On August 22, 1996, Jill Barad was named the new chief executive officer (CEO) of
Mattel. At 45 years of age, she had become of the youngest women to head a major U.
S. corporation. For Barad, the announcement was the fulfillment of a fifteen-year career
at Mattel during which she was best known for transforming Mattel’s flagging line of
Barbie dolls into the most profitable toy brand in the world. As product manager for
Barbie, she had pioneered a brand extension strategy that had tripled Barbie sales to
$1.4 billion between 1988 and 1995. In the process, she had gain a reputation for being
a hard-driving manager and skilled marketing visionary. As CEO, one of Barad’s first
tasks was to decide on a strategy that would enable Mattel to grow earnings per share
in line with the company’s stated goal of 15% per annum.
Mattel is the world’s largest toy-maker, with 1995 revenues of $3.64 billion. The
company’s strengths lie in its Barbie brand; its Fisher-Price line of toys for young
children, which generated 1995 revenues of more than $1 billion; the Hot Wheels
brand; and its Disney licenses. Negotiated in 1988, the Disney licenses give Mattel
exclusive rights to make products based on Disney’s movies for kids. In 1995 Mattel
earned revenues of $450 million from its Disney collection alone. Between 1988 and
1995 these four core product areas helped power Mattel to a compound annual growth
rate of 20% for sales and 38% for operating income. In total, Mattel commands about
16% of the market share for toys sold in the U. S., although its share in Europe, the
other great toy market, is less than 8%.
Despite Mattel’s glittering past and Jill Barad’s own starring role in it, many
knowledgeable observers of the toy industry believe that the company’s goal of 15%
growth in earnings represents a difficult challenge for the new CEO. Barad takes over
the top spot at a time when Mattel’s growth rate appears to be slowing. In June 1996
Mattel reported that sales for its most recent quarter would be “approximately the same
as last year,” making the first-time quarterly results had been flat in eight years. To be
sure, part of the slowdown was due to lackluster sales of its toys based on Disney’s
latest film, The Hunchback of Notre Dame. Although this shortfall could easily be made
up by a strong showing from toys linked to future Disney films, critics charge that the
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toy industry in general seems to be suffering from a chronic lack of creativity. Of the
fifteen top-selling toys in 1996, only three were toy company inventions that originated
within the last year. Mattel is very much a case in point. The Barbie brand has been
around since 1959; Hot Wheel and Fisher-Price were acquired rather than developed
internally; while the creative minds behind the Disney line of toys clearly lie with that
company, not Mattel.
Of course, it can be argued that given the fickle nature of the toy business, in which last
year’s mega-hit can become this year’s bust (remember Cabbage Patch Kids?), Mattel
is right to focus on established and enduring brands. However, by emphasizing
established brands over innovation, Mattel runs the risk of missing out on successful
new blockbusters. That’s what happened with video games. Having given up after some
early forays into video games, Mattel watched Nintendo and Sega take that business
from zero to $6 billion in sales.
So, what strategy will Barad pursue in order to attain the goal of 15% growth in earning?
The early signs are that her strategy for Mattel will have four main elements. First, she
has made it clear that she intends to continue with the highly profitable practice of
extending the company’s existing brands. For example, she has plans to develop a line
of collectable Barbies. Second, she intends to develop new product categories,
particularly in boys’ toys and board games, two areas in which Mattel has traditionally
been weak. This can be accomplished either by developing the toys in-house or by
acquiring existing company and then growing its business through further investment.
Third, she intends to focus more efforts on expanding sales in overseas market, where
Mattel’s presence is more limited than in the U.S. her goal is to increase overseas sales
to more than 50% of Mattel’s total, up from 40% today. Finally, she will try to increase
earnings by driving down costs. Cost reductions will be achieved by moving production
to low-cost foreign factories in places such as China and Thailand. This will represent
a major shift for Mattel, which currently manufactures two-thirds of its core product
lines in its own plants.
University of Sharjah Strategic Management
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Case Questions:
1. What are the strengths and weaknesses of Mattel?
2. What is Mattel’s major goal/objective?
3. Has Mattel managed to build and sustain competitive advantage? Justify your
answer.
4. Identify the key elements of Mattel’s strategy on how the company can achieve its
goal(s)/objective(s).
