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Surprise is what business schools teach you to avoid. Mattel's research .showed Barbie sales falling as girls sought a cooler doll. But Mattel misjudged how, and how fast, to move. Learn from Mattel's mistakes in gathering— and acting o n - competitive intelligence.
BY KIM S. NASH AND MELDUVALL
S E C T I O N
MATTEL BASE CA. Headquarters: 333 Continental Blvd,, El Segundo, CA 90245 Phone:(310)252-2000 Business: Makes and markets toys, including Barbie, Hot Wheels and Fisher-Price products. Chief Executive Officer: Robert Eckert Financials in 2004: S5.1 biliion in sates; $573 million in profits; net profit margin of 11%, Challenge: To maintain Barbie's place as the top-selling fashion doll in the world, and a cash cow for Mattel, amid an onslaught of doll challengers, BASELINE GOALS:
Generate 50% of sales outside the U,S,, up from 42% last year Cut overhead costs as a percentage of sales to between 17% and 18%, down from 20% last year. Increase operating margin as a percentage of sales to 20%, up from 14% last year. Continue to decrease reliance on Wal-Mart, Toys R Us and Target, which combined accounted for 46% of sales last year, down from 50% in 2002, in favor of smaller retaifers and online sales.
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No blonde hair, sugary smile or impossible figure, which for four decades had defined Mattel's iconic Barbie doll. Girls who wanted attitude and ethnicity, not pert and pale, bought $20 million worth of Bratz dolls in the first six months they were out, and the doll line went on to win the People's Choice Toy ofthe Year award from the Toy Industry Association.
MGA had hit a coveted demographic—girls age 6 to 12— dead-on.
And yet, Mattel was uncharacteristically sluggish in response. It would be a full 14 months before Mattel came out with a Barbie offshoot, the My Scene dolls, that featured the right mix of vivid makeup and edgy clothes that young girls now craved.
The gap was long enough for Bratz to get a platform- booted foot in the door and stay there. Unlike doll makers before it, MGA was able to seize, and keep, market share.
Woridwide sales of Bratz reached S700 million last vear —growing more than 45% over the previous 12 months, while Barbie has stagnated at the same S1.5 billion level since MGA introduced Bratz four years ago. Barbie's share of the fashion doll market has shrunk from 75% in 2000 to roughly 6Q% today, says Sean McGowan, a financial analyst at Harris Nesbitt Gerard in New York.
Today, new rivals—Janay and Friends from Integrity Toys, Girls on the Go from Tolly Tots, and the Princess line from Disney—are are all crowding into the doll aisle.
"It's a business that's more up for grabs than ever before," says Nancy Zwiers, who led worldwide marketing for Barbie for five years, "Now that Bratz has made inroads, it's become
apparent to other companies that they can, too," Mattel had the means to see it ail coming. Yet it was still
caught off guard. The toymaker has a world class corporate intelligence
system that consists of teams of research scientists who manipulate internal and third-party data with statistical analysis and business intelligence software,
Pre-Bratz, they studied point of sale numbers from Wal- Mart and other key retailers that showed zigzagging sales for Barbie, The company also had "psychographic" data about how girls of different ages play, drawn from Mattel's private focus groups and observations at its own Child Test Center. That data suggested, for instance, that older girls— age 8 to 12, known to marketers as "tweens"—were losing interest in traditional Barbie, attracted instead to pop stars in heavy makeup and trendy clothes.
Identifying threats eariy is the goal of a good business intelligence program. But intelligence is only part of the equation, says George Day, a marketing professor at tbe University of Pennsylvania's Wharton School who has studied several industry giants that have missed cues from the marketplace and subsequently suffered. You need sys- tems—human and technological—to interpret data, and then you need the wherewithal to act on it.
And that is where Mattel stumbled, according to con- sultants, such as Day, and several former Mattel managers, including Bruce Stein, who was chief operating officer and president of Mattel Worldwide from 1997 to 1999. 'Iwo fac- tors blunted Mattel's reaction, they say: internal challenges that distracted management, and the company's disinclina-
tion to change its key product. Mattel declined requests for interviews, citing busy executive schedules.
Mattel did take tentative steps in 1999 and 2000 to address twccns' changing tastes with dolls such as Diva Starz, but the moves didn't click. Diva Starz' bright facial features and hipper clothing, for instance, stopped short ofthe new provocative styles being blasted on TV and in magazines.
Mattel, says Jim Silver, an advisor to the Toy Industry Association, a trade group, didn't act swiftly and forcetijlly enough to insulate its cash cow. The company, he says, "thought [Bratz] would come and go," just another challenger without endurance. In 1991, for example, Mattel heat I lasbro's blonde, busty Miss America doll by introducing its own American Beauty Queen Barhie. Likewise, Tyco Toys' Little Mermaid doll initially skyrocketed but eventually drowned under a wave of mermaid Barbies from Mattel.
Now, Mattel finds itself fully engaged in a no-holds- barred attempt to outmarket Bratz, incite new doll mer- chandising trends and keep Barbie on her throne. Mattel says it won't let up.
It can't. Last year. Barbie, a perennial top seller, accounted for
30% of Mattel's S5.1 billion in sales and an estimated 40% of its $573 million profit. In the past 30 years, the Barbie product line has produced approximately $24 billion in sales.
When Barhie is at risk, Mattel is at risk- "This is what happens when you get blindsided,"
Day says. The Mattel-MGA battle holds lessons for any company
trying to create an effective market intelligence system. Any company can develop accurate research and sophisticated technology to manipulate it. Stein points out: "The key is in how data is interpreted and, secondly, management's will- ingness to respond to it."
FEMALE INTUITION Well before the Bratz came hip-hop- ping along, Mattel, and the toy industry in general, had spotted a phenomenon called "age compression," The most recentgcnerations ot children are outgrowing traditional toys sooner. Not so long ago, girls up to age 12 played with Barbies. By 2000, tween girls were a generation weaned on Britney Spears gyrating on M TV in a schoolgirl unifortn and crowned her their own pop icon.
For growing-up-in-a-hurry tastes. Barbie had become a haby toy; Mattel understood that older girls were losing interest in its flagship doll —and that even little girls 6 and 7 years old were influenced hy their hig sisters.
But starting in 2000, Mattel was focusing on a set of business challenges that included a transition at the top. Former Kraft Foods chief executive Robert Eckert arrived as its new chief executive, replacing Jill Barad, who as CEO had pushed Barbie into new venues such as CD-ROMs, dig- ital cameras and even NASCAR with a car-racing Barhie doll.
The company also was wrestling with the Barad-led acquisition of educational software maker The Learning Co., a deal blamed for Mattel's S431 million loss in 2000.
Figuring out how to regain profitability topped Eckert's to-do list.
"Mattel was vulnerable," says Ronald Goodstein, asso- ciate professor of marketing at Georgetown University in Washington D.C, and a consultant for Mattel in the mid-
Robert Eckert Chairman and Chief Executive officer
Matthew Bousquette President Mattel Brands Bousquette is Barbie's real- life Ken, ultimately responsi- ble for figuring out how to protect her against the Bratz attack, Bousquette has intro- duced a new line of My Scene Barbie American Idol dolls, signed tie-ins with teen star Lindsay Lohan, and cre- ated a new Barbie Live in Fairytopia stage show to regain Barbie's glitz,
Thomas Debrowski Executive vice President, worldwide operations Debrowski IS responsible for reducing the time it takes to move a new Barbie doll, such as My Scene Lindsay Lohan, from the design stage to Wal- Mart's shelves, Debrowski was a colleague of Eckert at Kraft Foods, where he worked for 20 years.
Bob Normile Senior Vice President and General counsel Normile is leading Mattel's efforts to try to crush Bratz maker MGA Entertainment in the courts, in April, Mattel filed a suit against Carter Bryant, a former Mattel designer, argu- ing that he essentially stole the company's intellectual property while still working at Mattel, Bryant's lawyer denies that's the case,
"" '̂'nh Fckroth Chief Information Officer New Century Financial Corp. Eckroth, Mattel's former CIO, was new CEO Eckert's first hire, joining the company in August 2000 from GE Medical Systems, where he was CIO. Eckroth dumped
Eckert joined Matte! in May 2000 after a 23-year career at Kraft Foods, where he rose to the chief executive's position. He was charged with trying to rescue the company from a disastrous decision to purchase The Learning Co, in May 1999 for $3,5 bii- lion, and to reinvigorate the all-important Barbie brand. Former executives say Mattel had the com- petitive intelligence to know girls were looking for a doll with more atti- tude than Barbie, but Eckert and Mattel failed to react quickly, Eckert is still struggling to rekindle Barbie's glow,
many of the company's cus- tom-built applications in favor of packaged software, such as business intelligence tools from Cognos and Hyperion Software, The underlying goal was to speed the company's decision-making processes. He left the company in June,
Bruce stein Co-Founder The Hatchery Stein was second-in-com- mand to former Mattel chief executive Jill Barad, until he left the company In a manage- ment shakeup in March 1999. Stein says there was reluc- tance within the company to mess with the Barbie fran- chise, and that may have pre- vented Mattel from creating a Bratz-like product of its own.
Ivy Ross Executive vice President, Product Design and Development Gap Inc. Ross, Mattel's senior vice president of worldwide girls design until January 2004, is credited with helping Mattel establish an innovative prod- uct development process— an idea lab across from Mattel's El Segundo, Calif,, headquarters. The lab creat- ed ello, a construction set aimed at the Barbie crowd,
Patricia Lewis Adjunct Professor, Kogod Schooi of Business Amehcan university Lewis has experienced the Mattel marketing machine from both sides—as director of marketing for Barbie in the 1980s, and as head of market- ing for Tyco's Little Mermaid dolls. She saw early signals that some girls wanted an edgier Barbie, but back then the yearning wasn't so seri- ous. Barbie continued to rule.
1990s about best practices in product branding. And the best time for a rival to strike with a new product, he adds, is when a company is iooldng inward.
But former COO Stein says that even if Mattel executives
d mk lid
had focused on the intelligence that Barbie was vulnerable and sounded a red alert, the company's instinct not to mess with the "hallowed ground" that was the highly profitable Barbie line would have muted the response.
Although Mattel was willing to add accessories and appendages—even a fish tail in 1992 to brush back Tyco's Little Mermaid—remaking Barbie with heavy makeup and urban-chic outfits would have run up against years of policy not to break the moid. "The culture of protecting Barbie within Mattel is in their basic DNA," Stein says.
Yet that reluctance to disturb Barbie—even with hard evidence of a market shift—coupled with the internal dis- tractions, left the product line, and by extension Mattel itself, exposed.
In any industry that experiences tectonic shifts, it's rare to see companies react to the early warning signs, even though they're generally visible, says Wharton professor Day, who has studied missteps at Mattel, Monsanto and other industry giants. Long-running success makes managers at large companies near-sighted, he says. Focused on a mainstay product, they tend to ignore fresh information that diverges from their accepted norm in three basic areas: marketplace trends, the interests of target consumers, and threats from competitors. For example:
• Monsanto, a leader in plant biotechnology, failed to recognize a shift in marketplace mind-set in the late 1990s. Genetically modified crops like canola and variations of corn and soy- beans were promoted as healthier than natural versions because of built-in benefits such as reduced saturated fat. Farmers liked them tor their biocngincered protection against pests. But when a British scientist said in 1998 that genetically modified potatoes lowered the immune system responses of rats, other medical authorities chimed in with concerns about altered crops —and there soon followed a firestorm of protests and European government edicts against so-called "Frankenfoods." Investors panicked. Monsanto's stock price lost 20% through 1999. The then- S9.1 billion Monsanto was pushed into a merger with Pharmacia Corp., largely for the value of its pharmaceutical products.
• Blockbuster, the ubiquitous S6 biliion movie-rentai ctiain, watched as Nctflix, an online movie-rental company, grabbed 2.6 million customers in six years by eliminating late fees and offering convenient service through the mail.
Cornered, Blockbuster in January decided to drop its late fees—worth at least $400 million in revenue. Still, Blockbuster said in financial documents that it had no choice other than "to eliminate the most prevalent cus-
tomer complaints ... and combat our com- petitors' use of this concept."
• Microsoft, despite having a track record of spot- ting and eliminating up-and-coming competitors, such as WordPerfect and Novell, didn't see Netscape Communications coming with its Web browser in 1994, It took Microsoft 10 months to release its own browser— and even then, it was built on a product licensed from another company. Microsoft eventually clobbered Netscape, but the upstart's early, unexpected success forced
~— Microsoft to revamp its core products, incorpo- rating Internet features into every one of them.
The list goes on, but Mattel didn't have to be on it.
BARBIE LETS DOWN HER GUARD Since its inception in 1945, Mattel has been collecting market intelligence in some form. While systems and procedures have been upgraded, refined and enhanced, the basics have remained the same.
Mattel's market research department mixes and analyzes data that comes fi"om the company's own financial and inven- tory systems, plus outside trend and demographic informa- tion from at least five market research firms, including ACNielsen; anecdotal research from focus groups; statistics trom large consumer surveys; studies of children's play pat- terns; and sales figures from Wal-Mart and other giants.
Mattel also continuously collects aggregate sales at hun- dreds of smaller retailers from market researcher NPD Group, which gathers monthly sales figures on Mattel's 107 product lines from store owners across the U.S. and Canada.
Mattel seeds its Oracle and IBM DB2 databases with data on units sold, models, prices and dates, and analyzes past and present sales patterns by brand, geography and other categories —all to help forecast the fiiturc.
Analysts at Mattel can run database queries to spot sales trends and conduct profit-and-loss studies by product. Marketing managers like to measure the effectiveness ofTV
commercials by looking at store-level sales data before
and after an ad campaign begins, says Jennifer
Caveza, a former marketing brand manager for Mattel's Fisher-Price division.
The numbers also arc analyzed in light of observational data from outside researchers and Mattel's own scientists, including "mall intercept" interviews with girls and anec- dotes about the competition collected from Mattei's field sales agents, who chat up buyers at the big retail chains.
Employees up and down the Mattel hierarchy are expected to coiiect and discuss inteiligence, using e-mailed updates, text reports filed at private Web sites, and monthly meetings among brand marketers, market researchers, sales managers and product designers.
Even the part-timers Mattel hires in the busy fall season to drive trom store to store to set up merchandise and ensure
PROJECT PLANNER HOW TO CALCULATE THE COST OF A COMPETITIVE INTELUGENCE SYSTEM (SEE FOLbOUti.
that stores are giving Mattel its negotiated shelf space file daily reports to headquarters on what they find, via a secured
Weh site. CKO Eckert himself visits toy stores to eyehall inventory levels of competing products.
Meanwhile, senior consumer research analysts with MBA degrees conduct focus groups and interviews with girls, and
then speak as the "voice of the consumer" in presentations to senior managers in the consumer research department.
Senior associates in the company's corporate strategic plan- ning group —positions that require not just MBAs but Ivy
League MBAs —assess competitors to determine whether to try to beat them or buy them out. These senior associates, according to job descriptions at Mattel's Web site, also track
market shifts in toy categories such as fashion dolls, baby dolls and ride-on vehicles to improve brand sales and profits,
and regularly prepare material for Eckert, chief financial officer Kevin Farr and senior vice presidents.
One source of valuable hands-on information is visits by
Mattel researchers to children's homes (with parents' OK, of course) to observe and understand play patterns.
For example, if researchers see Barbie dolls displayed on a shelf above a girl's dresser, even if the girls like them, it's an
indication they don't play with them regularly. They may even be forgotten, says Zwiers, the former Barbie marketing exec-
utive, who founded Funosophy, a toy-brand consulting firm in Long Beach, Calif, after leaving Mattel in 1999.
It's more encouraging to see dolls lying on a pillow on the bed, which indicates they are loved and held. Similarly,
dolls seen on the floor next to a box of doll clothes indicates active play Seeing what else is in the room also tells a story Mattel doesn't want to fmd Barbie on the closet fioor and
Sasha and Yasmin Bratz on the pillow, "Having girls teli you in their own words what they have
on their bed and why, and what they have stuffed away in
c/^tMig£iiC£ O u t r^mi lival firms aren't the only force that can take your company lart.
movements, societal pressures, economic shifts and technotogy breakthroughs can sneak up to derail even a longtime market dominator, according to George Day, a marketing profes- sor at the University of Pennsylvania's Wharton School,
companies that have ruled their markets for years are espe- cially at risk for overlooking "peripheral" forces that change the familiar landscape, says Day, who co-wrote a forthcoming Haivard Business Review article, "Scanning the Periphery,"
For example, Anheuser-Busch, SABMiller Brewing and Molson Coors initially missed the growing popularity of microbrews. In 1984, beer drinkers sucked up small-batch beers from Samuel Adams in Boston, Pyramid Breweries in Seattle and dozens of others in between. The big brewers didn't realize that 1980s narcissism was a societal trend that would touch their business: Beer drinkers in the all-about-me decade wanted a beverage as distinctive as they thought they were.
When the number of microbreweries jumped from fewer than 50 in 1980 to 764 by 1996, the mass producers had to respond. They bought stakes in small brewers or acquired them outright, Anheuser-Busch, for example, paid $18 million in 1994 for 25% of Redhook. Independent brewers continue to appear, with an esti- mated 1,400 in business today
Toyota and Honda, on the other hand, skillfully considered how U,S, environmental politics would touch them. The Japanese automakers picked up on consumers' increasing interest in fuel-efficient hybrid cars, even before the Iraq war. Because they pushed ahead building their Toyota Prius and Honda Insight gas-electric cars, which get 60 miles per gallon, they were ready when car buyers en masse wanted hybrids. General Motors and Ford, meanwhile, continued making gas-gulping sport-utility vehicles, in May, Standard & Poor's said sinking SUV sales helped convince it to downgrade the bonds of GM and Ford to "junk" status.
As Day explains, "scanning the periphery" for growing threats means actively looking for bad news—such as early backlash
against once-popular SUVs on Web sites such as idontcare- aboutair.com—and then bringing it back to managers who may not want to hear it.
One way to pick up on this intelligence is to designate an executive to "collect the paranoia," he advises. That person must be senior enough to be able to see the impact of controversial information and appraise it properly At chipmaker Intel Corp,, it was Andy Grove, "It takes a particular kind of curious leadership and processes and systems to be able to make sense of streams of incoming data," he says. In the 1980s, Grove heard and saw that Japanese chip companies were swarming into memory chips and decided to shift Intel into computer microprocessors, where it eventually ruled the market.
Day also suggests that companies mount scouting parties of two or three people from different departments to focus on one question. An example: "What's the worst thing that could happen to our new product line this year?" Draw up a list, then go out and look for signs of those things happening. And then, after envisioning the worst, fantasize about the best.
For example, in the 1970s, Day says, scientists at AT&T's Bell Labs pretended the phone system was wrecked and that they had to build a new one. What wild features and functions would they put into it? Voice mail and voice-activated commands, among many ideas, according to Day, Although the then-industry giant didn't know how to add them into its phone system imme- diately, those concepts became ideal design points for future projects. Today, we take them for granted.
Another technique: Look at the same data in new ways. Rather than market share, a consumer products company might delve into "wallet share," Mattel's Barbie may still be the No, 1 fashion doti in terms of worldwide market share. But wallet share showed that girls are spending increasing amounts of money on music CDs, hip-hugging jeans and karaoke sets—indicating that Barbie's traditional customers are no longer dreaming about princesses, but about becoming stars on Amehcan Idol. That intelligence could be exploited to develop new products like American Idol Barbie, which Mattel did this year. —K.S,N, AND M,D.
Mattel uses a wide range of business intelligence tools and services to understand and guide the Barbie franchise. APPLICATION
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their toy box and why, can be so much more revealing than asking a lot of canned questions," she says.
Mattel can record such observations in content analysis software, like Nvivo from QSR International of Australia, which scans for keywords, analyzes their context and weights them for importance. For example, each toy identified in an intet^-iew can become a data point, as can the order in which a girl names her favorites. Analyze enough of those inter- views, and a toy company can see what girls think of its own and its competitors' products.
Alattel recently has added to its mix business-analysis prod- ucts from Hyperion Software, Business Objects and otbers. Analysts use these products to answer questions about a data set, such as "How many Cali Girl Barbies did we sell in the first nine months of last year, and how does that compare to the sales level we're ramping so far this year?" 'ITie products also can be used to produce executive "dashboards" that distill current data on sales, profitability, operating costs and other metrics to produce color-coded reports and alerts for senior managers.
Finally, Mattel casts a wide net to understand the overall marketplace, so it can determine how societal trends, such as i2-year-olds downloading music, might affect Barbie sales. (Say, should Mattel approach Apple Computer about an iPod cross-licensing deal?)
Mattel works with ACNielsen to track TV viewing habits but also consumption of other media. For example, ACNielsen monitors magazine readership statistics and Internet traffic to better understand what girls do when they're not buying toys. Its NetRatings Internet analysis service functions a bit like its TV ratings service. Families volunteer to have their online activities tracked and recorded. When a member of a Nielsen family sits down at the computer, a screen displays the names of members of the household. If 8-year-oId Ariana clicks on her name, NetRatings, with parental permission, tracks wher- ever she goes online using software installed on the machine.
"We'll tell them, 'Here are the most popular shows for 8 year-old girls, here's where they're going online, here's what they're reading and here's where you should spend your advertising dollars,'" says Corey Jeffery, a senior analyst at Nielsen/NetRatings.
In response to the popularity of the American Idol TV show and Web site among older girls, Mattel launched American Idol Barbie in January.
The company also uses software tools from Cognos, SAS Institute and SPSS to mix and match internal findings with outside market or economic statistics.
Using Cognos analytic tools, for example, Mattel can track the income level of families that buy traditional Barbie prod- ucts or newer My Scene dolls by triangulating point-of-sale data from different stores, such as Sears or Target or KR Toys, with L.S. Census data on household incomes by ZIP code. It can also determine, say, whether Internet traffic by geo- graphical region is a leading or lagging indicator of sales for Barbie. If click counts at Barbie.com's American Idol section soar in California in September, but show no similar spikes in Florida, Mattel has a strong indication of where it needs American Idol products on shelves and where to punch up marketing before the holiday shopping season.
Wtth statistics tools from SAS and SPSS, Mattel's consumer research managers use regression analysis—modeling what-if scenarios by figuring out the relationships among variables such as disposable income, retail locations, weekly sales trends, price fluctuations for the soft plastic of which Barbie is made in Indonesian factories — to get a sense of fiiture trends. One kind of question: "IfWal-Mart will allow My Scene dolls 12 feet more shelf space in half of its 3,000 stores and we run a $3-ofif con- sumer coupon in Nickelodeon magazine, how many points of market share could we steal back from Bratz next quarter?"
The combined intelligence —numerical, observational and aggregated information, from both outside research firms and Mattel itself—helps Mattel's strategic planning group fill in what Mattel Brands president Matthew Bousquette calls a "pyramid" of products aimed at girls of different ages and tastes. Fairytopia Barbies, for instance, include dolls dressed as fairies with light-up wings for little girls, and $1, bottles of eau de toilette created by perfumer partner Puig Beauty and Fashion Group, for older girls.
To get a feel for the future, Mattel designers create sketches and foam-core prototypes to show to prospective customers of different ages. Researchers then …