Joe Pellettieri needed a hit. It was July 1998, and Pellettieri, an Indiana University MBA who'd spent more than a dozen years as a retail merchandiser, had signed on as VP of product development at Gemmy Industries, an Irving, Texas-based novelty goods manufacturer. Gemmy specialized in toy gizmos, like talking Christmas trees, and Pellettieri was helping to come up with the next big idea. One day he and his wife went for a drive and ended up brainstorming outside a Bass Pro Shops outlet. "You know," he said to his wife, "we don't have anything that appeals to sportsmen." Her reply: "How about a singing bass on a plaque?" It took nearly two years, but that moment spawned the breakout product of 2000: Big Mouth Billy Bass.
What does a mechanical fish that sings "Don't Worry, Be Happy" and "Take Me to the River" have to teach business students? Plenty. Billy Bass and his ilk-Pokémon, Furbys, Razor scooters-exist in one of the fastest-moving industries on earth, the toy and novelty arena, a place where products go from white-hot to stone-cold faster than you can say Tickle Me Elmo, and a hit product can mean sales of between $50 million and $200 million. While companies selling mature products can study reams of historical market data and create intricate models to predict demand, the folks peddling fad products often work on instinct and intuition. They do some research, but many will simply dip a product into the market and do their best to be ready if it sets off a tidal wave. How? By using a highly flexible manufacturing system that can grow quickly to meet demand; by being smart about distribution to maximize margins; by moving quickly to fend off copycats; and by ruthlessly shutting down production before sales crater, to avoid being left with warehouses full of last year's hit. "There's really no way to manage a hot product-you just run as fast as you can while you have it," says Terri Bartlett, communications director at the Toy Manufacturers of America. Big Mouth Billy Bass can show you how.
Whenever a product like a singing fish takes off, it's tempting to attribute it to some entrepreneur who got lucky, creating the business equivalent of a one-hit wonder. In reality, Gemmy has been successfully toiling in this niche for years. The company began in 1984, when Dan Flaherty finished his MBA at the University of Dallas. Along with a Taiwanese classmate, he went into business importing office supplies. His partner handled the sourcing and manufacturing, while Flaherty imported the goods and worked to get distribution. By 1987 they were moving from office products into novelty goods. "In 1989 we came up with several very hot items," Flaherty says. "Dancing flowers were hot, and we had dancing palm trees. We did a dancing Christmas tree, and we did Cmore Bunz," a car-window toy that mooned onlookers. "We got good at getting in and getting out of the market," Flaherty says. During the '90s, Gemmy's biggest hits were Pete the Repeat Parrot and a talking Christmas tree named Douglas Fir.
Billy Bass trumped those novelties, but it took developers 18 months to perfect the design and overcome management resistance. Years earlier, another company had marketed a low-tech wriggling fish, so Gemmy execs were cool when Pellettieri initially pitched the idea. He went ahead and ordered a mock-up anyway, and the results weren't good. "The first prototypes were awful," he says. Management lost interest in the project, but Pellettieri did some research on fish breeds, trying to figure out which type of fish would be most popular. Once he settled on a bass, he had a taxidermist perfect the look. In the meantime, Gemmy engineers created a mechanism to make the wiggling fish's head turn, look out from the plaque, and sing. "The surprise of the fish turning and the choice of songs created a sort of spontaneous combustion," says Jerry Jordan, Gemmy's chief operating officer. Despite management's initial skepticism, everyone who saw the new Billy prototype loved it. Gemmy saw the beginnings of a hit.
To maximize the payoff, the company capitalized on its strong relationships with retailers, and used a smart channel strategy to increase profits. They began in early 2000 by letting Billy swim into department stores, specialty retailers, and gift shops, like Hallmark and Spencer Gifts. Those stores could charge premium prices ($29.95 to $44.99), boosting Gemmy's profits but limiting its volume. By spring, with the product garnering solid word-of-mouth buzz (a crucial component; Gemmy does no advertising), they moved it into mass retailers like Wal-Mart, Kmart, and Target, which charged lower prices but could push millions of units. This trickle-down strategy is key to getting the most bounce out of a product, Gemmy execs say. "We came out with the first fake cell phone in 1987-88," says Flaherty, the CEO. "But we didn't have experience in the mass market." Competitors swept in and blew them away. With Billy Bass, Gemmy kept control.
When it became clear the singing fish was a once-in-a-career breakout product, Gemmy's key challenge became upping production to ride the wave-without going overboard. Billy Bass's innards are mostly easily sourced components-motors, transistors-available on 7 to 14 days' notice. But the integrated circuitry (the chips that help control the movements and the music) required 45 to 50 days of lead time, forcing Gemmy to make bets about how well the product would be selling two months down the line. "You have to go out on a limb on those," Flaherty says. With all indications Billy Bass would be big, Gemmy upped its orders. For assembly, Gemmy relied on cheap labor at its factory in China, where 60 percent of U.S. toys are made. Even so, Billy's explosive growth required managers to be creative. One of the trickier operations in building Billy is attaching the plastic skin to the cloth that makes up the fish's body. When the overwhelmed Chinese factory ran out of sewing equipment, managers hired local shoemakers to do the sewing by hand. Says Pellettieri: "There was a period of time when if you wanted your shoes fixed [in this part of China], you had a problem because all of the shoemakers were outside our factory working for us."
Keeping the factory humming is the key to keeping competitors at bay. By the summer, "there were knockoffs appearing, but we did such a good job filling retail demand, competitors had problems getting placement," says Pellettieri. Some of those competitors, Gemmy executives say, were completely shameless in ripping off their idea, but by keeping orders flowing, the company gave retailers little reason to stray from the original Billy Bass. (This strategy belies the myth that manufacturers intentionally limit supply of fad products to stir publicity over fights in toy store aisles.)
By late summer, Billy Bass was visiting more world leaders than Kofi Annan. President Clinton gave one to Al Gore as a gift. Queen Elizabeth reportedly kept hers at Balmoral Castle, where she supposedly sang along with it at parties-news that sent London tabloids into hysterics. During the Florida election recount in December, George W. Bush held a meeting at his Crawford, Texas, ranch, where cameras found Billy Bass on the president-elect's wall.
While the business from bold-faced names was flattering, Flaherty says it demonstrates an important aspect of the product's success. While most novelty items sell mostly to middle- and lower-income types, Billy was a true crossover product. "A lot of novelty items tend to be segmented, from ages 3 to 8 or 5 to 10, depending on the item, so your population is quite small," Flaherty says. "Everybody loved Tickle Me Elmo, but that product was very segmented in the 11/2-to-7 age group. They sold millions, but I guarantee we sold more Big Mouth Billy Basses." (No one at Gemmy, a private company, will give even a rough estimate of how many Billys now sit in America's living rooms.)
As sales soared, managers at Gemmy headquarters watched the orders come in, scanning the numbers nervously, looking for the first hints of a slowdown. "It's kind of a gut feeling," Flaherty says. "At the very first sign of a slowdown, you stop production." It's also the time when you warn retailers still caught up in the excitement that they might want to temper their enthusiasm-and their orders.
As summer turned to fall, Gemmy execs say, they advised several big retailers not to reorder the product as sales softened; some listened, some didn't. In early November, Target cut Billy Bass's price to $9.99, and other mass merchants followed. That price-cutting gave Gemmy a clear signal the end was near, and both they and their retailers raced to empty shelves to avoid sitting on excess inventory. By Christmas, Billy was selling for $5. Says Flaherty: "Everybody got very clean of it by the end of the year." So what's the moral of the story? Flaherty, who remembers sweating through B-school case studies himself, puts it this way: "The lesson to learn is that with a hot item, many companies just don't want to believe it's going to come to an end. They buy too much inventory, and they're left with it. You can't fall in love with a product. You have to realize there's an end to it, and watch every sign you can that it's coming. The hotter an item becomes, the quicker it's going to die."