Passion for Learning Case AnalysisBackground:Andrew Popell, founder and president of Passion for Learning, started a direct mail catalog company in 1994 which sold exclusively educational toys aimed at primary school children aged 6 to 12. After sending out the company's first catalog and receiving a disappointing 0.77% response rate, as well as finding that specialty chains focused on educational toys (such as Learningsmith, Zany Brainy, and Noodle Kidoodle) were all expanding rapidly, Popell had to decide which strategy best suited the environment in which he was competing. Industry Analysis: Retail toy sales in 1993 were estimated at $17.5 billion, and of those sales, about half were distributed among the five largest toy distributors – Toy's 'R' Us, Wal-mart, Kmart , Target and Kay-Bee. Over the past dozen years, spending on household toys has grown nearly 200 percent (from $265 in 1980 to $525 in 1992) due to the many baby boomers with children who were entering their peak earning years. Going forward, the demand for toys was expected to strengthen due to the onset of the baby boom which will lead to raising children and subsequently purchasing toys. Competition among toy retailers was intense as they competed to reduce costs. Toy's 'R' Us expressed concern about slowing sales as they began to face pressure from discount retailers (IE: wall-mart and Kmart) as discounters' market share grew from 20% to 34% between 1989 and 1994 respectively. Large toy suppliers and mass retailers began to network and form special deals in which they would create special volume discounts or exclusive distribution on the most popular toys. Toy manufacturers would have... middle of the paper... a profitable advantage based on exceptional service (service that large retailers and discounters cannot duplicate), they could benefit from a niche market in the school education system where word gets around mouth generates additional sales and ultimately can build its reputation and brand through educational learning centers and school board endorsements. The educational toy would only sell quickly if the buying process itself was fun, and by offering different methods of purchasing products - through learning centers, retail outlets, and mail-order catalogs - the company offered a hands-on experience for kids. first-time buyers, also allowing repeat customers the convenience of purchasing via catalogue. Option one also boasted the highest terminal value, a net present value 4 times greater than option 3, as well as substantially higher revenue per store than option 3.