How to Make A Hot Holiday Toy

NEW YORK ( TheStreet) -- Take that $50 Barbie doll with a digital camera and place it alongside a $9 16-pack of cute creature-shaped pencil toppers and you'll get a quick lesson in the anatomy of a hot holiday toy.

With Toys R Us opening 600 pop-up shops this season, Target ( TGT) and Wal-Mart ( WMT) engaging in price warfare and the NPD Group finding that 34% of holiday shoppers will buy toys this year -- up from 32% last year, but still conservative compared to the 42% the National Retail Federation believes will be trolling for toys this season -- there's a lot riding on this holiday's hottest toys. But with the biggest toys as disparate as Mattel's ( MAT) Barbie Video Girl and Blip Toys' bubble-encased penciltop Squinkies, how do retailers and parents even determine what's a hot toy and what's going to end up on the post-holiday bargain heap?

"If there were a magic formula, everyone would be using it," says Reyne Rice, toy trends expert for the Toy Industry Association. "There are a variety of different factors that can make your product more or less successful, but there's never a guarantee on any product."

There are, however, two ways to narrow the odds. The first, and perhaps most difficult, is to build kid cred. The thing that fundamentally separates a hot toy from every other toy in the box are the schoolyard chatter, excited text messages and subtly sent links in parents' inboxes leading up to the holiday season. To make all of that possible, Rice says a toy needs to be visible enough that kids know what it is and easily explainable enough to friends and classmates to whip up a frenzy. From those whispers and wishes spring orders for millions of Silly Bandz, Zhu Zhu Pets and other small-time holiday must-haves.

"These are toys that are powerful because they started on the playground -- the oldest social network of all," says toy industry expert Richard Gottlieb, chief executive of USA Toy Experts, publisher of Global Toy News. "Ultimately, I don't think people like to feel manipulated, which is why they love the bottom-up fads."

The other way to go about it is to pound the kids into submission with a time-tested regimen of advertising, cross-marketing and other assorted pandering. Rice says she considered this year's Toy Story 3-related merchandise a lock for kids holiday wish lists largely because of Disney's ( DIS) promotion of the film, toymakers' promotion of the merchandise and retailers' push with accompanying DVD and Blu-ray releases. Gottlieb notes that Justin Bieber dolls also don't require much playground support, since Universal Music Group, Toys R Us and Bieber's pre-built consumer base have created all the market space that doll will ever need.

That says, there are plenty of examples of that sure holiday thing completely striking out with kids.

"When Star Wars came out in 1999 with the first prequel, they made just as much kid product as collector product, and the kid product didn't sell because kids didn't know what a prequel was," Rice says. "The product failed miserably at retail, there were a lot of closeouts and it was a major black eye for the industry and, at that time, made a shift in the industry toward looking into their archives at past successes and seeing what they could reissue or reinvent with less liability of licensing hanging over their heads."

That's exactly why tried-and-true Barbie hits this holiday season with a camera embedded in her upper chest and why Disney's most promising offering, Princess & Me dolls, stand on the foundation of one of its strongest franchises. Of course, if retailers and toymakers want a bit more certainty, they could price all of their hottest toys between $25 and $40. That price range is the one common thread Rice says has run through the most popular toys of the past 30 years -- from Cabbage Patch Dolls to TMX Elmo. With a 96-pack of Silly Bandz available for as little as $10, setting the price bar a little lower may not hurt, either.

"If it's affordable enough that kids can save up their allowance money to get it and actually do so, that's also a key," Rice says. "The kids want it so much that they're even saving their own money to get it, they're not just pestering mom and dad for it."

Just as a reminder of what's made a hot holiday toy during the past three decades or so, TheStreet included seven examples of the most popular toys to hit the shelves in seasons past:

Cabbage Patch Kids

It's hard to think of these dolls as a bottom-up operation today, but their creator, Xavier Roberts, sold the first versions at craft fairs in the late 1970s. The concept that first lit the flame was simple, but brilliant: Make little girls not just doll owners, but doll mothers receiving a one-of-a-kind "delivery," with its own name and adoption papers.

It wasn't until Coleco took hold of the brand in 1982 that this hot toy reached inferno status, spawning shortages and local news footage of store riots and shopping-related injuries that strike fear into the hearts of door-busting parents to this day. They didn't end up having much resale value, but Cabbage Patch Kids have a whole lot of sentimental capital for the generation that owned them and still inspire a lot of chatter around this time each year.

Tickle Me Elmo

Take an already well-known and beloved Sesame Street character, reduce him to tiny plush form and make him giggle, wriggle and say "That tickles" when you touch him and what do you get? Fistfights, injured store employees and a very lucrative 1996 for enterprising toy buyers able to purchase the toy for $30 and resell it for four figures.

How big a hit was this doll for Tyco? So big that after Mattel purchased the company and went to the well again with a guffawing, rolling and fist-pounding TMX Elmo 10 years later, the consumer and retail reaction was nearly identical.

Zhu Zhu Pets

When Wal-Mart is making a serious investment in fake hamsters, as it did last holiday season, you know the toymakers behind it are on to something. It surprised onlookers, mostly because it was just a toy hamster that performed mildly robotic tasks like scurrying about and purring. Parents and retailers that saw kids go crazy for a toy that cost just under $8 were far less taken aback.

"The main reason, in my mind, that it was so hot is that it was $7.99 -- when you could get it for $7.99 -- in an economy where people were looking for something affordable for their kids," says the Toy Industry Association's Rice. "It was cute, not everyone wants a real rodent in their home -- you have to feed it, it could die, all those traumatic things that happen with a pet -- and there were a lot of rodent movies like G-Force and Alvin and The Chipmunks: The Squeakquel out last year."

Beanie Babies

We can understand why cute bear-, dog-, frog-, squirrel- and even crab-shaped beanbags with individual identities, birthdays and poems would have such broad appeal, especially with prices between $4 and $6. What we don't get is what a beanbag does on any given day that's so strenuous that it feels the need to retire.

Before he became a luxury hotel magnate, Ty Inc. founder Ty Warner used the then-quaint notion of giving the public what it wants for a limited time to create a fad that hit stride in 1995 and lasted until he briefly put an end to the whole enterprise back in 1999 -- only to bring it back almost immediately in 2000. Unlike the other items on this list, however, Beanie Babies weren't valued as much for being a fun toy product as they were as long-term investments. While misprints and special editions have sold for as much as $2,500 apiece, the overwhelming majority of "retired" Beanie Babies aren't worth half their original price. This would be fine if they were remembered as beloved toys instead of something a child's relative felt would be "worth something someday."

Tamagotchi

For parents who wanted to give their kids a dry run at keeping another living creature alive before expending a lot of money, training time and veterinary bills on a pet, Bandai's $10 to $20 Tamagotchi was an ideal gift. The concept boiled down to one simple premise: Take care of your little electronic keychain creature or it will die.

When the Tamagotchi craze hit in the late 1990s, school kids were feeding, curbing, medicating, disciplining, praising and playing games with their Tamagotchi under desks in schools across America. While it never had the run-on-the-stores urgency of its toy peers, Tamagotchis had enough staying power to still warrant multiple versions and accessories at retailers like Amazon to this day.

Pokemon

How does a franchise go from obscure Nintendo Game Boy and card games to a giant Pikachu balloon in the Macy's Thanksgiving Day parade in little more than a decade? By being chock-full of characters and concepts that adults have no clue about. In a kid's world, it's a simple matter of throwing a Poke Ball at a wild monster, training it and using it to unleash holy hell upon the monsters of your foes. By the time adults figured out or cared what a Level 5 Bulbasaur was, kids had already advanced -- or moved on to Yu-Gi-Oh or Bakugan Battle Brawlers.

"If you look back on Pokemon trading cards and other products, who would have thought that these crazy monsters from Japan would be popular with kids in the U.S.?" the Toy Industry Association's Rice says. "But there were more than 100 characters and it's like with dinosaurs where they have weird names and evolve into crazy things: It's a secret language that kids have that their parents have no understanding of, so they feel they're in control of something at a time when most things in life are decided for them. That's pretty cool to know something your parents don't."

Furby

They spoke only Furbish until you "taught" them English (and only English), they spoke to one another through infrared ports between their eyes, and their eyes, ears and mouths all displayed emotions better than any of their toy-store contemporaries. This is all it took to excite America back in 1998 and was all Hasbro ( HAS) needed to see when it decided to take over Tiger Electronics that same year. The gambit worked, as more than a million of the $35 electronic beast birds blew off toy store shelves by that Christmas and nearly 27 million more would be sold the next year.

-- Written by Jason Notte in Boston.

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Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.