy, because first of all, one needs to have outstanding, differentiated products. Then, one needs to create a business model, and it has to be one that can be applied and successful in many different countries. We have to find our business model, and apply it country by country. There are many things that differ from the Japanese culture and society. We need to understand and we need to give a benefit to each consumer. A benefit to one consumer may differ to that of another, and we need to find a way to understand what these benefits are.
The structure of the business could be different, but if we have a product, which can appeal to the consumer, we have to find a way to do that. Until now, we had a lot of difficulties we needed to overcome and looking forward, we will still have difficulties to overcome, but if our product can appeal to the end consumer, then, somehow we will find ways to overcome these difficulties. To answer the question of what a challenge is, I would have to answer “my life”. This is a challenge – yet an interesting one.
Regarding legacy, as I mentioned before, when many consumers are playing with the Sylvanian Families during their childhood and are feeling the love towards the toys, we want them to keep having this feeling when they grow up, so that someday when they become mothers themselves, they will keep on supporting us by playing with the toys with her daughters.
I am trying to make those people potential customers for the future, one by one, every year. Back in my father’s days, the consumer would not dream of what kind of impact a toy could have, but this is a legacy I received from the generation before me. I have to do the same thing, but in a broader perspective on a global scale; giving great products to people and with a strong message that will become a strong input in their memories. This input will be transferred through generations as our consumers grow old and share their memories and love for our toys with their children. This is the kind of legacy I keep aiming for.
Have you seen a good impact of Abenomics on the toy industry?
So far, I believe that the impact has been positive. Before Abe-san assumed position as Prime Minister, Japan had been in a state of deflation for several years, which is quite unusual if you look globally. Abe-san and Mr Kuroda attempted to find a solution to get the country out of deflation by changing monetary and fiscal policies etc. While trying to get out of the deflation, too much appreciated yen has been adjusted and I believe that we are finally reaching a reasonable ratio. This adjustment has resulted in a stronger competitiveness of the main Japanese industries, such as automobile and electronics for instance.
The reforms have had a positive impact on the Japanese economy as a whole, and it is in a healthier state now than before, with increased employee salaries etc. and the cycle is virtuous. As per our industry, I do believe the Japanese toy industry benefited from Abenomics. There are many criticisms, however, getting out of the deflation has been crucial, and there is a tremendous difference between now and the time before Shinzo Abe became Prime Minister. In that sense, I would say Abenomics has been successful.
Do you believe TPP will have a good impact for you increasing your competitiveness if it gets ratified?
Intellectual property rights are a complicated matter, which makes it difficult for authorities to define regulations within individual countries. Today, within the TPP countries, there exists a high level of respect for property rights. However, it is often challenging, it takes time and it is complicated to take legal action for copied products when disputes or violations arise. The direction of the TPP is to protect the intellectual properties of companies and individuals over a large market. Standardizing intellectual property rights among the 12 of countries will streamline the process for understanding, obtaining and protecting intellectual property rights. I believe this streamlined process will benefit both companies who own the intellectual property rights and the individuals who use these rights. In that sense, it will positively benefit EPOCH and other toy companies. I believe the TPP will ease barriers, as it is a kind of a social understanding to protect intellectual property rights as a standard, which is very important to us. I do believe great things will come out of the TPP once finalized and implemented.
Do you think China, known for copying products, has been a problem for industries such as the Japanese toy industry where the mind-factoring – which means coming up with the idea – is 90% of the business?
In recent years we have seen improvement in the respect for intellectual property in China, but there is still room for improvement. One would think that there should be so many sophisticated people able to understand property rights properly, yet there are still people taking advantage of what is not theirs. The issue is gaining momentum in China, but it takes time. Once this kind of social understanding becomes a norm, even the Chinese market or society will change and the issue will diminish dramatically. This happened in Japan 50-60 years ago; it is a process.
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