LeapFrog 2006 Annual Report Download - page 14

During 2006, we broadened our selection of screen-based Leapster handheld products to include Grades 1
and 2, and a Grade K offering was introduced in January 2007.
Licensing
In-bound Licensing: We license a portion of our content from third parties under exclusive and nonexclusive
agreements, which allow us to utilize characters, stories, illustrations and trade names throughout specified
geographic territories. Examples include Disney/Pixar’s latest Cars movies and classics like Scooby-Doo, which
allow us to deliver curriculum with kids’ favorite characters. LeapFrog currently has agreements with Disney,
Nickelodeon, Warner Brothers, Cartoon Network and HIT Entertainment.
Out-bound Licensing: We license our trademarks or service marks to third parties for manufacturing,
marketing, distribution and sale of various products. Our licensing strategy concentrates on extending our current
brand and developing brands into product categories that are consistent with our core commitment to design and
develop educational products that make learning fun and engaging. Our comprehensive licensing program
intends to expand the product range available to all of our consumers. In 2006, LeapFrog launched products
including books with Scholastic Corporation, card and board games with Cardinal, puzzles with Masterpieces
and workbooks with Learning Horizons.
Advertising and Marketing
Our advertising and marketing strategy is designed to position LeapFrog as the leader in engaging, effective,
technology-based learning solutions primarily for children up to age 12. Our communication supports a strong
brand that parents and educators seek out to supplement children’s educational needs. We strive to utilize the best
practices in integrated marketing campaigns that combine the Internet and offline media. Our strategy includes
cross-media advertising methodology, using network and national cable television, national print and online
advertising. Our SchoolHouse segment uses leading education publications directed to school administrators and
teachers. In addition, we periodically attend education trade shows and events. In 2006, as part of our marketing
strategy to increase customer awareness of our products, we developed and expanded our online store to promote
high-traffic and repeat customer visits.
We also seek promotional partners to extend our brands and message to a broader set of touchpoints. For
example, we have pursued promotional campaigns with partners such as Tropicana Juices and Instant Quaker
Oatmeal. We have well-established retailer relationships and communicate our messages and offers through
advertisements in store and in local newspapers. These advertisements run by our retail partners such as Target,
Toys “R” Us, and Wal-Mart highlight promotional activities and the availability of particular LeapFrog products
at these retailers’ outlets. In key retail stores, we use in-store demonstration display units to highlight LeapFrog
products and demonstrate the features of our products through in-store user experience.
We leverage public relations globally as a strategy to gain additional momentum for our brand and products
through media outreach focused on garnering both product-specific and corporate media coverage. We strive to
utilize best practices in media outreach campaigns that target both traditional print and broadcast media with
Internet/viral media outreach globally.
Sales and Distribution
Historically, our net sales to retailers have shown high concentration in a limited number of customers. In
2006, net sales to Wal-Mart (including Sam’s Club), Toys “R” Us and Target accounted for approximately 26%,
22% and 18% respectively, of our consolidated net sales. In 2005, sales to Wal-Mart (including Sam’s Club),
Toys “R” Us and Target accounted for approximately 29%, 20% and 15%, respectively, of our consolidated net
sales. For a discussion of this concentration risk see “Item 1A.—Risk Factors—Our business depends on three
retailers that together accounted for approximately 66% of our consolidated net sales and approximately 70% of
the U.S. Consumer segment sales in 2006 and our dependence upon a small group of retailers may increase.”
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