McDonald Toys Inc.

McDonald depends on free toys to drum up sales of mature Happy Meals.

In the ten days starting from April 11, 1997, McDonald sold 100 million Teenie Beanie Happy Meals grossing around $250 million. That amounted to selling 4 Happy Meals to each of the 27 million target customers. Before this promotion, no marketing event had ever averaged more participants than there were U.S. households (Promo. 4/1/2004).

To many adults, McDonald may be a fast-hamburger joint. But to most children, McDonald is nothing more than a toy store with free meals thrown in. Not surprisingly, some Happy Meals were seen tossed away during the Teenie Beanie Happy Meals promotion (Business Week).

The success of free-toy Happy Meals promotion depends on exclusivity and scale economy of the toys. Teenie Beanie toys were not available anywhere else except when a Happy Meal was purchased at McDonald. And McDonald couldn’t afford to give out free toys unless the per-toy cost did not wipe out any profit from the Happy Meals. Even when ordered in bulk quantities, each Teenie Beanie still cost McDonald upwards of 40 cents. So there must have been a profit margin of at least 40 cents for each Happy Meal priced from $1.99 to $3.25. And of course, Ty, Inc. that “made” the toys could not have used U.S. labor to make a toy that grossed at only 40 cents and still made a handsome profit. Indeed, Teenie Beanies were made in Korea or China (Tush tags). Still, the big volume of Happy Meals sold made up for the lower per unit profit margin.

The resort to exclusive tie-in promotion is a common marketing tool to artificially pump up sales in a mature fast-food market. Regular advertising does no more than maintaining sales by keeping the brand visible against competitors. But in order to be effective, the duration of each promotion must be short, usually no more than 4 weeks. And the toy themes have to change frequently. But the second Teenie Beanie promotion in 1998 sold even more (250 million) Happy Meals (About Beanies).