Pet-toy makers have to get inside the minds of animals and their owners. Do you need a microwaveable puppy cuddle pad?
By Bethany McLean

(FORTUNE Magazine) – THERE'S A FINE LINE BEtween love and insanity--and both sides of the line are littered with pet toys. Or so the uninitiated might think when they encounter items like the Bubble Buddy, which blows bacon-scented bubbles for dogs to chase, or the Jack Russell Hard Licker (a plush toy that looks like a Jack Daniel's bottle), or the Hollee Roller (a Swiss-cheese-like rubber ball), or the Bowlingual and Meowlingual, which use voice-print analysis to translate dog or cat speech into human.

It would be a mistake to prejudge pet toys, though. Making a successful toy requires a sophisticated, multispecies understanding of consumer behavior. Designers have to think like pets, of course--hence the selection of bacon scent for the Bubble Buddy. But they also have to think like people, because it's the person, not the pet, who plunks down cash for a squeaky hamburger or hedgehog. (It's not clear that the pet cares much.) Designers must often walk a fine line. Mark Huettner, co-founder of Happy Dog Toys, recently rejected an idea to make plush toys scented with wild-animal urine. He knew dogs would like it. But, he asks, "how do you market urine?"

Those who sell pet toys have often learned humility. Says Alice Lerman, the owner of pet store Barker & Meowsky in Chicago: "I don't think I've ever looked at anything and said, Oh, that's the most ridiculous thing." Her brother, a businessman who deals in metals, once lectured her about how no one would ever pay $6 for a catnip cigar. She still has trouble keeping catnip cigars in stock. And of course, catnip cigars aren't the only things that sell. The American Pet Products Manufacturers Association estimates that total spending on pet supplies, including accessories and toys, will reach almost $8 billion this year, up some 10% from last year.

Free your mind of preconceptions, and you may just start to think that the explosion in pet toys is perfectly reasonable. While the ASPCA does not have an official position on toys, it's pretty clear that pets need toys. As the website for a pet-supplies company named Bamboo notes, "We work. Pets play." And so many toys are so practical. Who couldn't use a Chuckit, a slim strip of plastic with a claw at one end that enables you to scoop up a slobber-encrusted tennis ball and project it some 140 feet without ever (yech) touching it? And what about Happy Dog Toys' Soniks line, which uses Silent Squeak technology so that only your pet hears the incessant squeaking? I am, by the way, a sane judge of what is reasonable. I may have lost count of the number of toys my English bulldog owns, but I'm sure it's fewer than three dozen.

Toys are particularly important for one class of consumers, known in industry lingo as "aggressive chewers." They are the dogs whose sole goal is destruction. (A "nonaggressive chewer" may be content to carry its plushies as a baby might a blanket.) "They're not little people wearing fur coats," Lerman says of this demographic. "They're dogs."

Pleasing both person and pet is particularly difficult with aggressive chewers, because what the person most wants--an indestructible toy--is very difficult to make. The industry Holy Grail is a material that is enticing yet sturdy. Planet Dog, for instance, offers Orbee, which bounces, floats, and is peppermint-scented (to freshen breath). Steven Dunn, the CEO of Bamboo, is experimenting with the same rubber used in athletic shoes.

Kong Co., based in Golden, Colo.--it was founded more than 30 years ago when Joe Markham's German shepherd Fritz flipped for a hollow chunk of rubber, shaped sort of like a snowman, that he found in Markham's garage--has built an empire on the idea of indestructibility. Today there are red Kongs for moderate chewers, black Kongs made with the "world's strongest dog-toy rubber," dental Kongs with grooves for tooth cleaning, Kongs for cats, O TannenKongs for the holidays, Kong stuffings (including liver and peanut butter) that are packaged like Easy Cheese, and yes, even a Kong recipe book featuring, among other ideas, the Kongsicle. (Get the book.) It should be noted that Kong, like most manufacturers, does not test products on people. Instead the company employs anywhere from 20 to 40 dogs, which, under the supervision of a veterinarian, are given new toys to test-chew.

Newer companies often seem to be inspired by what the industry calls the "pet parenting" phenomenon. (Four-legged or two-legged, children are children, right?) Consider the "puppy cuddle pad" made by Petstages, which is part of the company's "soothing" line. Its purpose is to ease the transition from lively litter to empty new home. After a 30-second shot in the microwave, the cuddle pad is good for 45 minutes of positively puppy-like warmth. "We did a lot of work to understand what pets need," says CEO Torjus Lundevall. The people behind Bamboo, another new entrant, also make the Munchkin line of baby products. "We felt that the core competence that made Munchkin so successful translated to pets," says CEO Dunn, who hopes to help establish quality and safety guidelines for pet toys (there are none).

Breaking into the pet-toy business isn't impossible. Many retailers devote a big pawprint to toys, not just because they want your pet to become all the pet it can be, but also because toys can sport gross margins of up to 70%. Thriving is another matter. The business is bitingly competitive, and smaller companies may see their inventions knocked off before they can make a dime. David Litvak, editor of Pet Business, says that at pet trade shows there are people with camera phones, and by the time the trade show is over the latest designs are rolling out of factories in Sri Lanka. And Wal-Mart, which sells a lot of private-label pet toys, is a fearsome force in the industry.

Target has been an important outlet for some designers, but rumor has it that Target is preparing to launch its own line of Michael Graves--designed accessories and toys. Even so, pet-toy makers say there's plenty of room for toys that truly satisfy a need. And you wouldn't dare to question the word "need," now would you?