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Kimberly Tucker, Chris Salt, Ashley Solomon Case 7: Mattel: Overcoming Marketing and Manufacturing Challenges 11/01/2010 Marketing Management 6800 Section 004

The Problem: The problem surrounding Mattel Inc., one of the worlds largest toy companies, is their mismanagement of international subcontractors and vendors and the production of certain toys (the manufacturing process), as well as their inability to adapt their marketing strategy or product to the constantly changing demographic and socioeconomic trends (Ferrell, et. all 466). This is supported by Mattels legal battle with Carter Bryant and MGA, their forced recall of certain toys that were manufactured overseas, and the increasing rate at which traditional toys are becoming less appealing to todays young audience. Essentially, Mattels mismanagement and oversight lead to violations in terms of ethical and social responsibilities and safety standards.

Issues Relevant to the Problem: Mattels problem of mismanagement can be divided into several issues that need to be considered: legal issues, international supply chain issues, and an increase in technology-based toys. In regards to legal issues, Mattel has been involved in prolonged litigation with Carter Bryant and MGA over a breach of an employment contract and copyright infringement. Due to Mattels poor management of its overseas manufacturers, in which unauthorized subcontractors and third-party suppliers were hired and unsafe materials used, several toy products were recalled. Advances in technology and changes in socioeconomic and demographic trends have created marketing, privacy, and product development issues for Mattel.

Analysis of Issues: Legal Issues: It is evident that Mattel has used poor management practices, in which their HR and Operations Departments have failed to ensure that employees adhere to confidentiality clauses in their employment contracts. The creation of MGAs line of Bratz dolls and the legal battle that ensued are a direct reflection of this practice. Since 2004, Mattel, their former employee Carter Bryant, and MGA Entertainment, Inc. have been embroiled in a bitter intellectual property battleover rights to MGAs popular Bratz dolls (Ferrell, et. all 459). Although Barbie remains one of Mattels core products, Barbies popularity has suffered over the last several years due to new and innovative competition. Unlike Mattel, this new competition, like MGAs Bratz dolls, has been able to successfully keep up with the changing lifestyles of todays youth by creating dolls that feature contemporary, ethnic designs and skimpy clothes (Ferrell, et. all 459). According to Mattel, Carter Bryant designed the Bratz dolls while he was employed with Mattel. He then left Mattel to work at MGA, which began producing Bratz in 2001 (Ferrell, et. all 459). Mattel then decided to sue Carter Bryant and MGA for engaging in fraudulent activities. Mattel and a federal jury agreed that Carter Bryant was in breach of

his employment contract when he developed the Bratz concept while working for Mattel. The jury also found MGA guilty of copyright infringement, intentional interference with contractual relations, aiding and abetting breach of fiduciary duty, and aiding and abetting breach of the duty of loyalty (http://www.msnbc.msn.com/id/26410627/). They deemed MGA and its CEO liable for what it termed intentional interference regarding Bryants contract with Mattel (Ferrell, et. all 459). In terms of copyright infringement, MGA built the popular Bratz brand to include more than 40 characters and expanded it with spin-offs such as Bratz Babyz, Bratz Petz, Bratz Boyz and items such as helmets, backpacks and bedsheets (http://www.msnbc.msn.com/id/26410627/). Due to the popularity of these highly stylized dolls among Mattels target audience of tweens, domestic sales of Barbie went down 15 percent in 2007 and 12 percent in the first quarter of 2008, while international sales increased 6 percent in 2008 as opposed to 12 percent the previous year (http://www.msnbc.msn.com/id/26410627/). Essentially, this lawsuit and the findings of this lawsuit demonstrate Mattels oversight in the management of its employees and its failure to notice the changing psychographic characteristics of its target market. International Supply Chain Issues: Because Mattel has a powerful presence on the international scene, they must be aware that the international environment often complicates business transactions (Ferrell, et. all 463). However, it is clear that Mattel did not properly manage its global manufacturing process. In 2007, Mattel was forced to recall 1.5 million Chinese-made toys containing lead paint and powerful magnets that posed a choking hazard for children (http://www.nytimes.com/2007/08/28/business/worldbusiness/28ihtmattel.4.7289869.html). These unsafe products are the result of overseas manufacturers not adhering to Mattels high ethical and safety standards, as well as Mattels negligence in investigating its international contractors and auditing the entire supply chain, including subcontractors (Ferrell, et. all 463). In fact, Mattel became overconfident about its ability to operate in China without major problems and failed to recognize that the toy recalls were more of systemic problem (http://www.nytimes.com/2007/08/28/business/worldbusiness/28ihtmattel.4.7289869.html). These oversights left room for certain violations to occur. The violations and problems began when subcontractors used unauthorized third-party suppliers. Early Light Industrial Co., a subcontractor for Mattel,subcontracted the painting of parts of Cars toys to another China-based vendor (Ferrell, et. all 462). This vendor, Hong Li Da, then decided to source paint from a nonauthorized third-party supplier: a violation of Mattels requirement to use paint supplied directly by Early Light (Ferrell, et. all 462). In order to save money and cut corners, this unauthorized supplier used paint that contained impermissible levels of lead. As outsourcing and subcontracting increased, Mattels ability to monitor the manufacturing process and the

material used to produce toys became harder. With the mounting number of subcontractors and suppliers in the supply chain, Mattel was found to be in use of illegal and harmful products, forced to recall some of its toys in the international market, and faced with a damaged reputation. Even though this incident occurred in China, and it was the Chinese governments failure to properly protect the public, Mattel was still held liable for all the products produced under its name (Ferrell, et. all 463). Essentially, ineffective enforcement and market surveillance on the part of Mattel led to the huge toy recalls. Through the mismanagement of overseas manufacturers, contractors, and the international supply chain, harmful raw materials were used in the production of Mattel toys. Codes, safety standards, and business ethics were ignored to begin with, and Mattel ended up neglecting its social and ethical responsibility to produce toys that are safe and fun for young children. Technological and Socioeconomic Issues: Over the past decade, advances in technology and changes in socioeconomic trends have created special marketing, privacy, and product development issues for Mattel. Because this companys core products are designed for children, they must be sensitive to social concerns and privacy issues regarding childrens rights (Ferrell, et. all 463). They must also effectively communicate with parents regarding its corporate marketing strategy (Ferrell, et. all 463). In order to strengthen its commitment to business ethics and inform both children and adults about its philosophy regarding Internet-based marketing tools, Mattel provides an extensive online privacy policy on its website (Ferrell, et. all 463-464). In this policy, Mattel and its family of companies ("Mattel") are committed to protecting your online privacy when visiting a website operated by us (http://corporate.mattel.com/privacy-policy.aspx). They also claim that they do not collect and keep any personal information onlineunless you volunteer it,are 13 or older, [or have the] consent of a parent or legal guardian, except in limited circumstances authorized by law and described in this policy (http://corporate.mattel.com/privacy-policy.aspx). Essentially, in order to keep up with social concerns, Mattel has had to prove their social and ethical responsibility by assuring parents that their childrens privacy will be respected (Ferrell, et. all 464). As technology advances and the lifestyles of children change, Mattel is forced to contend with the phenomenal success of gaming systems, portable music players, text messaging, and social networking sites among todays youth (Ferrell, et. all 466). In addition to the popularity of these technology-based toys, movies, music, and internet, children and teens are also more active in extracurricular activities (for example, sports, music, and volunteerism) than ever before (Ferrell, et. all 466). Thus, traditional toys, like those produced by Mattel, are becoming less appealing to young consumers. In order to keep up with these changing technological and socioeconomic trends, Mattel introduced the new line of My Scene dolls aimed at tweens (Ferrell, et. all 459). They developed this product to be trendier, look younger,be more hip for this age group who is on the cusp of outgrowing playing with dolls (Ferrell, et. all 459). Mattel even created a website (http://www.myscene.com) [to engage] girls in a variety of fun, engaging, and promotional activities (Ferrell, et. all 459). Still, technology, changing

socioeconomic trends, and privacy issues will remain pressing concerns for Mattel until they can better adapt their marketing strategy and product development to these market threats.

Viable Alternatives: In order to correct their management problems, improve their marketing strategy and product development, rectify their mistakes andprevent future mistakes as well, Mattel has worked to shore up their ethical defenses to protect both itself and its customers (Ferrell, et. all 466). They have moved to enforce a rule that subcontractors cannot hire suppliers two or three tiers down the supply chain, and have even spent more than 50,000 hours investigating its vendors and testing its toys (Ferrell, et. all 463). Mattel has also taken a strong stand on social responsibility, human rights, product safety, and ethical standards by auditing each of its manufacturing sites as well as the facilities of its primary contractors and establishing the Mattel Independent Monitoring Council (Ferrell, et. all 464). However, there are several other courses of actions Mattel can take in order to remedy their management and socioeconomic issues. Mattels problems have resulted from ineffective management in the legal realm and with the international manufacturing process, as well as from their inability to adapt to the changing technological and socioeconomic trends. Thus, some potential solutions might include hosting training seminars on production and safety standards, employing internal auditors, and developing technology-based toys.

Analysis of Alternatives: Training: One solution to Mattels problem of ineffective management is for Mattel to require all of their executives and employees to attend training sessions on production and safety standards. Because some of Mattels contractors were found to be in violation of Mattels safety & human rights standards, they currently conduct an independent monitoring audit in manufacturing facilities every three years. If Mattel required their contractors to attend training seminars based on upholding safety standards, adopting a safe production process, and complying with state and federal regulations for their toys, they could reduce the number of violations during the manufacturing process. These training sessions would also increase Mattels employees awareness of the importance of upholding safety and human rights standards. During these sessions and workshops, employees will be tested on legal regulations regarding safety and production standards. These training seminars should be held regularly and should not be discontinued for any reason. Although contractors may remain in compliance with regulations, they should still be reminded of their importance regularly. In the short run, this solution could be somewhat expensive for Mattel because they would have to hire educated and licensed

trainers and make arrangements for both the educators and employees. Also, if Mattel fell into financial difficulties, these training sessions would be the first to go. However, the long-term effect of imparting knowledge that will stay with the employees outweighs the short-term effects. Internal Auditors: By adopting internal auditing practices, Mattel management will be able to learn new techniques for detecting problems, as well as increase their awareness of potential problems. With this, the company would be able to avoid its negligence in the inspection of the international manufacturing process, prevent losses due to fines and litigation, and remain in compliance with toy regulations and standards. In order to keep track of the intricacy of Mattels operations, the internal auditors can implement monitoring techniques. The auditors will be responsible for monitoring managements decision making process, operating choices, subcontractors, and the entire supply chain. They will also be accountable for keeping track of the complexity of these operations and processes. By employing internal auditors, Mattel will be able to measure the accountability of each manager, as opposed to blaming subcontractors for things such as the recall of toys. While potential short term affects could be the cost involved in employing auditors and the resentment of Mattel executives and employees; in the long run, knowing that their work would be inspected on a regular basis could motivate employees to stay focused on upholding the companys high standards and responsibilities. Technology-based Products: A third solution to the problem surrounding Mattel is for the company to focus on the development of technology based toys. By expanding their My Scene and Barbie brands in order to contend with the ever increasing role of technology in consumer products, Mattel would be able to keep up with new competition, advancements in technology, and the shifting lifestyle trends of their target audience (Ferrell, et. all 466). A My Scene movie would center on the My Scene girls living the average life of high school girls. Barbie has appealed to younger girls because her movies have focused on imaginary incarnations of Barbie, like Barbie mermaid. With My Scene movies, the story would focus on certain aspects of an average girls life, which involves fashion, concerts, shopping, and pop culture references. So much of our world is online these days. This move to the online world has resulted in the decrease of Barbie doll sales because much of Barbie's target market has developed a taste for online interaction instead of playing traditional toys like dolls. To counter this recent market trend, the Barbie and My Scene dolls should build a unique

and fun online experience for its target audience. For the My Scene brand, a whole online social world should be created. In this world, girls can log on and make their own My Scene girl that they can then use in the My Scene world to interact with other girls. There would be places to play games, go shopping for clothes for your My Scene character, design the interior of you own apartment, and invite other My Scene players to parties at your place. Expanding the My Scene and Barbie brands will increase Mattel's technological offerings to satisfy the ever growing technology-based toy trend. This solution could be costly in terms of research, development, and testing. However, in the long run, Mattel would be able to better compete with new and innovative competition in this technologically advanced and changing socioeconomic world.

SWOT Analysis: Internal Strengths Mattels core brands are instantly recognizable Barbie is the #1 doll in the U.S.A. Brand leveraging is high Dominance in the international market External Opportunities Growth potential with technology-based toys, especially in international markets Development of an online social network Expand Barbie and My Scene brands to include sports gear, fashion lines, music, and movies Threats Increasing global competition Increasing domestic competition Volatile oil prices International laws and ethics Lifestyle changes of target audience Rate of children growing up Role of technology in products Purchasing power and consumer needs in global markets

Weaknesses Inefficient management Reliance on Wal-Mart and Target Reliance on traditional toys

An internal analysis of Mattel Inc. brings to light the companys strengths and weaknesses. Their strengths center on their core brands being instantly recognizable. Since 1960, Mattel has become the worlds largest toy company in terms of revenue (Ferrell, et. all 457). Today, Mattel Inc. is a world leader in the design, manufacture, and marketing of family products (Ferrell, et. all 457). This family toy companys core brands are Barbie, Fisher-Price, American Girl, and Hotwheels. These brands are instantly recognizable, and Barbie is even acknowledged as the number one doll in the United States. Since its inception in 1959, the Barbie doll has become one of Mattels core products. Today, Barbie still remains the flagship brand and number one seller

of Mattel (Ferrell, et. all 458). With the acquisition of Pleasant Company, maker of the American Girl collection, Mattel was able to realize its long-term strategy of reducing reliance on traditional products and[taking] away the stigma surrounding the perfect image of Barbie (Ferrell, et. all 460). Since its acquisition in 1993, Fisher-Price has become the umbrella brand for all of Mattels infant and preschool lines (Ferrell, et. all 461). This brand has even built a trust with parents by creating products that are educational, safe, and useful (Ferrell, et. all 461). Due to these brands being instantly recognizable, Mattel has the power to leverage their brands. Known as brand leveraging, this strategy allows Mattel to use an existing brand to support the companys entrance into a new product category. Mattel was able to do this in their creation of the My Scene dolls. Besides these brands, Mattels strength also lies in their international presence. They are an international power with offices in 36 countries[and] products in more than 150 nations (Ferrell, et. all 457). In terms of weaknesses, Mattel has to contend with inefficient management. They also rely too heavily on the production of traditional toys and have not yet delved into the development of technology-based toys. An external analysis of the company reveals Mattels opportunities and threats. There are many threats that Mattel has to face. They are confronted with increasing global and domestic competition, financial problems that include volatile oil prices, international laws and ethics, the lifestyle changes of their target audience, the role of technology in todays products, and the purchasing power and consumer needs in global markets. However, Mattel does have a valuable opportunity in terms of developing technology-based products.

Decision: After considering the benefits, strengths, and weaknesses of each viable solution, we think the best option for Mattel is to employ internal auditors. This solution, while potentially expensive to implement, will be cost-efficient in the long run due to the fact that Mattel will no longer be involved in legal battles because the auditors will monitor the companys employees to ensure that they adhere to correct safety standards, discontinues the unauthorized use of subcontractors, and develop safe products. This solution will also allow Mattel to improve its product design and supervision over product quality, which has been identified as part of Mattels problem in the first place (Ferrell, et. all 462).

Implementation of Plan: In order for the internal auditors to be a success and produce the desired outcomes for Mattel, there are several aspects to consider in implementing this plan. First, the manufacturing process, as well as the manufacturers themselves, must be audited on a regular basis. Employees must be required to comply with the auditors. In order for the auditing to occur on a monthly or quarterly basis, an adequate budget will be established. Auditors taken from the Human Resources Department and Operations Management Department will be put in charge of monitoring the domestic and international supply

chain, the manufacturing process, the quality of the products, and the compliance of employees with the companys high safety and ethical standards. At the end of the auditing process, an audit report must also be produced and presented to Mattels management. This report should also be published on their website so their customers will have access to Mattels conclusions about the safety of their toys, the production process, and the integrity of their employees and subcontractors.

Works Cited Ferrell, O. C., and Michael D. Hartline. Marketing Strategy. 5th ed. Mason, OH: Thomson South-Western Cengage Learning, 2008. Print. Mattel awarded $100 million in Bratz lawsuit. msnbc.com. Associated Press U.S. Business, Web. Fri. 29 Oct. 2010. <http://www.msnbc.msn.com/id/26410627/>. Story, Louise. Mattel Shifts into Crisis Mode after Quality Problems. Nytimes.com. The New York Times, 28 Aug. 2007. Web. 29 Oct. 2010. <http://www.nytimes.com/2007/08/28/business/worldbusiness/28ihtmattel.4.7289869.html>. Mattel Privacy Policy. Mattel Inc. Web. 29 Oct. 2010. <http://corporate.mattel.com/privacypolicy.aspx>.