Passion for Learning Case AnalysisBackground:Andrew Popell, founder and president of Passion for Learning, started a mail order catalog company in 1994 that exclusively sold 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 discovering that specialty channels focused on educational toys (such as Learningsmith, Zany Brainy, and Noodle Kidoodle) were all expanding Quickly, Popell had to decide which strategy would best fit the environment in which he was competing. Industry Analysis: Retail sales of toys in 1993 were estimated at $17.5 billion, and of those sales, about half were split among the five largest toy distributors. – Toy's 'R' Us, Wal-Mart, Kmart, Target and Kay-Bee. Over the past twelve years, spending on household toys increased nearly 200 percent (from $265 in 1980 to $525 in 1992) as many baby boomers with children entered their peak earning years. . In the future, the demand for toys is expected to strengthen due to the arrival of baby boomers who will raise children and then purchase toys. Competition among toy retailers was intense as they competed for lower prices. Toy's 'R' Us expressed concern about slowing sales as they began to come under pressure from discount retailers (IE: wall-mart and Kmart) as the discounters' market share increased from 20% to 34% between 1989 and 1994 respectively. Large toy suppliers and mass merchants began to network and enter into special agreements where they would create special volume discounts or exclusive distribution on popular toys. Toy manufacturers would benefit from an advantage based on exceptional service (service that large retailers and discounters cannot duplicate), they could capitalize on a niche market in the school education system where talk and mouth generate sales and finally, it can strengthen its reputation and brand through educational learning centers and school board recommendations. Educational toys would only sell quickly if the purchasing 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 new buyers while also allowing for repeat business. customers to the convenience of catalog purchasing. Option 1 also had the highest terminal value, a net present value 4 times higher than Option 3, and significantly higher revenue per store than Option 3.. 3.