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The Case Study assignment for this class, NeoPets, and addresses issues pertinent to the topics studied in this course. Complete your assigned readings, learning activities and online discussions before you complete the assessment. Prepare a paper (700 to 1,050 words) discussing NeoPets marketing. Your paper must contain at least five references, and may include Internet sources, books, and professional journals or other appropriate resources. Please do not copy or plagiarize others materials. Significant deduction of points may result when copying and plagiarism is evident. Incorporate in your analysis responses to the following questions:
1. In the past, we've seen many types of children's products, ranging from Ninja turtles to Hula Hoops that have turned out to be fads. How do you think NeoPets can prevent its concept from becoming a fad?
2. Although NeoPets has been successful thus far in gaining members by word of mouth, should it turn to some more proactive promotion? If so, what should it be?
3. What country-to-country differences in acceptability of NeoPets might exist? How might NeoPets deal with them?
4. Examine each of the criticisms about NeoPets' practices. What should NeoPets and regulatory agencies do about each of them?
5.NeoPets depends mainly on a youth market. Can it extend its concept to an adult market? If so, how?
Below is the case study:
The present generation has been dubbed the game generation, because so man people have been brought up on video and computer games. Playing these games has in man ways molded this generation's behavior, such as influencing it to be more independent-minded and risk taking than we find in the baby boomer generation that preceded it. Some management consultants have been recommended that present business leaders play on a game system, such as Sony's play station, in order to understand the new comers that will be joining their organizations. At the same time they suggest that because of the international origin and playing of games, there is a new generation that transcends national boundaries and thinks more globally than generations before it.
As people especially males in their twenties, have increased their time playing games the have spent less time watching television. Companies have responded to this trend by increasing their advertisements on the web. DFC Intelligence, which reports on the interactive entertainment industry, estimated that expenditures for in game advertising in 2004 was around $200 million and will reach $1 million by 2008. One segment of advertising in 2004 was game market is youth. In 2004 in the United States alone, children aged 13 and under influenced family spending of $600 billion and had another $40 billion in pocket money that they spend on everything from candy to clothes. General Mills' vice president of marketing said "As kids spend more time on the internet and less on TV, it makes sense to shift advertising expenses." By 2005, companies were spending about $15 billion to advertise on the wed to the youth market.
NeoPets, acquired by Viacom's MTV in 2005, was one of the first companies to tap the potential of the youth market on the Internet. The British college students conceived the NeoPets notion in 1999. In the following year, Dohring, Inc., a market research firm, bought the concept. Its chairman and CEO, Doug Dohring, said, "I saw it like Disney in the early days. You introduce the characters in an entertainment medium, create a worldwide following, and then create products to generate a business model." NeoPets is headquartered in Glendale, California (U.S.). Although it does not release revenue figures, Dohring indicated that the company became profitable after only four months and has revenues in eight figures (US dollars). In 2005, it had almost 100 employees, half of whom produce content for the Web site. NeoPets is the first company to start on the Internet and then be successful at capturing profitable online sales
What does NeoPets do? It offers free membership to users to create virtual pets and play games. It has designed about 50 mythical animals that members can adopt, name, and give personalities. For instance, members can endow their pets with friend-seeking or bullying personalities. Once they have their virtual pets, the can solve puzzles and play more than 100 games with their pets. They can participate in chat rooms, read and write articles in the Neopian Time (It had about 80 pages of content from members per week), invest in the stock market (Neodaq), and go with their pets to visit a variety of virtual locations. These locations include eating places, a post office that sells commemorative stamp, a hospital, and a movie theater. The site includes real-life things like calculators, weather reports, and maps. However, members must feed and take care of their animals. For instance, the animals get sick but don't die, if they are not fed. At that point, they may need medicine from the pharmacy or hospital. We'll come back to the question of how members obtain food and medicine; however, the need to take care of the animals regularly brings members back to the Web site frequently. NeoPets also encourages members to return by constantly adding content and by creating outages of food and medicines to keep members looking for pet supplies.
NeoPets earns about 60 percent of it revenue from advertisers on it Web site and about 40 percent from merchandise sales (such as toys, jewelry, and playing cards sold at Target) and tie-in promotions, such as cards and toys that McDonald's gave with it Happy Meals. NeoPets permits no banners or pop-up ads. Instead, it uses what it calls immersive advertising, in which a game and advertising are inseparable. For instance, members and their pets may play games with the rabbit that is on General Mills' Trix box or play gold by using a Reese's peanut butter ball. All the products and services that members buy are associated with the sponsors. NeoPets has its own currency, Neopoints, that members earn by playing games, solving puzzles, watching ads, and answering questionnaires and content questions that deal with the advertisers' products. Advertisers pay NeoPoets in four ways: (1) by placing an item, shop, or immersive ad on the Web site; (2) paying a sliding scale fee based on the number of times that members connect to the company link form the Web site; (3) paying for the number of times that members connect to the company link form the Web site; and (4) paying the market research, in terms of research, Universal Pictures assessed awareness of a forthcoming children's movie, and Wal-Mart found out how many had visited its store in the last two months. Members compete between 6,000 and 8,000 questionnaires per day, and NeoPets can report, for example, on whether teenage boys or teenage girls are more interested in a new cereal-related character.
The advertisers, which NeoPets lines up through both direct sales and ad agencies, look like an A-list of companies, including the Cartoon Network, Disney, DreamWorks, General Mills, Hasbro, Kellogg, Kraft Foods, LEGO, Mars, Mattel, McDonalds, Nestle, Procter & Gamble, and New Line Cinema. The appeals to advertise are several. First, NeoPets consistently ranks in the top 10 Web sites for stickiness, the time each user spends on the site. In fact, a study by Media Metrix in 2005 showed it to be the second stickiness site on the web. NeoPets has been getting about 2.3 million hits per month, which is more than any other entertainment Web site, and it has growth of about 27,000 new users per day. Almost all the membership and growth worldwide have been by word or mouth. Some surveys show that there have been double-digit increases in trying a product once members have seen it in an embedded game.
Unlike video games that appeal to males, about 60 percent of NeoPets members are females. About 39 percent of members are under age 13, 40 percent between 13 and 17 and 21 percent over 17. The company attributes the appeal to females to its lack of violence and inclusion of puzzles and a poetry contest.
NeoPets claims that the site offers a substantial learning experience because it deals with economics, business, computer programming, and writing. For instance prices go up when there is additional demand, stock market prices are variable, members have to earn and save enough to buy their supplies, and members cannot ignore a discarded pet because it will send them e-mails for help or to ask for another chance.
Given to internet nature of NeoPets, the company's membership was international form the start. By 2001, it estimates that 40 percent of its business was outside the United States, mainly in other English-language countries. It has since added linkages to nine other languages with translation so that members from different languages areas can chat by e-mail with each other. Figure 16.5 shows the languages in which NeoPets serves its clientele along with the percentage of people online who are native speakers of these languages. With these languages, NeoPets is available to 89.9 percent of global Internet users. If it were to add Malay, Arabic, Russian, and Polish, it would serve another 5.5 percent. However, it you refer back to figure 16.5, you'll see that present online growth rates may alter these figures substantially. Further, in some low-income countries, Internet cafes offer access to many more people. Given the international dispersion of membership, NeoPets is able to provide national versions so that members are connected to these versions when the system reads their email addresses. These versions allow the company to give advertisers the option of omitting certain locations, such as where they may have no operations, and then paying less for the advertising services. It also allows the company to add local advertisers.
Given the age of the bulk of NeoPets' members, the company has been careful to protect them. All children under age 13 must have parents sign and either fax or post an approval before allowing them to use the site. Although children age 13 and over must provide demographic information along with their names, NeoPets provides only aggregate information to advertisers. Thus members receive no free samples or follow-up advertising. NeoPets' Web content is nonviolent. For Instance, although the pets can combat each other in games there is no bloodshed. NeoPets has developed a proprietary monitoring system to prevent profanity, stalking, or anything vaguely sexual in the chat rooms. In addition, it has 14 staff member who monitor chat rooms and message boards 24 hours a day. NeoPets allows no religious or political postings; no did it allow any mention of 9/11. It wants to maintain a strictly fun experience.
Nevertheless, NeoPets has its critics. The primary criticism is about its advertisements to children. Commercial Alert, a nonprofit group founded by Ralph Nader, says that content should be clearly labeled as advertising. Presently although some advertisers put a notice at the beginning of a game, such as in the Lucky Charms game, there is nothing within the games to so indicate. In contrast, television advertising clearly labels content, and there is often an announcement such as, "kids, we'll be right back after this message."
Whereas a television as my run 20 seconds, children may play an advertising game for 20 minutes. The American Psychological Associations says that children under age 9 have difficulty distinguishing ads from entertainment, and those under age 12 can seldom make intelligent purchasing decisions.
There have been other objections as well. A parents' group in Australia complained that the McDonalds game promoted gambling because of giving prizes on the basis of chance. NeoPets then removed some games from the Australian version of the Web site. Some conservative Christian and Jewish groups have disapproved of the prohibitions of religious content. Some critics have claimed that the overabundance of junk food ads is contributor to obesity. They have also worried that so much time on the web site (6 hours and 15 minutes per month, according to one study) hurts children's studies and extracurricular activities. Finally, in spite of all NeoPets' precautions, a hacker managed to get into the Web site and lure a 12-year-old British girl to have sex. (The predator, an American, has since been sentenced to four and a half years in jail.)
NeoPets has recently signed an agreement with Warner Brother to make an animated film using NeoPets characters to be released in 2007 0r 2008. It has also reached and agreement with Sony to develop a video game involving its pets for PlayStation2.