Mattel final 19_nov2010

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Mattel SWOT

Mattel SWOT

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  • Mattel has been around for 65 years – the brand is very popular among consumers. Brand-building is one of the most significant barriers to entry in this industry.
  • Through successful segmentation and diversification of the Barbie line into hundreds of styles, the average American girl had 8 Barbie dolls by the mid-1990s.
  • More recent efforts to increase brand awareness – opening of shops in NYC, Chicago, LA, Atlanta, Dallas, Boston, Minneapolis
  • Mattel sued a former Mattel employee and MGA Entertainment (owner of Bratz Dolls), claiming the creator of Bratz was still working for Mattel when the Bratz name and characters were developed. The creator was working at Mattel when he pitched the Bratz idea to MGA; a few months later, he left Mattel to work at MGA. In 2005, 4 yrs after the line was created, Bratz sales were at $2 billion. In 2008, the former employee settled with Mattel under an undisclosed set of terms. However the battle between Mattel and MGA continued. Also in 2008, a jury deemed MGA and its CEO liable for “intentional interference” regarding the employee’s contract with Mattel. As a result, Mattel received $100M in damages (although Mattel had originally requested damages of $1.8B).
  • Licensing agreements are important for toy manufacturers. Manufacturers are continually anticipating the success of movies and TV shows in order to produce toys based on their characters in an attempt to improve sales. However these products are typically only successful for a year or two following a release.DisneyHarry PotterNASCARNickelodeonTop 5 Formula One Race TeamsFerrariVivendi Universal Publishing– bringing Barbie and other toys into gamingOasys Mobile – agreement gave them the right to produce mobile games such as UNO and Ker plunkFisher-Price & Barney
  • The international environment complicates business transactions (different legal systems and cultural expectations). Workers must be paid at least minimum wage or a wage that meets local industry standards (whichever is greater). No one under the age of 16 or the local age limit (whichever is greater) may be allowed to work for Mattel facilities.
  • Through the Mattel Children’s foundation, the company promotes philanthropy and community involvement among its employees and makes charitable donations to better the lives of children in need. In 1998, Mattel donated $25M to the UCLA Children’s Hospital, which in honor of that donation, was renamed Mattel’s Children Hospital at UCLA. The Mattel Family Learning Program utilizes computer learning labs as a way to advance children’s basic skills. There are more than 80 labs throughout the United States, Hong Kong, Canda, and Mexico. Team Mattel is a program which allows Mattel employees to partner with local Special Olympics programs. Employees serving on boards of local nonprofit organizations or helping with non-profit programs are eligible to apply for volunteer grants supporting their organizations. In addition, Mattel employees contributing to non-profit organizations which serve children in need are eligible to have their personal donations matched dollar for dollar up to $5,000 annually!
  • In the mid-90s, other toys such as Beanie Babies, Furby, and Tickle-Me-Elmo, started taking market share away from Barbie. In order for Mattel to sustain growth, it turned to mergers and acquisitions.
  • In the mid-90s, other toys such as Beanie Babies, Furby, and Tickle-Me-Elmo, started taking market share away from Barbie. In order for Mattel to sustain growth, it turned to mergers and acquisitions.Tyco, Pleasant Company, Bluebird ToysAfter 2 yrs of strong growth in educational-toy market, The Learning Company seemed the best way for Mattel to enter into the more desirable high-tech and interactive media segmentMay 1999: The Learning Company Leading entertainment & educational software companySeemed the best way for Mattel to enter the high-tech & interactive media segment
  • Mattel needs to address their weakness in this area
  • Not all overseas manufacturers have adhered to Mattel’s high standards
  • Mattel's 2006 acquisition of Radica is the company's attempt to tap into the potential in the digital gaming industry, but Radica produces handheld electronic games (such as electronic devices that offer games such as 20 Questions, Checkers, etc) while the major growth in electronic games is in console gaming (Sony's PlayStation3, Microsoft's Xbox 360 and Nintendo's Wii). Without a major foray into video gaming, Mattel could stand to lose significant market share as youth turn to digital entertainment over traditional toys.Consider acquiring either a small console gaming maker or an upcoming online game developer (Zynga).
  • ANTES – Features/attributes important to the consumer & pre-condition for being in the game – All competitors do this.DRIVERS – Important to the consumers and Highly DifferentiatedNEUTRALS – Features that are Irrelevant to Consumers as not compellingFOOL’S GOLD – Distinctive features but do not drive consumer loyalty
  • Rising distribution costs – Combine with Raw materials bulletThis effect is augmented because oil prices play a primary role in Mattel's distribution costs related to transporting its products from manufacturing plants in Asia to customers and retailers around the world. A return to rising oil prices would put downward pressure on Mattel's profit margins.
  • Mattel's 2006 acquisition of Radica is the company's attempt to tap into the potential in the digital gaming industry, but Radica produces handheld electronic games (such as electronic devices that offer games such as 20 Questions, Checkers, etc) while the major growth in electronic games is in console gaming (Sony's PlayStation3, Microsoft's Xbox 360 and Nintendo's Wii). Without a major foray into video gaming, Mattel could stand to lose significant market share as youth turn to digital entertainment over traditional toys.

Transcript

  • 1.
  • 2. Where to Begin…The Rise To Fame
    Founded in 1945 by Harold “Matt” Matson & Elliot Handler. Their names smushed together make Mattel. They manufactured picture frames and doll houses
    Handler’s wife, Ruth, later became president and is credited with establishing the Barbie line in 1959
    1960: Mattel went public and was quickly listed in Fortune’s list of the 500 largest U.S. Industrial companies
    By 1968: Hot Wheels was introduced
    Mid 1970s: Mattel tried to get into electronic games but failed because others entered the market at a cheaper price
  • 3. The Bumpy Road (Past 10 Years)
    In May 1999, Mattel acquired “The Learning Company” for $3.5B in stock (4.5 times annual sales)
    In 2000, Mattel sold The Learning Company for a percentage of their future profits
    Mattel closed its last American factory in 2002
    On August 2, 2007 Mattel recalled almost one million Chinese made toys because of potential hazard of lead paint
    On August 14, 2007 Mattel recalled over 18 million products because of the possibility of danger to children due to detachable magnets
  • 4. Sometimes Less Is More
    Cash flows increased from $436M in 2008 to $945M in 2009
    Improved execution across supply chain, realigned infrastructure, controlled costs and expenses (especially inventory)
    Resulted in increased profitability, stronger balance sheet, improved cash flow
    Used to lower debt, increase cash balance, and continue to reward stockholders with strong dividends
  • 5. To Infinity & Beyond!
    Goals for 2010 and Moving Forward:
    Gross Profit Margin: 50%
    Operating Margin: 15 to 20%
  • 6. Vision Today & Vision Tomorrow
    In 2000 Mattel’s senior management team created a vision for the company: “The World’s Premier Toy Brands – Today and Tomorrow”
    In 2010 they launched a new vision for the company: “Creating the Future of Play”
    What do you think of the different visions?
    Where do they take the company?
  • 7. I Will Let You In On A Secret…
    “…we don’t just make toys. We create emotional connections that last a lifetime by encouraging children to stretch their imaginations, creating joy and allowing children to become lost in play. That’s the real value of our toys. That’s the value of play.” (Bob Eckert, Chairman of the Board & CEO, Annual Report 2009)
    Mattel is in the business of making kids’ leisure time fun and bringing magic back to their lives
  • 8. Management’s Six Key Strategies
    Improve Execution of the existing toy business
    Globalize the brand
    Extend brands into new areas
    Catch new trends, create new brands, and enter new categories
    Develop people
    Improve productivity, simplify processes, and maintain customer service levels
  • 9. Who Are Mattel’s Traditional Competitors?
  • 10. Key Notes on Industry Performance
    Industry’s size is anticipated to contract over next five years
    Forecast is predicting a 1.2% annual decline over the next 5 years to a total of about 680 producers in the US
    Manufacturers were slow to respond to shifts in demand which lead to a decline in sales
    Cheaper imports have created intense competition within the local market
    Increased merger & acquisition activity within the industry has lead to the demise of numerous smaller operators
    Message is simple: toys currently on the market are no longer meeting the demand for children
    Toys need the “WOW” factor
    Girls are now outgrowing Barbie by the age of eight, rather than the target age of 10
  • 11. However, You’re Not Just In The Railroad Business…
    Sports
    Competitive Toy Manufacturers
    Television
    Internet
    Video
    Games
    Mattel has to compete against any other activity that will take up children’s time
  • 12. Children Leisure Time Perception Map
    *Healthy from standpoint of either educational or active
  • 13. What Makes Up the Industry
  • 14. Stuck Between A Rock, A Hard Place, and a Volcano About to Erupt
    Manufacturers have an uphill battle. Have to satisfy three customers:
    The Rock: Retailers buy, stock, and advertise the product
    The Hard Place: Children ultimately have to find the product enjoyable and it has to have repeatable “play value”
    The Volcano About to Erupt: Parents have to see the product as innovative, educational, or deem it as a “value.” In addition, parents will only buy products that reflect their family values.
    Will look at the profile of each of Mattel’s “customers”
  • 15. Market Segmentation
  • 16. The 100 Million Pound Gorillas
    Retailers control:
    Purchases from manufacturers
    Shelf space and where products are viewed
    Advertisements to children and parents that enter stores (coupons, in-store ads, etc.)
    Retailers promote their own private brands
    Mattel’s three largest retail customers account for approximately 40% of worldwide sales
  • 17. It’s All About The Psycho….Graphics
    Lets take a look at the typical children that Mattel is trying to reach to and then we will profile a couple of “child customers”
    Children (0-14) make up 21% of American population and this is predicted to remain stable over the next five years
    Profile three of Mattels child segments
    Cyber Possum
    Grease Monkey
    Fashion Queen Bee
  • 18. Cyber-Possum
    Male or Female
    Likes to be alone
    Likes being inside
    Quiet, Shy, Bashful
    Use internet for social interaction and purchases
    Not very confident
    10-14 age group
    Slightly overweight
    Craves intellectual stimulation
    Enjoys blokus products & video games
    Focus on advertising interactive/electronic toys to this group along with internet games
  • 19. Grease Monkey
    Male
    8-12 Age Group
    Likes simple toys
    Likes being outdoors
    Thinks the world wide web is something a big spider makes
    Aggressive and extroverted
    Wants toys to reflect real objects
    In good physical shape
    Craves adrenaline rush
    Enjoys hot wheels products
    Focus on advertising cars/trucks, military action figures, and sporting figurines to this group
  • 20. Fashion Queen Bee
    Female
    6-10 age group
    Loves fashion world and dressing up
    Enjoys outdoors and inside
    Chatty and social
    Views the internet as a chance to increase social network
    Craves living life of glamour
    Enjoys Barbie and American Girl Products
    Focus on advertising barbie products with various accessories, horses/ponies figurines, and polly pocket games to this group
  • 21. If the Parents Dig It, They Will Buy It
    Mattel always has to keep the parents in mind as well.
    If the parents don’t see the product as educational, promoting an active lifestyle, or having a wow factor they won’t purchase it
    In addition, if the parents don’t see the company producing the product as a quality brand they may question the purchase
    So, at the end of the day the parents control the buying decision
    And again Mattel does have a social obligation to this customer segment (even if only for profit reasons). Parents tend to buy toys that reflect their familial values.
  • 22. Key External Drivers
    Per capita disposable income
    Households with higher levels of disposable income generally spend more on toys and games
    Downstream demand from hobby and toy stores
    Regarded as specialist retailers for these goods
    Number of children (0 to 14 years)
    Age distribution of a region affects it demand for toy, doll and game products
    Downstream demand from department stores
    Due to sheer size and range of products they offer, many regard these stores as main customer for toy manufacturers
    Import Competition
    Despite often inferior quality, such toys have become popular among consumers due to lower prices and extensive varieties
    See graph on next page
  • 23. Put Simply, The World Is Flat When It Comes to Producing Toys
  • 24. Industry Key Success Factors
    Establishment of Brand Names
    Brand name, reputation and image are important
    Agreements to supply major companies with these attributes are equally important
    Having a diverse range of clients
    Ability to control stock on hand
    Effective cost controls
    Ability to quickly adopt new technology
    Must comply with required product standards
  • 25. STRENGTHS
  • 26. Brand Recognition
  • 27.
    • Created by Mattel in 1959
    • 28. #1 seller, often accounting for up to 50% of revenue
    • 29. >1 billion Barbies have been sold in >150 countries
    • 30. 3 Barbies sold every second
    • 31. Barbie has taken on almost every possible profession
    • 32. Extreme brand recognition, other doll brands are referred to as “barbies”
    • Introduced by Mattel in 1968
    • 33. Over 15 million boys 5-15 are avid collectors (avg 41 cars each)
    • 34. Two Hot Wheels cars are sold every second of every day
    • 35. Together, Hot Wheels and Barbie generate about 65% of Mattel’s profits
    • In 1998, Mattel acquired Pleasant Company
    • 36. Well-known line of historical dolls, accessories, books, magazines, movies, clothes
    • 37. Originally sold in catalogs only
    • 38. Mattel extended base by selling accessories in Walmart & Target
    • 39. Recent opening of shops in NYC, Chicago, LA, Atlanta, Dallas, Boston, Minneapolis
    • 40. Popular with girls 7-12
    • 41. Wholesome, educational image
    • 42. Dolls live during specific times in American history and face hardships while maturing into young adults
    • 43. Controversies exist over some characters
    • Created almost 5,000 different toys since the 1930s
    • 44. Almost 30 brands
    • 45. Acquired in 1993 as a wholly owned subsidiary
    • 46. Brand trusted by parents around the world
    • 47. Products are educational, safe, and useful
    • 48. Innovative learning toys
    • 49. Character-based tools through licensing agreements w/ Sesame Street, Disney, and Nickelodeon
  • Strong Values
  • 50. US Market Share
  • 51. Barriers to Entry
    • Most significant: time & capital required to establish a new brand name
    • 52. Need to invest a lot of time & money in order to persuade consumers to shift away from strong brand names.
    • 53. The level of market share already controlled by existing players is a key deterrent.
    • 54. Economies of scale: large production runs typically required for toys, favors large established companies
    • 55. Development of new products often requires substantial changes to existing machinery and production processes
  • Licensing Agreements
  • 56. Corporate Responsibility
    • Taken steps to strengthen commitment to business ethics
    • 57. As core products are designed for children, Mattel is sensitive to social concerns about children’s rights
    • 58. Responsibility of marketing to children & privacy on websites
    • 59. International environment: different legal systems & cultural expectations
    • 60. 1997 – Global Manufacturing Principles
    • 61. Principles related to safety, wages, adherence to local laws
    • 62. Manufacturing facilities must favor business partners with ethical standards comparable to Mattel
    • 63. Independent audits of manufacturing facilities every 3 yrs
    • 64. After 2007 recalls, hired VP of Corporate Responsibility
    • Mattel’s Children’s Foundation
    • 65. Mattel’s Children’s Hospital at UCLA
    • 66. The Mattel Family Learning Program
    • 67. Team Mattel
    • 68. Encouragement of Mattel employees
    to give back
  • 69. WEAKNESSES
  • 70. Mergers & Acquisitions
    • Jan 1997:Jill Barad CEO
    • 71. 18 yrs at Mattel, 5 yrs as COO
    • 72. Largely credited w/ Barbie growth - $250M in mid-80s to $1.9B in 1998
    • 73. Height of Mattel’s success
    • 74. Stock price $27.75
    • 75. Mar 1997:Tyco Toys
    • 76. Matchbox Cars
    • 77. Licensing Agreement w/ Sesame Street
    • 78. Mar 1998: Record stock price $45.63
    • 79. Jun 1998: Bluebird Toys
    • 80. Polly Pocket
    • 81. Jul 1998: Pleasant Company
    • 82. American Girl Dolls
    • 83. Sep 1998: Mattel announces 1999 earning growth would be 9-12% instead of the expected 18%
    • 84. Dec 1998: Mattel announces revenues will be $500M and earnings will be 30% less than expected
    • 85. May 1999: The Learning Company
    • 86. Leading entertainment & educational software company
    • 87. Mattel looking to enter the
    high-tech & interactive media segment
  • 88.
    • 1999 – 2000: steady stream of executive departures:
    • 89. COO
    • 90. President of Fisher-Price unit
    • 91. Head of Mattel Media
    • 92. Founders of TLC
    • 93. CFO
    • 94. President
    • 95. Feb 2000: Jill Baradresignes
    • 96. Mattel losing $1.5M per day with TLC
    • 97. Oct 2000: Sold TLC for just$27.5M!
    • 98. One of the worst acquisitions in corporate history
    • 99. Poor Due Diligence
    • 100. Expected too much
    • 101. Paid too much ($3.5B, 4.5x annual sales)
    • 102. 3Q 1999 – expected $50M in profits; instead lost $105M
    • 103. 4Q 1999 – expected earnings to be 70-80 cents per share; instead lost $184M (primarily due to TLC)
  • Lack of Diversification
    • The popularity of electronic and interactive toys has contributed to a decline in the traditional toy market (Mattel’s core business)
    • 104. Social Media
    • 105. Video Games
    • 106. Electronics
    • 107. Children are outgrowing toys at an earlier age and demanding more adult-like merchandise
    • 108. DVD players, cell phones, laptops
    • 109. Shortens the life cycle of products
    • 110. This trend is expected to increase as children become more technologically advanced at younger ages
    • 111. Mattel is seen as behind in electronic toys and educational toys
  • Loss of Sesame Street Licensing Agreement
    • At the end of 2010, Sesame Street licensing agreement with Mattel expires, and has been granted to Hasbro
  • Recent Product Recalls
    • In 2007, Fisher-Price recall due to lead paint in toys
    • 112. A contractor in China subcontracted the painting of toys to another vendor. That vendor used paint from a non-authorized supplier (a violation of Mattel’s policies).
    • 113. Also in 2007, additional product recalls due to magnets which could come loose and be ingested
    • 114. In total, over 21 million toys recalled
    • 115. Reduced net sales by $36M
    • 116. Consumer confidence in the safety of toys purchased for young children was tarnished
  • Response to Manufacturing Issues
    • At first, Mattel blamed Chinese subcontractors for the huge toy recalls
    • 117. The company later accepted a portion of the blame, but still said Chinese manufacturers were largely at fault.
    • 118. Mattel faced criticism by many consumers for denying responsibility and placing much of the blame on China
    • 119. While Mattel audited its contractors, it did not audit the entire supply chain, including subcontractors.
    • 120. Mattel hired VP of Corporate Responsibility
    • 121. Made changes to auditing procedures, including testing their products themselves instead of relying on subcontractors
  • OPPORTUNITIES
  • 122. Mattel Opportunities
    Educational Products
    Perception Map identified whitespace for Mattel
    Less reliance on retailers as the distribution network expands
    Hospitals, Day Care Centers, Schools.
    M&A with video games companies
    Beyond Radica
    Let’s take a look at gaming “Consumer Loyalty Matrix”
  • 123. Gaming Consumer Loyalty Matrix
    HIGH
    RELEVANCE TO CONSUMER
    ONLINE CONNECTIVITY
    “COOL” FACTOR
    GENDER SPECIFICITY
    TARGET AGE
    GAME TITLES
    DIFFERENTIATION
    HIGH
    LOW
  • 124. Mattel Opportunities
    Global markets (still not completely tapped by Mattel)
    Approximately 50% of sales are international
    The further the dollar falls, the more Mattel makes by selling its products abroad.  Global sales partially insulate the company against a U.S. recession.
    Where could they grow? China and India
    China's toy market is fragmented, although Mattel estimates it is one of the leading players there.
    Following its entry into China just eight years ago, Mattel now has about 40 licensing partners.
    China is a double-digit growth market
    Improved production capabilities
    Cloud computing
    Focused factories with just in time inventory management
    Value engineering & 80/20 Principles
    Barbie movie / American Girl
    Follow Hasbro Blueprint
    Sales kick back
  • 125. A Game Changing Product for Mattel
    An interactive toy for boys and girls that integrates social media, community and most important physical activity
    The first in a line of physical activity companions that connect to social media through usb connection.
    Combination of a “doll” and “Digiwalker” pedometer that is then registered through company website
    Digiwalker Doll clips onto waistband and logs caloric daily output
  • 126. Meet “Hoppin Henry” & “Va Amiga”
    Outer shell of doll is a Frog boy for “Hoppin Henry” or Frog girl for “Va Amiga”
    Sync with website for weekly, monthly and annual totals
    Increase in caloric output increases Doll “health”
    Connect through social media sites to establish guilds and teams
  • 127. THREATS
  • 128. Mattel Threats D.E.
    Rising Raw Material Costs
    fluctuations in oil prices affect input costs for making plastic-based toys
    A considerable amount of Mattel's manufacturing cost comes from plastic resin, which accounts for approximately one-quarter of cost of goods sold.
    Resin prices have soared because of a rise in prices of its key component: petroleum.
    Oil prices skyrocketed in 2007-2008 before peaking in August 2008, when price began to fall drastically.
    These price movements caused the price of manufacturing plastic-based toys rise considerably in 2008, hurting Mattel's profit margins (gross margin down to 45.4% in FY08 from 46.5% in FY07)[1][4], but if the price of oil remains low, Mattel's costs would be significantly lower allowing the firm to earn higher profit figures.
    Conversely, a return to rising oil prices would put downward pressure on Mattel's profit margins.
  • 129. Oil Volatility = Potential Rise in costs (Plastics/Distribution)
    Rising Distributions Costs
    Fluctuations in oil prices affect distribution costs for transporting products from factories in Asia to other parts of the world.
  • 130. Mattel Threats
    Imports from Asian countries (wages, fact others can copy) – world is flat
    Age compression phenomenon
    Girls are now outgrowing Barbie by the age of eight, rather than target age of 10
    Rise in push for physical activity, could decrease toy sales
    Because of America’s obesity epidemic
    Economic downturn (less disposable income)
    profit margins at Mattel and other traditional toy manufacturers are being squeezed by macro-economic factors largely out of their control
  • 131. Mattel Threats
    Mattel’s three largest retail customers account for approximately 40% of worldwide sales.
    WMT, TGT, and Toy’s R Us have considerable leverage over Mattel when negotiating prices.
    Retailers also produce toys
    The biggest concern is Internet and Videogames
    Hasbro (2nd in revenue) is the obvious threat, but ……
    Toy sales in the U.S. have been growing at a very low rate for the last few years. In fact, in 2008 toy sales in the U.S. fell 3%. This is mainly because of the shift from traditional toys towards video games.
    In 2008, sales of video game software units (actual games as opposed to consoles) grew 15% in the United States and 26% in the United Kingdom.
  • 132. CONCLUSION
  • 133. Possible Strategies Moving Forward
    #1 – Stay The Course
    #2 – You’re Not Just In the Railroad Business Anymore
  • 134. Strategy #1: Stay The Course
    Advantages
    Use their buying power to price out competitors
    Leverage known brands
    Cost cutting techniques and operational efficiencies have improved profit so far
    Continue to maintain licensing agreements to corner the market
    Disadvantages
    Chaos Theory: Doing what you’ve always done doesn’t necessarily net the same results
    You’re either innovating or getting left behind
    Age Compression of children is causing the industry to change
    Flat World allows others to copy toys easier
  • 135. Strategy #2: You’re Not Just In the Railroad Business Anymore
    Advantages
    Diversify business into high growth areas (video games, educational interactive)
    Reduce impact of core business and brands shrinking
    Opens company up into other leisure time activities, results in new business opportunities and markets
    Disadvantages
    Not prime on certain technologies
    Certain ventures will be risky due to the unknown factor
    Could dilute the brand
    Excessive costs while trying to move certain products from R&D to market
  • 136. Mattel and “The Future of Play”
    Circling back to one of the original slides
    Which strategy should Mattel follow?
    What does “The Future of Play” mean to the class?
    And where does that statement leave Mattel?