Mattel Marketing Strategy: SWOT and PEST Analysis

Introduction and Company Background

Mattel was founded in 1945 by Ruth Handler, Elliot Handler, and Harold Matson. The first products the company made were picture frames, but Elliot soon began making dollhouse furniture, and the company gradually built a toy business from there. In 1959, Barbie was introduced and would become Mattel's signature product. The company went public on the Pacific Coast Stock Exchange the following year, and by 1965 was a Fortune 500 company with revenues exceeding $100 million. Hot Wheels cars were introduced in 1968 and became another major product line. By 1977, the company had entered the electronic gaming segment — a decision that proved poor, and by 1984 Mattel was losing money and was forced to abandon the segment, which had been built around the Intellivision brand.

In 1982, the company introduced the He-Man brand, and by the end of the decade was entering into deals with foreign firms for their properties and to bring key Mattel brands overseas. In 1993, the company acquired Fisher-Price, the major infant toy manufacturer, and that brand brought Mattel Tickle Me Elmo in 1996 — another smash-hit product. The period since then has been characterized by a series of acquisitions and divestitures that brought the company to its current form. Mattel also licensed a number of properties, including Harry Potter, that helped earn revenue over the following decade. New product introductions during this period were largely brand extensions, such as "Chicken Dance Elmo" and similar products (Mattel.com, 2012).

Today, Mattel is a relatively stable company. Revenues have fluctuated in recent years as a result of the financial crisis but remained within the $5.9–$6.2 billion range for four of the last five years (MSN Moneycentral, 2012). The company demonstrated relatively stable profits over the same period, with only one year posting an unusually low result. In fiscal year 2011, Mattel earned net income of $768.51 million on revenue of $6.266 billion. The balance sheet is healthy, with just $1.5 billion in long-term debt and a debt-to-equity ratio of 1.17.

Using Porter's generic strategy typology, Mattel pursues a differentiated strategy, in which the branding and uniqueness of its toys allow it to charge premiums while still courting the mass market (QuickMBA, 2010). The company's major brands include Barbie, Hot Wheels, Matchbox, Fisher-Price, and American Girl, supplemented by major licensing properties such as Toy Story, WWE Wrestling, Batman, Dora the Explorer, and Disney Classics (Mattel 2010 Form 10-K). The organizational structure is divided into three product divisions — Mattel, Fisher-Price, and American Girl — each with its own geographic and product units. North American sales represent 54% of total sales; international sales account for the remaining 46%, with Europe comprising 52% of that figure. Latin America contributes a further 30% of international sales, while Asia Pacific and other regions make up only a small portion.

The company owns some of its production facilities and also uses third-party manufacturers. Production is concentrated in China, Indonesia, Thailand, Malaysia, and Mexico. Mattel competes against firms such as Bandai, Hasbro, Lego, Playmobil, and MGA Entertainment across various segments of the children's toy market. Because Mattel sells primarily to children, its business is affected not only by the number of children in its major markets but also by the relative wealth of their parents, since the products are positioned through a differentiation strategy (Mattel 2010 Form 10-K).

SWOT Analysis

Mattel's size and stability stem from its many strengths, and those strengths in turn reinforce that stability in a positive feedback loop. The company's core strength is its powerhouse brand portfolio. Barbie may be the world's most recognizable toy brand and is iconic in many Western markets. The brand has been successfully extended numerous times, such that an entire family of products carries the Barbie name. As an illustration of the brand's power, the company was able to co-brand a Barbie product with the Hunger Games movie franchise and did something similar with the Twilight series, indicating that Barbie adds value even to the most commercially successful of entertainment properties (Ng, 2012). Hot Wheels and Fisher-Price are also segment-leading brands with considerable reach. The fact that these brands have existed for decades — roughly 50, 40, and 75 years respectively — means that today's parents grew up with them, making these products among the first choices they consider for their own children, an advantage that other toymakers struggle to match.

The company's financial health is another key strength. Strong finances allow Mattel to weather economic downturns without compromising its operations or expansion plans, as demonstrated during the recent financial crisis. Financial strength also enables the company to pursue opportunities as they arise — entering new markets, launching new products, or engaging in merger and acquisition activity — without restraint.

Mattel's distribution networks and associated goodwill are equally important. The company's stability and narrow focus on toys have produced strong relationships with both its supply chain and its retail channels. These relationships facilitate new product introductions: when Mattel approaches a major retailer with a new product, the retailer is likely to stock it based on Mattel's reputation alone, particularly if the product is tied to one of the company's core brands. This represents a significant advantage over smaller competitors in the toy business.

Despite these strengths, Mattel has notable weaknesses. One is a lack of diversification: although the company sells to both genders and markets worldwide, it sells only toys. This leaves Mattel highly dependent on the overall health of the toy market, with no other category to fall back on if that market struggles.

Mattel has also faced reputation challenges, often related to Barbie and body image. Academic research has found that Barbie can negatively affect the body image of young girls (Dittmar, Halliwell, & Ive, 2006), which creates negativity around the company's flagship product and makes Mattel a target for public criticism that can erode goodwill.

A further weakness lies in the innovation pipeline. The company built its position on the strength of internal product development, yet its last major brand addition came through acquisition (Fisher-Price), and the company now relies primarily on brand extensions and licensed products. It has been a long time since Mattel introduced a significant new product developed in-house.

New product innovation therefore also represents an opportunity. The toy market evolves constantly, and the customer base turns over regularly as children age out of toys and new ones are born. There is no inherent brand loyalty beyond that of the parents, meaning a successful new product line can achieve popularity and generate massive sales growth very quickly.

Significant growth opportunities also remain in overseas markets. Most of Mattel's business is concentrated in North America and Europe, leaving Asia Pacific and Latin America as large, underserved growth markets. As the middle class expands in these regions, Mattel is well-positioned to grow its sales substantially. It is also worth noting that Mattel, like many companies, has historically grown alongside global population increases. The baby boom echo generation is now entering child-bearing age, which could produce a significant demographic tailwind in North America similar to the one the company benefited from during the original baby boom.

Several threats also confront the company. Competition comes not only from rival toymakers but from video games, computers, and other electronic entertainment. Children raised on technology are now becoming parents, and they may be less inclined to purchase traditional toys for their children. Beyond this, Mattel's differentiation strategy leaves it exposed to cost-leader competitors who offer unbranded toys at a fraction of Mattel's prices.

The economy represents another ongoing threat. Mattel experienced an 8.2% decline in sales during the 2009 fiscal year, and similar declines are likely during future downturns. The high degree of seasonality in Mattel's business (Form 10-K) means the company is particularly vulnerable to short-term slowdowns that coincide with the Christmas shopping season.

Labor conditions at overseas suppliers pose additional risks. Because Mattel contracts much of its production to the developing world — China, Southeast Asia, and Mexico — where labor regulations are often weak, the company is vulnerable to activist scrutiny. Child labor incidents, such as one involving an Indonesian supplier in the late 1990s (White, 1998), are especially damaging given that Mattel sells toys to children. Finally, the international scope of Mattel's operations exposes the company to significant foreign exchange rate risk, which must be actively managed.

Domestic Marketing Implications

Mattel's best market remains the United States, where the company concentrates much of its activity. Favorable demographic trends present a significant opportunity, though the company must also contend with the forces of technological change and the sluggish recovery from the most recent economic downturn.

From a marketing perspective, the company has strong products but has not achieved any major new product introductions in recent years. Continuous opportunity does exist, however, because of consumer turnover and the emergence of new technologies and entertainment properties. The driver of domestic business at Mattel remains its core brands. Liu (2009) reports that intense competition and the threat of substitutes such as video games have contributed to sluggishness in the Barbie brand. Yet the brand retains the capacity for strong periodic performance — for example, the Barbie brand recovered with a 17% increase in global sales in one recent year, and the company demonstrated strength across all of its brands, pointing to the enduring power of its portfolio (Egan, 2011).

The most likely path forward for Barbie is continued domestic growth, but the company must take deliberate steps to sustain momentum across all brands. Aggressive marketing is essential to keeping products in the minds of consumers. While today's parents grew up with Barbie, Hot Wheels, and Fisher-Price, they need to be reminded of this before they default to purchasing electronic toys or competitors' products for their children.

Mattel also needs to focus on innovation within its core products to ensure continued relevance to new generations of children. The brands have experienced periods of flat sales when innovation has slowed, so frequent brand extensions that reflect the tastes of the current generation of children are imperative.

In addition, Mattel has achieved significant success with its licensing arrangements, particularly its deals with Disney, the WWE, and the owners of the Batman franchise. The company should pursue more such deals, as they often come with a ready-made market that can be further amplified through association with Mattel's distribution and marketing capabilities. Domestically, tie-in products like the Hunger Games Barbie doll have good potential for short-term revenue gains.

Works Cited

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Dittmar, H., Halliwell, E. & Ive, S. (2006). Does Barbie make girls want to be thin? The effect of experimental exposure to images of dolls on the body image of 5- to 8-year-old girls. Developmental Psychology, 42(2), 283–292.

Egan, M. (2011). Mattel's 3Q matches street's view; Barbie sales soar 17%. Fox Business. Retrieved March 26, 2012 from

Kell, J. (2011). Mattel has holiday hopes as sales keep up momentum. Wall Street Journal. Retrieved March 26, 2012 from http://online.wsj.com/article/SB10001424052970203914304576630574067645008.html

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Mattel 2010 Annual Report & Form 10-K. Retrieved March 26, 2012 from files.shareholder.com/downloads/MAT/1748350584x0x455252/1587E36E-D23A-4783-8AC3-A3ADE3FE9A6F/2010_Mattel_Annual_Report_Bookmarked_.pdf

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White, G. (1998). Mattel will unveil plan to detect abuses. LA Times. Retrieved March 26, 2012 from http://articles.latimes.com/1998/may/06/business/fi-46747