SECTION: Section 1; Page 33, Column 3; Financial Desk
HEADLINE: THE SELLING OF TOY 'CONCEPTS'
BYLINE: By RICHARD W. STEVENSON

He is simply "the most powerful man in the universe." Coming out of nowhere just three years ago, he is He-Man, the centerpiece of Mattel Inc.'s Masters of the Universe army of action toys, and one of the hottest-selling items for the third Christmas season in a row.

His direct mandate is to make the world safe from the likes of Skeletor, the "evil lord of destruction," and Stinkor, "evil master of odors." But the six-inch plastic figure is charged with an even heavier responsibility: keeping the nation's children interested enough in the growing line of Masters toys to extend its huge popularity - more than 125 million of the figures have been sold since 1982 -for years to come.

Building product lines that can be expanded year after year has become a top priority for the $13 billion toy industry. As the business has consolidated into bigger and more sophisticated manufacturers and retailers, the costs of starting new products, as well as the risks - including charges by parents and educators that the merchandising of these toys exploits the young - have increased, putting a premium on brands that can grow, according to industry experts.

Finding a 'Concept'

The challenge for a toy maker is to find a "concept" that can be developed into an entire world of play fantasy, with new characters and accessories keeping mom and dad returning to the store to buy more.

On toyland's large field of combat, for example, He-Man and Stinkor have joined forces against such other action lines as Hasbro's Transformers, Matchbox's Voltron and M.A.S.K. from Kenner. There are gentler lines, too: Coleco's Cabbage Patch Kids, of course, as well as Tonka's Pound Puppies and Hasbro's My Little Pony and its My Buddy doll for boys. And some old favorites - notably Mattel's Barbie doll and Hasbro's G.I. Joe - have been spruced up or brought back from retirement to head new families of products.

"The key question is, do you have a new product, or do you have a category?" asked Donald D. Kingsborough, chairman and chief executive of Worlds of Wonder Inc., a Fremont, Calif., toy company that was founded last March. "If you have a product, it will typically last two and a half Christmases as a hot product. If it is a category, it will last 5 or 10 years."

A High-Tech Teddy Bear

Worlds of Wonder is hoping that its hot new product, Teddy Ruxpin, the talking teddy bear, can make the crossover, and become the founder of a dynasty. Teddy sells for between $59 and $79, and tapes and books to keep him telling fresh stories cost about $12.95 each. The line also includes Fob and Grubby, small, non-talking figures.

First-year sales of the high-tech teddy will be considerably higher than the $65 million recorded by the Cabbage Patch Kids in 1983, the year that phenomenally successful doll line first took off. But long-term success will depend on continued demand for new spinoffs in the field the industry calls "animated plush."

The residual benefits of creating a toy category can be enormous. Coleco, for example, expects Cabbage Patch sales this year to exceed last year's record $540 million, as new dolls and accessories, including toys for the dolls themselves, are added.

Masters of the Universe has also continued to generate huge numbers. The toys - together with licensing arrangements in 50 product categories ranging from toothbrushes to backpacks - are expected to produce sales this year of $1 billion, according to Dave Capper, director of marketing for boys' toys at Mattel, the nation's second-largest toy maker, behind Hasbro.

He-Man's Sister

And the line, which has spawned a successful television cartoon show, continues to grow. This year, for example, Mattel introduced She-Ra, He-Man's sister.

When a product shows the potential to grow, there are a number of basic tactics used to promote it, industry executives say. Mr. Capper listed several key elements Mattel employed in selling the Masters figures. Analysts said these basic strategies could be applied to other lines as well.

The line is designed as an "open-ended, timeless fantasy that can be adapted to changing play patterns," Mr. Capper said. To track the changes, the company does extensive research every year to stay on top of what children and their parents want, and to test new characters and concepts.

For example, Mattel's Barbie, long a homebody, now also comes in versions dressed for work, complete with an attache case. "More girls see mom going off to work, so they readily identify with that," said Morinda Christopher, a spokesman for Toys "R" Us, the nation's largest toy retailer.

A Water-Shooting Dragon

Mattel also tries continually to add new technology and designs to the Masters line, such as characters that walk and a dragon that shoots water, Mr. Capper said.

Still another key tactic, Mr. Capper said, was making sure that "strategies are put in place every year to freshen the products and keep the play patterns exciting." This year, for example, Mattel added a fresh set of villains called the Evil Horde, creating a three-way conflict between good guys and bad guys, presumably giving young boys a new scenario to keep them interested.

In its basic outline, that is the same sort of strategy that Worlds of Wonder wants to follow to make certain that Teddy Ruxpin does not end up as a one-year wonder. "We are replicating what Mattel and Hasbro have proven is so successful in character establishment," said Mr. Kingsborough, a former president of Atari Inc.

So Teddy Ruxpin has already been the star of two half-hour specials on ABC, and the company hopes they will lead to a regular series. The show would contain a whole cast of characters, an ideal springboard for new products.

The notion of using a television show as a marketing tool has become increasingly popular among toy makers. In the past, new toys were often based on existing characters from television, movies or comic books. Even this year, LJN Toys has successfully introduced WWF Wrestlers, characters based on popular real-life professional wrestlers, and Coleco has brought out a Rambo doll based on the movie character.

The Toys Come First

But more often now, the toys come first. "The toy companies have gotten much wiser," said David S. Leibowitz, an analyst for the American Securities Corporation. "Why take out a license when you can create one?"

Besides He-Man and She-Ra, other toys with their own shows include Transformers, the M.A.S.K. line, G.I. Joe and Thundercats, made by LJN Toys.

Consumer advocates often complain that the television shows are nothing more than half-hour commercials for the product. And there is also concern about the impact on impressionable young children of the violent themes of some of the shows.

With some help from a television show, as well as heavy marketing expenditures, including more than $6 million spent on advertising in the fourth quarter, Mr. Kingsborough of Worlds of Wonder hopes the Ruxpin line will grow to dominate the burgeoning category of "animated plush," a segment that analysts expect to be among the fastest-growing in the industry in coming years.

He likens the toy business to Hollywood and its increasing reliance on sequels. "It's easy to have the first hit," he said. "You can't have Rocky II until you have a successful Rocky I. We think we have Rocky II and Rocky III."