SHOULD VERMONT TEDDY BEAR GO ABROAD? As Elisabeth B. Robert, CEO of The Vermont Teddy Bear Company (www.vtbear.

com , leaves its ann!al meetin" on # $ay #%%& she can loo' bac' on one of the best years in the history of the company( 2002 )et reven!e( *&+.% million )et profit( *#., million The n!mber of employees at the end of #%%# was &--. B!t Elisabeth has f!rther ambitions for the company( .$y lon"er/term vision for the company is to levera"e o!r mar'etin" and operational stren"ths with a so!nd brand strate"y to "row o!r company with teddy bears and other prod!cts in the "ift delivery service ind!stry. 0nli'e other 1nternet companies, we have proven o!r ability to profitably mar'et a "ift delivery service !sin" radio and the 1nternet. 0nli'e other 1nternet companies, we have an established, state/of/the/art, cost/ effective f!lfilment operation with inte"rated systems to c!stomi2e, personali2e, pic', pac', and ship and provide s!perior c!stomer service. And, the people of The Vermont Teddy Bear Company are not only persistent and smart, they have become over the past several years e3tremely "ood at what they do. 4hy sho!ldn5t we aspire to be one of the premier "ift delivery services in the world67
(8o!rce( Vermont Teddy Bear Ann!al Report

The company Vermont Teddy Bear5s principal activity is direct mar'etin" in the "ift delivery ind!stry .9o!nded in -+:- in Vermont (on the east coast of the 0nited 8tates Vermont Teddy Beat e3panded very ;!ic'ly. 1n -++# 1nc. $a"a2ine reco"nised The Vermont Teddy Bear Company as the :%th fastest "rowin" private company in the 0nited 8tates. The same year, Vermont Teddy Bear went on the stoc' e3chan"e in )ew <or' to finance f!rther e3pansion. B!ildin" on its s!ccess with its bear delivery services, Vermont Teddy Bear be"an a new b!siness se"ment in fiscal #%%-, with its 8endA$ER1CA s!bsidiary sellin" handcrafts and food/st!ffs made by 08 artisans and "rowers. Vermont Teddy Bear la!nched =a>ama?ram in April #%%#. Vermont Teddy Bear has five operatin" se"ments( The Bear/?ram service se"ment involves sendin" personalised teddy bears directly to recipients for special occasions. The 8endA$ER1CA se"ment e3tends the "ro!p5s prod!ct offerin"s in the "ift delivery service ind!stry to incl!de other 08/made "ift prod!cts in addition to teddy bears. The =a>ama"ram service se"ment involves sendin" py>amas and related lo!n"ewear and spa prod!cts to recipients for special occasions and holidays. The retail operation se"ment involves two retail locations and family to!rs of the teddy bear factory and store. The wholesale@corporate se"ment proactively develops opport!nities in the corporate affinity mar'et and certain wholesale mar'ets.

1n #%%# the Bear/?ram service acco!nted for :: per cent of reven!eA retail operations, : per centA corporate@wholesale (incl!din" licensin" , # per centA 8endA$ER1CA, - per cent and the =a>ama"ram service, - per cent. The company5s Bear/?ram se"ment sales are heavily seasonal, with Valentine5s Bay and $other5s Bay its lar"est sales seasons. 2002 Sales Valentine5s Bay &% $other5s Bay -& Birthdays -?et well + )ew births + Christmas C Other #Total -%% The company primarily !ses the 1nternet to mar'et its Bear/?ram "ift delivery service. The B!"!B !#Bea$s!"o!B%s&ness# The B/t/B, or 5Bears/to/B!siness5 pro"ramme is Vermont Teddy Bear5s fastest "rowin" se"ment, with year on year "rowth of more than -%% per cent. 1ts corporate sales pro"ramme offers promotional prod!cts and corporate "ifts for mainly lar"e companies. One e3ample of the 5Bears/to/B!siness5 pro"ramme too' place in late -+++ when the company had a co/promotion with 8ea"ram5s ?in"er Ale. Across the co!ntry, #% million litre bottles of 8ea"ram5s ?in"er Ale were labelled with a chance to win a Vermont Teddy Bear and carried a co!pon for a #% per cent disco!nt on any of the Vermont/made bears offered thro!"h the Bear/ ?ram "ift delivery service. Another e3ample of a corporate c!stomer is B$4 of )orth America, which re"!larly !ses the Bear/?ram "ift delivery service to con"rat!late and than' both employees and clients for their dedication and service. Amon" Vermont Teddy Bear5s corporate c!stomers are Dohnson E Dohnson, Fraft 9oods, $arriott 1nternational and =epsi Cola. Onl&ne o$'e$&n( The company be"an ta'in" orders on its website in $arch -++C, reco"nisin" that the website provided vis!al s!pport of the company5s radio advertisin" campai"n across the co!ntry and was a convenient way for c!stomers to place orders. 1n Becember -++C online orders represented C per cent of total Bear/?ram orders. 1n April #%%% appro3imately &, per cent of the Bear/?ram orders were received via the Company5s website, triple the level of the prior year. 1n #%%& more than half of the orders are received via the 1nternet. )ompe"&"&on The company competes with a n!mber of sellers of flowers, balloons, confectionery , ca'es and other "ift items, which can be ordered by telephone and over the 1nternet for special occasions and are delivered by e3press service in a manner similar to Bear/?ram "ifts.

The company also competes to a lesser de"ree with a n!mber of companies that sell teddy bears in the 0nited 8tates, incl!din", b!t not limited to, 8teiff of ?ermany, Ba'in, )orth American Bear and ?!nd. $any of these competitors have "reater financial, sales and mar'etin" reso!rces than Vermont Teddy Bear. The company sees its Bear/?ram "ift delivery service as a 5creative alternative to flowers5. Appro3imately G# per cent of Bear/?ram "ifts are p!rchased by men, often at the last min!te. There are no material barriers to entry into this mar'et, and accordin"ly there can be no ass!rance that additional companies will not see' to compete directly with Vermont Teddy Bear, incl!din" those with "reater reso!rces. Appro3imately &,%,%%% bears are assembled per ,year. $ore than 8O per cent of this prod!ction is o!t so!rced to overseas man!fact!rers, mainly in Asia. However, the mana"ement is e3plorin" some opport!nities in other parts of the world. As Elisabeth Robert says( .?ift "ivin" is a deeply rooted tradition in many forei"n c!lt!res. 0sin" common carriers s!ch as 9edE3 and ta'in" orders on the 1nternet, we avoid settin" !p an international distrib!tion infrastr!ct!re. Handlin" an order from To'yo is now no different than handlin" one from 8t Io!is.7
(8o!rce( Vermont Teddy Bear Ann!al Report

However, !ntil now the company has only been sellin" to 08 c!stomers, primarily in the bi" cities on the east coast( )ew <or', Boston and =hiladelphia. *%es"&ons -. 4hat 'ind of diffic!lties wo!ld the Vermont Teddy Bear meet if it were to internationali2e its b!siness6 #. Co!ld it be relevant for Vermont Teddy Bear to internationali2e by followin" some of its 08 corporate c!stomers abroad6 How sho!ld this ta'e place6 &. 1n what part of the world sho!ld the company start its internationali2ation6 J. How sho!ld the company penetrate the forei"n mar'ets( (a by 1nternet6 (b by physical stores6 (c by a combination of the two6 (d by other means6
K8o!rce( Hollensen, amendedL