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It is worth noting that like many companies, Mattel has grown since its inception largely on the basis of population growth. Not to take anything away from Mattel's products, but the population of the world and its wealth have increased substantially since 1945. The company now stands to benefit from a surge in growth as the baby boom echo generation enters child-bearing age. This massive demographic will likely have a lot of children as well, giving Mattel a chance for strong demographic growth in the North American market. The company grew strongly during the baby boom years, and now their grandchildren are the next major wave of potential consumers.
There are a number of threats that the company faces, however. Competition is a major threat, as it comes not only from other toymakers but from video games, computers and other electronic entertainment. Children raised on computers are now having kids, and they will be less likely to buy their children dolls and toy cars as a result, unless Mattel can convince them of the merits of doing so. This might create video game and mobile app opportunities, but they are not likely to replace the revenue associated with physical toys. Beyond this, the company relies heavily on its branding to distinguish its toys from the toys of cost leaders, companies that usually have no serious branding but sell at a fraction of Mattel's prices.
The economy is another threat. Mattel suffered a steep decline in sales during the recent recession, with a decline of 8.2% during the 2009 fiscal year. While it has recovered now, such declines are likely to occur in the event of future economic downturns. It is worth noting that the high degree of seasonality in Mattel's business (Form 10-K) means that the company could suffer strongly from a short-term downturn that happened to span the Christmas season.
Other key threats are with labor conditions, given that the company contracts out a lot of production to the developing world -- China, Southeast Asia and Mexico -- where labor laws are poor. The company would come under significant fire in particular if its toys were made with child labor, as occurred at one Indonesian supplier in the late 1990s (White, 1998). Lastly, the international business exposes the company to considerable foreign exchange rate risk that could affect the costs of the goods or the translation of foreign transactions to Mattel's balance sheet. With almost all production and half of the company's sales coming from outside of the U.S., this is a significant risk that the company must actively manage.
Mattel's best market is the United States, and this is where the company concentrates much of its activity. As noted, demographics are turning favorable in the domestic market, and this implies a significant opportunity for Mattel. The company must contend, however, with the forces of technological change and the threat posed by the sluggish recovery from the economic downturn.
From a marketing perspective, the company has strong products, but has not been able to make any major new product introductions in recent years. There is continual opportunity, however, due to consumer turnover and the emergence of new technologies and entertainment properties. However, the driver of domestic business at Mattel remains its core properties. Liu (2009) reports that intense competition and the threat of substitutes like video games have contributed to sluggishness in the Barbie brand. Yet, the brand does have sporadic success that the company can build on. For example, the Barbie brand recovered with a 17% increase in sales globally last year, and the company had strength across all of its brands, pointing to the enduring strength of the company's brands (Egan, 2011).
The most likely approach for Barbie is that the brand will continue to grow domestically. However, the company needs to do a couple of things to ensure that all of its brands continue to grow. Aggressive marketing is essential to keeping the product in the minds of consumers. While today's parents grew up with Barbie, Hot Wheels and Fischer-Price, they need to be reminded of this before they begin to buy their children electronic toys or those of competitors.
Another domestic implication is that Mattel needs to focus on innovation within its core products, in order to ensure that they are continuing to be relevant to new children. The brands have seen periods of flat sales when innovation has slowed, so it is imperative that brand extensions be frequent and always in tune with the tastes of the current generation of children.
In addition, Mattel has had significant success with its licensing arrangements, particular its deals with Disney, the WWE and the owners of Batman. The company should pursue more of these deals, as they often come with a ready-made market. That market, however, can be improved through association with Mattel. Domestically, marketing tie-ins like the Hunger Games doll have good potential for short-term revenue gains.
There have been many periods recently where Mattel's gains in international markets have offset sluggishness in the domestic market. Last year, the company saw international sales increase 13%, compared with 6% growth in the United States. The biggest gains were in the emerging regions of Asia Pacific and Latin America. In particular, Mexico and Brazil have been cited as strong markets for the company (Kell, 2011).
Although these markets are a relatively small part of Mattel's business today, they represent the best growth opportunity for the company. North America and Europe -- the two largest markets -- are relatively mature with slow economic growth and slow-growing populations. Asia and Latin America, by contrast, have strong population growth and economic growth. For Mattel, marketing strategy in the coming years should revolve around building out share in these markets. As consumers in these markets enter the middle class, they will be able to spend more on toys. Mattel, with its strong distribution networks, is well-positioned to take advantage of this.
It is also recommended that Mattel develops new products in its foreign markets, instead of simply exporting ideas from the U.S. market overseas. A company that utilizes this model to tremendous success is Coca-Cola, which always has local brands to complement its global ones. The local brands appeal directly to local tastes, and that is something that Mattel can do with its toys as well, by finding properties from within the entertainment industries of foreign countries or by creating their own products. Sometimes, innovations in foreign countries can be repatriated to the U.S., improving Mattel's new product pipeline in the domestic market.
Mattel has faced controversy over its marketing and manufacturing practices at various times throughout its history. Typically, the company has responded well to these challenges and as a result its goodwill has not suffered unduly from these challenges. The body image challenge is a common complaint that activists have with Mattel, based on charges that Barbie fosters a negative body image in young girls. Such issues are bound to arise with firms that market to children, because marketing to children inherently raises sensitive issues with regards to the impressionable minds of children and the ethics of marketing to such minds. A quick Google search reveals that many in the public have issues with Barbie's effect on girls' body image, but it may be the case that the company and its products are unfairly targeted. Mattel has taken steps to combat the charges, but remains a target for groups that are determined to be outraged.
The problem for Mattel is twofold. On one hand, Barbie is a billion-dollar toy, so the company is reluctant to make changes that might affect the sales of the doll, especially when its detractors are not necessarily going to purchase Barbie anyway. The other problem for Mattel is that it cannot appear too combative in attempting to manage this situation. The critics are working with cliches as much as they academic research. Mattel is a highly visible target, but there is little reason to believe that the company can avoid such criticism because a lot of the criticism is based on speculation and anecdotal evidence.
Another point of controversy at Mattel is with respect to the labor conditions at its suppliers. Because Mattel's suppliers are almost all located in the developing world, the labor conditions are inevitably going to be poor. This puts the company in the crosshairs of activists inherently. However, because the company sells toys to children, it is at particular risk with respect to child labor issues. The irony is simply too good for the media to resist, and the situation becomes a public relations nightmare. The company realized this early and took steps to ensure that such problems would not happen. This means exerting more pressure on and control over suppliers than most companies would have to (Barboza & Story, 2007).
In addition, Mattel utilizes this tight control over suppliers to ensure that its products are safe for children. Recalls…[continue]
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