The toy and game industry places toys into two major categories: traditional toys, which includes action figures, building sets, dolls, games and puzzles, vehicles, and other similar toys; and video games. Major U.S. toy producers include Mattel, which markets American Girl, Barbie, Matchbox cars, and Fisher-Price toys; and Hasbro, which produces Star Wars, Pokemon, Milton Bradley, Parker Brothers, and Playskool products. Small toy companies exist, but they often have difficulty keeping up with demand for successful products. Larger companies sometimes acquire smaller competitors who add the popular item to their product line.

All dolls, games, and toys are conceived in the design department. Toy designers start with an idea for a new game or toy and evaluate its prospective use. They determine the age group that will play with the toy, the market competition, and manufacturing methods. Toy manufacturers consider products from both in-house design staff and outside designers interested in selling new designs.

The designer creates several sketches of possible designs for a new toy. They list the materials for constructing the toy and the potential cost to produce it. Video game designers think in the abstract and multidimensionally. Most video games focus on problems that need to be solved, so designers come up with ideas for the problems and solutions. They consider levels of difficulty for players, and create the characters, content, and graphics that are age appropriate.

In the research and product development department, researchers review the sketches and game ideas, and estimate the potential sales of the new toy or game. They investigate the toy's or game's appeal, the age group that might use it, and how well similar toys or games have sold in the past.

If a company sees enough potential in the new design, it makes models of the toy. Engineers, artists, and model makers construct prototypes so that the development and testing departments can judge quality and determine consumer interest. Testing a toy involves letting children play with it while trained observers, or testers, take notes on their reactions and responses. The observers share suggestions for improvement in design, size, color, and other features with the design department for potential incorporation into the next stage of the toy's design. After modification, a toy may go through another period of trial and observation.

Child testers are children who use the toys during the testing period, usually in a company-sponsored or university-sponsored playgroup. Child-care centers and school groups may also be participants. Observers are often specialists in child development, child psychology, or pediatrics. With the help of one-way mirrors or unobtrusive viewing positions, trained staffers note which toys are used frequently and creatively and which toys are ignored or used only briefly. The collection of toys on the floor may include the company's toys, the competition's, and the experimental toys.

The marketing research team conducts consumer research by asking parents about the toys they have purchased and their experiences with them. Market researchers may stand in a shopping mall and question parents as they leave a toy store, send questionnaires to customers, or conduct in-depth phone interviews with parents. They use the information they gather to determine the quality and desirability of the products on the market and help determine the types or styles of toys parents would like to see. For example, through consumer marketing research, the toy industry discovered a demand for ethnic and male dolls.

Engineering and safety experts also investigate the new toy's viability. They conduct stress tests to make sure it is safe, reliable, and relatively indestructible in the hands of a child. They test mechanical and functional parts for wear and strain. If the toy is for small children, the size of its pieces have to be checked to be sure they cannot be swallowed. Each age group has certain limitations for safety in a toy design.

The U.S. government has established a voluntary age grading guideline to assist parents in selecting toys appropriate for their children. The guidelines are based on four areas: physical ability, mental ability, play needs and interests, and safety aspects. For a child under a few years old, small objects that could be swallowed are avoided. Even for a child above average in mental skills, the physical coordination required for toys in the next age group category may be beyond his or her capacity. The toy maker must consider all four aspects of the toy's use and, in cases where the toy may be dangerous to younger children, include additional warnings on the package. For example, electrical toys are not considered safe for children under the age of eight, and most electrical toys include a warning to buyers about the dangers of allowing younger children to use them.

The U.S. Consumer Product Safety Commission tests and judges the safety levels of toys and games. If a toy has a repeated history of accidents, the commission will recall it from the market. If the toy's design is inherently dangerous, the commission can ban the toy permanently from sale, as it did in the case of lawn darts in the late '80s. In 2013, the commission recalled the Hot Wheels branded product Urban Shredder ride-on toys due to unexpected acceleration and potential fall hazards. The commission samples several thousand toys each year for safety inspection, but does not have the capacity to investigate all toys before they enter the market. Toys sold abroad must meet the safety standards of the country in which they are sold. Toys imported for sale in the United States have to meet U.S. standards. However, the sheer quantity of toys brought in exceeds the number of toys that can be tested by the Safety Commission, so parents must also assume responsibility for checking toys to make sure they are safe.

Before the toy is approved for production, the company completes feasibility studies on sales, which provides an idea about the toy's sales potential. The cost of producing reasonably priced, safe, durable toys depends on the projected sales figures. A toy that sells millions of copies costs less per item in production than a toy that only sells several thousand copies. The company determines the toy's colors, packaging, and other design characteristics, as well as effective advertising campaigns and marketing strategies, such as the toy's placement on the store shelves. Management uses all of this information to decide whether to produce or cancel a toy.

Once approved for production, the manufacturing and purchasing departments work on the new toy design. The manufacturing staff orders raw materials and may assemble pieces from other companies. For example, it's often easier and more cost effective to buy doll's clothing wholesale from an independent manufacturer than to initiate on-site production of the item.

The company tests wholesale item purchases for durability and safety. Inspectors are on site at the factory to perform random checks on production. They check random samples of the shipped products during quality-control inspections.

Once the toy is made, boxed, and ready for sale, the company sends quantities to the stores that will sell it. Toy sales peak just before Christmas and Hanukkah, so manufacturers try to get new toys on the market during the three-month period before these holidays. Competition for shelf space in stores is strong, and the manufacturers try to arrange for the best location and sales point for their products. One standard way to encourage store owners to purchase their toys is to allow stores to order toys in the third quarter of the year and not make payments on the shipment until the fourth quarter.

Once the toys and games are available to consumers and the advertising campaign has begun, the consumer decides which products will be big sellers. Having a single large-selling product, such as a G.I. Joe, can ensure a toy company's success for a few years, but if sales decline, the company may not remain profitable.

For most large toy manufacturers, there is one toy or game that continues to be a bestseller, establishing the company's place in the market in two ways: It provides the company a guaranteed money-making product, and it encourages consumers to try the company's other products. For toy manufacturers, the company's public image contributes a large share of its success in sales.

In 2020, Nintendo Entertainment and Analysis Division was ranked number one in IGN Entertainment's list of the top 50 video game makers in the industry. Nintendo is known for many popular games, such as Super Mario Bros. Deluxe, Metroid, and The Legend of Zelda. IGN Entertainment is an online media and services company for the gaming industry. Other top video game makers on the IGN list were Capcom, Rockstar North, Atari, Konami, SquareSoft, Valve, Blizzard, Maxis, and id Software.