Move Over, Beanie Babies, Webkinz Are Coming to a Store

Move Over, Beanie Babies, Webkinz Are Coming to a Store — and Virtual World — Near You

Published: September 19, 2007 in Knowledge@Wharton

Tara has a stuffed black bear that she has named Midnight. She
purchased him at a store on the boardwalk in Ocean City, N.J., for
$12.95, plus tax. As with any stuffed animal, Tara can play with
Midnight in her living room and take him wherever she goes. But the
real fun begins when she sits in front of a computer and, using the
unique "secret code" that accompanied her purchase, logs onto a website
to play with a virtual version of Midnight.

Midnight is a Webkinz pet. If you don’t yet know about the Webkinz
craze, you soon will, especially if you have children of your own or at
least know one or two on your block. What makes Webkinz different from
other hot toys of years gone by — Cabbage Patch Kids, Beanie Babies,
Tickle Me Elmo and even the century-old teddy bear — is the business
model behind them. By melding the old-fashioned bricks-and-mortar world
of toy retailing with an opportunity to participate in an online
community, Webkinz taps into the kiddie zeitgeist and shows a deep
understanding of how to use the concept of virtual worlds to full
advantage, according to marketing experts at Wharton and elsewhere.

A child buys a tangible Webkinz animal not for its own sake, but for
the website access that the purchase of the animal includes — a year’s
use of the online Webkinz World where they feed and take care of their
animals, which could be a dog, raccoon, koala bear, platypus, hippo or
a host of other creatures. They also play games, amass "money" to buy
virtual products for their pets, and can chat with one another. Kids
renew their online accounts after one year by purchasing — or
"adopting," in Webkinz parlance — another pet. If they don’t buy
another pet, they cannot gain access to the site.

"Other companies have done online games, social networking and
product information, and tied them to the sale of a product, but they
haven’t pulled all of those elements together," says Lisa Bolton, a Wharton marketing professor. "The difference is Webkinz seems to be doing it really well."

A Virtual World for Kids

Children are spending more and more time online, yet they still love
to play with old-fashioned stuffed animals, so why not mesh the two
concepts? Ganz, a privately held company in Woodbridge, Ontario, that
also sells giftware, candles and fashion accessories, did just that by
launching Webkinz in April 2005.

Ganz’s use of the internet to build a business is obviously not new.
All companies, to some extent, use cyberspace to sell products and
strengthen brand loyalty; some, like Webkinz, create virtual worlds for
customers to experience. What makes Webkinz successful is the creative
way in which Ganz has brought together various elements that appeal to
its young customers.

Virtual worlds, like the one offered by Webkinz, were dubbed "the next big thing" in an article in the August 29 issue of The Outlook,
a publication of Standard & Poor’s. Disney, for instance, has paid
$350 million to acquire Club Penguin, a virtual world for kids that is
a competitor of Webkinz, although Club Penguin does not include a
tangible toy. The "dynamic growth" of virtual worlds is luring big
businesses that want to advertise their products and services in those
worlds, according to The Outlook.

Warren Buckleitner, editor of Children’s Technology Review,
a publication based in Flemington, N.J., says Webkinz has "basically
shown the [toy] industry that the web cannot be ignored and that there
is an incredible potential for play, for extending a brand and for
providing an experience that kids are hungry for."

Kevin Werbach,
a Wharton legal studies professor whose son and daughter have Webkinz
pets, says Webkinz has "powerful" appeal to kids because "it has both a
personal dynamic — you have to take care of your pet — and a communal
dynamic, where you interact with others."

In broad terms, Webkinz World "is like other online entertainment,"
adds Werbach, whose research interests include electronic commerce.
"It’s a visual experience that extends the imaginary experience that
people have always had. Kids sit down and play on a PlayStation or Xbox
because it’s the same as if they were playing knights or what have you.
Being able to see a high-resolution, graphic version of it is exciting.
What do kids do with toys like stuffed animals? They take them home and
play with them and make up an environment around the toys and get
accessories. Then they go and play with friends and make up stories and
situations around the toys."

What Ganz is doing with Webkinz is "taking that play experience that
kids are already having and leveraging the potential of the Internet to
facilitate that more extensively," he adds. "The online service of
Webkinz is an opportunity to play with other kids any time you want —
and with a broader universe of friends."

Another key reason for Webkinz’ success is that Webkinz World allows
children to chat online with other Webkinz owners using "Kinzchat."
(Because of privacy and child-protection concerns, users of the site
can communicate with each other by clicking on pre-written sentences to
hold a conversation.) Children can also earn play money called
"Kinzcash" by playing online games in an arcade or answering questions
in Quizzy’s Corner. Armed with Kinzcash, boys and girls can buy things
for their pets.

Buckleitner, whose daughter owns Webkinz, says giving kids a chance
to chat onscreen with one another is pivotal to Webkinz appeal. "People
are innately social, so they want to chat. Kids love this notion of
going online and sending a message to a real person."

In addition, he notes, children get a "feeling of ownership" because
they can decorate their online houses for their pets. "From a child
development perspective, it gives kids a chance to play with symbolic
thinking, what [psychologist Jean] Piaget called ‘representational
thinking.’" Another Webkinz strength: The site remembers a child’s
online progress from day to day, as he or she amasses Kinzcash or
decorates rooms.

Buckleitner, who holds a doctorate in educational psychology, also
says Webkinz offers good value — the kind that appeals to parents.
"The online experience has to be worth $13 and the toy needs to be
worth $13. Both are sold together for $13, so there is perceived
value." In addition, Webkinz avoids what Buckleitner sees as an online
turnoff: requiring customers to provide a credit card number that will
allow a company to bill them monthly. "That kind of thinking has really
damaged the credibility of the Internet and it’s been bad business for
everybody," he says.

Tamagotchi and TamaTown

James Gilmore, a consultant and visiting lecturer at the Darden
School of Business at the University of Virginia, says his daughter,
Anna, has three Webkinz pets. By talking with Anna about Webkinz,
Gilmore has found that the Webkinz site is, oddly enough, something of
a throwback to an earlier era because it offers kids an opportunity to
engage in spontaneous play with friends.

"When I was growing up, summer time meant you would drop by a
friend’s house to play wiffle ball or shoot hoops," says Gilmore,
co-author of the forthcoming book Authenticity: What Consumers Really Want.
"Today, we live in an age of play dates. My daughter says she likes
Webkinz because her friends can ‘come over’ to visit her — online, not
come to the house." Gilmore says that his daughter and one of her
friends interact with one another via their Webkinz accounts far more
than they do in person, even though they live just two doors apart.

Webkinz allows Anna’s friend to "just drop in" and "restores a sense
of real childhood relationships, even though it’s an online
relationship," according to Gilmore. Cyberspace is "the medium through
which [children] get real interaction."

Jonah Berger,
a Wharton marketing professor, says Webkinz is similar to a toy called
Tamagotchi, which was introduced in 1996 by Bandai, a Japanese firm,
and is still on the market. The Tamagotchi is not a tangible, cuddly
pet like a Webkinz; it is a digital pet that lives inside a small,
egg-shaped, handheld computer that children carry around. Three buttons
on the computer allow the child to feed the Tamagotchi, play games with
it, and check on how hungry and happy it is. Users with Versions 4 and
4.5 of the toy can now enter the Tamagotchi website, go to TamaTown
and, for the first time, have a chance to "mentor" their pets "through
the stages of life."

Ganz is not the first company to latch onto the idea that you can
help sell your tangible product by also offering the buyer exclusive
access to a special website. Textbook publishers have been doing this
for some years now. Candy companies, breakfast cereal manufacturers and
other corporations with websites that kids — and adults — can log
onto have found that a site can strengthen a buyer’s connections with
the product.

"Companies want to encourage people to interact with their
products," Berger says. "Academic research suggests that the more
people are involved with a product, the more it becomes linked to their
identity. People buy Apple computers or iPods because that brand is
part of who they are. Apple fanatics will stick with that brand even if
other brands offer better deals. So when kids see another product
that’s like Webkinz, they may not switch to that product because they
are already tied to Webkinz."

Harvesting Pumpkins and Watermelons

Hema, Tara’s mother, says her daughter’s Webkinz experience has been
a good one. Tara not only has fun with Midnight but she is learning
about responsibility.

"She is aware of what it takes to care for pets," Hema says. "She’ll
tell me, ‘My bear needs to be fed’ or ‘I have to budget my money
because Midnight needs a trampoline to play with’ or ‘I need to buy
another room because my bear needs a place to play.’ It’s strange to
hear these things from her. But Webkinz allows her to realize the
importance of balancing things."

Hema is not so happy, however, about the increasing amount of time
Tara is spending on the Webkinz site. Initially, Tara went online once
a day for perhaps half an hour; more recently, she has been logging on
three times a day for up to an hour each visit in order to get freebies
offered only at certain times of the day. "What I don’t like is that it
not only increases her time on the computer, but the website dictates
that you have to be there," says Hema. "Sometimes you get free food if
you go at a certain time, or you get coupons for the shop where you can
buy things for the pet."

Hema, a native of India, says she regrets that Tara is not spending
more time outside. "I’m more old fashioned. I feel you should spend
summer days outdoors biking and playing with friends. But that’s me. I
grew up in a totally different time and country."

According to Tara, one of her favorite Webkinz activities "is to go
to the garden" to "harvest" pumpkins and watermelons for Midnight to
eat. She may want to buy another Webkinz pet, she says, but not for a
while. "Maybe next summer, because when I go to school I don’t want as
many distractions from homework."

Susan McVeigh, a Ganz spokeswoman, notes that the company does no
advertising for Webkinz. "Our sales reps introduced the pets and we
have done grass-roots outreach," she says. "Most of our success comes
from word of mouth. We say it spreads playground to playground."

Webkinz could run into trouble if it ever lost the trust of its
young customers, according to Buckleitner and Wharton’s Bolton. One way
it could lose that trust is to commercialize the site by allowing
companies to advertise on it or allowing companies to use the site for
product placements — a brand-name pet food to feed your Webkinz dog,
for instance — in the same way the movie industry does.

"Trust is the new currency," says Buckleitner. "There are ways to
lose trust." He fears that if "corporate folks get sneaky and start
playing with kids," then children will "end up spending hours and hours
with mediocre content. There are finite minutes of childhood and we
need to fight for quality of play on screen and off screen."

Bolton notes that Ganz’s decision to rely on word of mouth rather
than an ad campaign to spread the word about Webkinz was a smart move.
"The lack of ads keeps it less commercial and more community focused,"
says Bolton. "Kids find what their friends recommend more appealing
than what marketers say. These are pre-teens and they begin to get
suspicious of advertising and react against it. So marketers are tying
to get under these defenses in other ways. Word of mouth makes it
special. The kids have discovered it for themselves; they haven’t had
it pushed on them by a parent or a marketer."

Bolton echoes Hema’s concern about kids spending too much time on
the Webkinz site. Bolton points out that the American Academy of
Pediatrics warns parents not to allow web use to take the place of
homework or playing outside with friends and to set limits on the
amount of time a child can spend online each day or week.

Wharton’s Berger says sales of Webkinz are likely to keep growing.
Ganz does not disclose sales figures, but some two million Webkinz have
reportedly been sold. Ganz "has not gotten even close to maxing out
their market yet," he suggests. "There are lots more kids who want to
play with these things."

What is worth noting, however, is that no one really knows why some
products capture the imagination of kids while others fizzle out.
"Every year, there’s some new children’s toy that just takes off,"
according to Bolton. "We don’t totally understand why. We can analyze
it after the fact and see clever elements. But we haven’t figured out
how to forecast these spectacular successes."

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