Mattel Case Study

I. Executive Summary:

Mattel, Inc. (Mattel) designs, manufactures and markets a variety of toy products worldwide which are sold to its customers and directly to consumers. Mattel’s portfolio of brands and products are grouped in categories, such as Mattel Girls & Boys Brands, including Barbie fashion dolls and accessories (Barbie) and American Girl Brands, including My American Girl. American Girl Brands products are sold directly to consumers via its catalogue, website, and retail stores. Mattel is facing some operating turbulence and fast changing customer needs which means constant re-evaluation of current product lines and re assessment of customer needs.

The current revenue mix shows, that domestic sales slightly exceed international 54% vs. 46%. The mainline product Barbie accounts for more than 50% of the sales that signals undeveloped product mix. Mattel has been investing in developing new product lines and expending its product catalog around the world. The company is at the pivotal place; it needs to evaluate its growth and product strategy. Mattel needs to look closely at the product line and find ways how to increase brand affiliation and tap new customers in new markets. In this document, I would like to evaluate the different alternatives that Mattel could take to keep the leading roles as a manufacture of toys and expand to new markets while maintaining the corporate social responsibility.

II. Problem/Issue statement:
Some of the challenges that Mattel is facing relate to the customers and the customer cultural factors. In Mattel’s case the customers are 2 different subclasses – children and their parents. The product mix has to be sufficient and adequate to the needs and the wishes to customers all over the globe. At the moment, it is apparent that the there is a heavy dependence on the US and the EU markets to drive revenues.

In today’s operating environment with heavy reliance on outsourced production the company has to keep high on its agenda the ethical aspect – not to compromise the customer privacy and the safety standards of manufacturing. Win on the market place by offering products that are specifically tailored to the local interest groups. Many customers in the developing region are price sensitive and therefore the product’s price needs to reflect the purchasing power.

III. Situational Analysis:

III/1. Porter 5 forces analysis

Bargaining power of suppliers (LOW)
The bargaining power of Mattel’s suppliers is low overall as the company has a significant number of subcontractors and own manufacturing plants in China. Bargaining power of customers (HIGH)
The buying power is strong due to the wide range of various toys and games available in the market at low costs as well. This element of choice strengthens buyer power and affects Mattel’s business. Bargaining power is high overall. Threat of new entrants (LOW)

Entering this market usually requires additional capital due to relatively high fixed costs. There are also obstacles to entry and expand fast. There is a high level of product differentiation, so newcomers may find it harder to attract buyers away from existing incumbents. Mattel is one of the main players and have a sustainable competitive advantage. Threat of new entrants is low overall. Threat of substitute products (MODERATE)

The most significant substitutes to the toys and games market are computer games. Computer games are becoming more popular than traditional toys and games where customer loyalty is low. However, young children with generous parents still provide a stable source of revenue for more traditional toys and games. Substitute power is moderate overall. Competitive rivalry within the industry (MODERATE)

The tendency for customers to move between toys and games vendors serves to increase competition. The popularity of many toys and games are seasonal, which means the retail market is subject to rapid change, further boosting rivalry. The competitive rivalry is moderate overall. III/2. Mattel SWOT analysis:

Strengths
Weaknesses

Leading toy manufacturing company in the world
Produces in over 150 countries
Strong brand portfolio
Profitable licensing agreements and partnerships
Worldwide distribution network
Strong company value

High customer concentration
Lack of diversification
Frequent product recalls
Recent Product safety
Response to manufacturing issues
Weak online presence
Opportunities
Threats

Growing young consumer base and therefore the market for toys and games in the emerging markets Changing technology, fashion preference and cultural trends
Improve production capabilities
M&A with video game companies
Innovation of new toys and products with changing technology Create a strong online presence to connect with customers

Cheaper imitations and counterfeit goods to impact brand image Currency
fluctuations
Economic slow-down
Competition

IV. Alternatives and evaluation of alternatives:
IV/1. Expand existing product line to include Video and Internet games. Mattel already has a long catalog list of toys and it has been a long-standing market leader who has strong brand equity for children and their parent. In addition the conventional toys, the firm has to accelerate the process on making a strong presence in the video and Internet games. With the customer needs rapidly changing and electronic version games more popularity it is an opportunity for Mattel to gain market share by adding specific product lines in the electronic world.

It is of significant importance that the producers that electronic devices are gaining popularity and more customers have electronic devices. The already strong brand equity and loyalty for conventional toys can be beneficial for the company and leveraged to become a leader in the electronic toy sector. The company should not underestimate tapping into the other subclass of customer, the parents of the children. The children are often times the decision makers, however the parents have the purchasing power. Perhaps a bundled product lines for the entire family is a viable opportunity that can yield market share and revenues. IV/1. Global expansion to emerging markets

The market for toys and games is growing on emerging markets. The emerging regions are witnessing a faster population growth and currently at least 20% of the population in these countries is under the age of 14 years. The improved lifestyles and the increasing disposable incomes among consumers in these countries provide immense opportunities for the toy and games makers. Mattel’s global expansion in the emerging economies would further help the company to grow at a steady rate, however the company should take into consideration the cultural sensitivity of the customers, their tastes and preferences.

The focal point in the global expansion is the brand knowledge for customers is the emerging economies. Although Mattel is not new to some of the emerging economies, the company can think of partnering with local players and seek cooperation for developing specific product lines that match the customer perceptions and interests. Building strong brand equity is of a significant importance that can pay off on the long run. Mattel can take advantage of the developed supply chain it currently has in the APAC and come up with pricing model tailored for the more price sensitive customers. Also, Mattel can look at the current product line that is transferable, likeable and easily adaptable.

V. Recommendations:

Looking at the alternatives that Mattel has and considering the industry that is changing, growing and constant innovation the company should focus on working parallel on both alternatives. An integral part of both strategies will be staying close to the customers and understanding their needs. Both expanding the product line to include video and internet games as well as international expansion requires significant input from the end customer. Mattel should look at a two-way communication with customers and the retailers.

Really understanding the needs of the customer can help position the right product line at the product place and potentially drive down the R&D cost. Partnering with local retailers can avoid some of the cross-cultural aspect when launching a new product line. The company should not constantly prove as a socially responsible and that child safety and product safety come before the bottom line. VI. Financial Implications:

Finding a strategy that will keep the production cost down and maximize the profit is of significant importance nowadays business environment. Expanding into new markets can be have a serious cost implication, however Mattel should carefully evaluate and determine which of the existing main product lines is easily customizable and can be easy to position on the new market. Offering new products to the larger age group in the existing markets can capture additional revenue. Mattel should take into account previous costly recalls and set high quality standards that don’t compromise the quality of products offered and put the company’s reputation at risk. VII. Action Plan:

Based on the strong fundamentals that Mattel has, the company should carefully evaluate the markets in each region as well as the customer expectations. When adding a new product line all distribution channels
should be considered and more importantly the company should get closer to the customers and get their opinion. Partnering with a company that has a presence in the electronic industry should be taken into consideration. Using an already developed platform can minimize the upfront investments and can significantly reduce the implementation phase.

On the international front Mattel should apply the phase approach when introducing product. Target a group of countries that have similar demographics and similar interests. Mattel should take the time and study the most appropriate marketing channels to ensure acceptance of its products. Follow consistent promotion strategy and try to tap into all income level groups. Product endorsement through celebrities and famous people will help building a brand equity and affiliation.