LeapFrog 2005 Annual Report Download - page 18

implementing new applications that are intended to further improve our supply chain management capabilities.
These applications include supply chain planning software and improvements to warehouse management systems
for our distribution facilities. In addition, we also have software systems that we use for both sales analytics,
financial planning and financial reporting. For information as to how our information technology environment
could affect our business, see “Item 1A—Risk Factors—We have had significant challenges to our management
systems and resources, particularly in our supply chain and information systems, and as a result we may
experience difficulties managing our business.”
Consumer Service
We believe that our ability to establish and maintain long-term relationships with consumers and retailers
depends, in part, on the strength of our customer support and service operations. We encourage and utilize
frequent communication with and feedback from our customers and retailers to continually improve our products
and service. We have contracted with an outside customer service provider who operates 24 hours a day, 7 days a
week during peak periods, specifically from December through January, and 14 hours on weekdays, and 9 hours
on Saturdays during off-peak periods. We offer toll-free telephone support for consumers and retailers who
prefer to talk directly with a customer service representative. We also respond to email inquiries received through
our website, and we have a team of in-house consumer service representatives who oversee and coordinate our
customer service activities with our third-party customer service provider. In addition, on our website, we have a
knowledge resource link that directs consumers to a frequently asked questions section, which we update as we
receive consumer feedback.
We also have a dedicated retail sales service team. This team works with our top retailers and provides
point-of-sale related analysis for better forecasting and inventory plans.
Our consumer service and retail sales service teams are managed from our Emeryville, California corporate
offices.
Competition
We compete in the infant-toddler, preschool, and electronic learning aids categories of the U.S. and
international toy industry. This category continues to grow in size and importance, and as a result, it is an
increasingly competitive arena. Competitors in the educational toy market continue to increase their investment
in product research and development and advertising, while focusing on management of global product launches
and retail shelf space. We believe our products compete in these market segments based on brand, product design
features, learning content and experience, quality and price. We believe the LeapFrog brand is recognized for
quality educational products, enabling us to compare favorably with many of our current competitors on some or
all of these factors. Our current principal competitors in the infant-toddler and preschool categories include
Mattel, Inc. primarily under its Fisher-Price brand, Hasbro, Inc. and VTech Holdings Ltd., or VTech. The infant-
toddler category is strategically significant because it introduces parents to the LeapFrog line of educational
products.
Our LeapPad family competes in the marketplace with other learning products designed to focus on
learn-to-read skills. We believe our LeapPad family of hardware and software offers the most extensive line of
products and interactive books in the market. In this category and age range, we also compete with educational
software publishers, such as Knowledge Adventure, best known for its MathBlaster and Jumpstart Learning
System software titles that are found at mass retailers, electronics and toy stores.
Recent market trends show an ever-increasing shift to screen-based learning with companies using handheld
devices as well as television monitors to deliver an interactive, educational gaming experience. In 2005, we
introduced our Leapster L-MAX platform, which joins our Leapster family. The Leapster L-MAX system allows
children to play action-packed learning games, read electronic books, create works of art and watch interactive
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