by Tiffani Bova
For that reason, Mattel quickly engaged in several Partnerships in China, in hopes of gaining greater market penetration. In particular, Mattel struck a deal with Chinese e-commerce giant Alibaba. With its (in-country) reach, it could give Mattel the momentum it needed. Along with Alibaba, Mattel teamed with two other companies specializing in child development: Fosun Group, to create play clubs and child-focused learning centers, and Babytree, to sell interactive learning products based on its Fisher-Price toys as well as to develop online parenting platforms to leverage China’s preoccupation with education. The goal was to get Chinese consumers acquainted with, and excited about, the Fisher-Price brand.
All three of these partnerships marked a significant shift for Mattel. Remember, what got you here might not get you there. Its new strategy reflected an acknowledgment of the fact that “one size does not fit all”—especially in China, where one in every five customers prefers to shop for toys online rather than in “hypermarkets” and toy stores. Mattel was doing whatever it felt was going to provide it a better outcome than its first attempt into China back in 2002.
At that time, Mattel began selling Barbie dolls in regional stores and later introduced Ling, a Barbie with black hair and traditional Chinese attire (Customer and Product Diversification). Once in country, it then made an aggressive (Market Acceleration) push to expand further in 2009 by launching a thirty-six-thousand-square-foot “House of Barbie” store in Shanghai, the world’s largest at the time. The decision to open a store with existing toys was a mismatch against the existing market context (what customers wanted and expected). Unfortunately, it failed to gain traction and was closed two years later due to high costs and low sales. The setback proved that Chinese customers preferred tailor-made products and that their buying decisions were not always price driven.
A NEW LOOK
What makes this growth stall worse was that the decline Mattel was experiencing wasn’t just in its bedrock Barbie line but across its other product lines, including American Girl dolls, Fisher-Price, and Power Wheels. That meant that it couldn’t use one product family to hold the fort while the others turned around—it had to come up with a new strategy, and now.
The Chinese market was only part of Mattel’s turnaround strategy and the company also planned to put into play its flagship product, Barbie, with a change of look. In the age of social media and an increasing interest in diversity and inclusion, the blond bombshell look of traditional Barbie looked increasingly anachronistic.
Mattel had recognized this change in market context as early as 2000, even as it was expanding into China and introducing Ling, but it had been very conservative beyond that in its response. Now the company was prepared to go all in: new bodies for its dolls—petite, tall, and curvy—and a wide range of races and clothing styles. Mattel has even pushed the envelope on Barbie career dolls with a president, a doctor, a teacher, and a game developer to raise awareness of STEM (science, technology, engineering, and math) for girls.
It was a massive risk for Mattel, because to many people, Barbie is more than just a doll, she is part of the American culture. The brand does $1 billion in sales across more than 150 countries annually, and 92 percent of American girls ages three to twelve have owned a Barbie, thanks in part to her affordable $10 price tag.
“LET IT GO”
What is important to keep in mind as you read this lesson is the fact that if you are going to pursue the Market Acceleration growth path, you must consider not only the products you plan on selling but the broad set of partners needed to support and fuel your growth. So, while all of these product changes were good for Mattel, and necessary, it will all be for naught if it doesn’t maintain and nurture its highly coveted, industry- leading partnerships such as the one with Disney.
Mattel had worked with Disney since 1955 when it was its first sponsor of The Mickey Mouse Club. In 1996, Mattel had become Disney’s chosen doll maker for their Princess Dolls, including Jasmine, Cinderella, and Sleeping Beauty. The contract was said to be worth some $500 million, not even including the new most popular doll among girls, Elsa from Disney’s Frozen. However, when Barbie sales began to slow, Disney felt “overlooked” as Mattel appeared to focus more attention on their flagship product than in partnership and opportunities it had with Disney. As it continued to look for new revenue streams, in 2013 it introduced “Ever After High” (Product Expansion), a line of dolls based on characters from fairy tales, which spawned a Web series, a movie, and two book series that in many ways directly competed against the Disney Princess brand.
Mattel, which makes Barbie dolls, has worked with Disney since 1955.
Since 1996, the company has been making the Disney Princess dolls.
But now the lucrative contract belongs to their biggest rival, Hasbro.
Despite being the biggest doll maker on the market, Mattel lost the contract to a company known primarily for making boys’ toys.
One of Disney’s biggest success stories of late, the 2013 movie Frozen, is counted as a separate franchise, and another half billion dollars’ worth of dolls and dresses based on Princesses Elsa and Anna were sold in the United States last year, according to NPD Group.
Unfortunately, after a series of internal decisions Mattel made, in September 2014, Disney officially took its doll business to Hasbro, which already had their Marvel and Star Wars licenses. Although Mattel still makes toys for the company, including Mickey Mouse, the loss of that contract cost Mattel 7 percent of its annual sales, or roughly $450 million. “We took Disney for granted, we weren’t focusing on them. Shame on us,” admitted Chris Sinclair, a Mattel board member who became CEO at the start of 2015. It is a reminder that choosing a new growth path or doubling down on an existing growth path cannot happen in isolation.
This is an example of where things can go woefully wrong if you aren’t careful about the implications of certain decisions made across groups or divisions. If product development isn’t aligned with the partnership and alliance team, one can actually end up competing against the other or, worse yet, become the catalyst to destroy long-standing revenue streams. The implications can be catastrophic, as in the case of Mattel and Disney.
MATTEL
KEY TAKEAWAYS
Consumers are demanding greater flexibility in sales channels, and companies that are considering Market Acceleration to recover from a growth stall can’t just use the same tactics (i.e., selling via retailers with some products) to spark a turnaround.
At the same time as it was attempting to grow into new markets, Mattel was playing catch-up to the current market context with its product lineup, which meant that the sequence of efforts really mattered. Pushing into new markets without the appropriate products can hurt a company’s chances to succeed. You may have the right growth path in play (i.e., Market Acceleration), but you may be selling the wrong products (not regionally adjusted or outdated) or the market you are expanding into may itself be in decline and not worth pursuing.
Global brands, or brands that aspire to be global, must take into consideration the regional adjustments required and make those adjustments (minor or major) prior to launching an existing product.
PUTTING IT ALL TOGETHER
REMEMBER, IN THE Customer Base Penetration path, the benefit of doing the work to research and better understand your current customer will guide you if you decide to pursue growth by targeting similar customer types in new markets. Rarely does this path sit alone: if a company wants to expand into new markets, it better ensure it has established the necessary sales and marketing capabilities prior to officially entering a market (Optimize Sales). It may be appealing to explore Partnerships to mitigate some of the risk and realize a faster time to market. The amount of planning you do to prepare for a new market largely will depend on how similar it is to your current efforts and your understan
ding of the context of the new market—whatever that might be.
First and foremost, you must be able to identify the best markets to pursue, based on future growth projections of your category/product/customer segment, as well as those to avoid. The trick is to understand market context in such a way that you can adjust product, marketing, and sales capabilities quickly enough to realize a return on your investments. This will ultimately put far more pressure on your sales and marketing organizations or your partnerships (rather than products), as they are more likely to limit the speed at which this particular path can be executed.
WHAT WORKS—AND POTENTIAL PITFALLS
THE LONG-TERM IMPACT OF A MARKET ACCELERATION PATH CAN BE SIGNIFICANT, IF YOU GET IT RIGHT:
Opens up previously excluded market and customer segments for growth, further extending market share.
Offsets a current growth stall, which may be occurring in home market(s) and the customer base, with new revenue sources.
Allows for more aggressive pricing, marketing, and sales efforts to be isolated to certain markets, avoiding channel “conflict.”
Taps into developing markets that are experiencing high growth in your product category, which provides your company with the ability to fund other growth paths in your home market.
THE LONG-TERM IMPACT OF A MARKET ACCELERATION PATH CAN BE SIGNIFICANT, IF YOU GET IT WRONG:
You overextend yourself so much that product quality and customer experience are negatively impacted.
You pursue a market aggressively, only to pull out when things start going wrong. This will leave you exposed if you ever try to enter the same market again. Customers may remember your previous entry and exit and worry that you will do the same thing again.
Going global means that you must be sensitive to local customs and laws. If you aren’t, you risk offending potential customers with your lack of consideration, and that is extremely difficult to recover from.
Using partnerships to extend reach and gain access to new markets is a viable way to improve the likelihood of success. However, if you make it too one-sided (i.e., it’s all about you), you will discourage additional investments.
COMBINATION: PATH 3—
Market Acceleration + Path 8—Partnerships
This one stands to reason: you’ve successfully entered into a new market with a variant of an existing product. Now that you are established, the next challenge is to spin out and exploit all of the new opportunities this move has created.
If you’ve done your homework and already identified the key players in your new market, then it should be a simple step to prioritize potential strategic partnership, relationships, and channels that will make you even more efficient and competitive.
Ultimately, your place in the ecosystem of this new market should be at least as complex, influential, and sophisticated as it is in your original market. As was seen with Under Armour, its retail partnerships were invaluable when it wanted to expand even further, both domestically and internationally, emphasizing the importance of establishing local partnerships with recognizable and reputable brands that have customer bases it could leverage.
COMBINATION: PATH 3—
Market Acceleration + Path 6—Optimize Sales
You’ve charged into your new market and established momentum. But your relationship to that market and its participants is still rough and unproven. What may look like a long-term success may in fact still be just novelty.
You need to consolidate your position in this new market. One of the best ways is to make your sales operation efficient, responsive, and adaptive. It needs to get you to that repeat sale and, in the process, a steady, then loyal, then generational customer base. These two growth paths—Market Acceleration and Optimize Sales—are inextricably connected. If you are going to expand into new markets, your sales efforts must be aligned.
COMBINATION: PATH 3—
Market Acceleration + Path 10—Unconventional Strategies
This is the riskiest of the three combination growth paths—so why take it? The start of a new market, when the situation is less defined and more fluid, may be the best time to try something new. If you swing for the fences and fail, the loss could be small and the market will barely notice.
If you are ever going to sweep the table on a new market, there is no better time than when you first enter it, when consumers are curious, competitors are unprepared, and you enjoy a novelty and freedom to maneuver. While the risks are there, they are small: succeed, and you spare yourself a fortune and years of hard-slogging competition.
PATH 4
PRODUCT EXPANSION
PRODUCT EXPANSION
When we buy a product, we essentially “hire” it to help us do a job. If it does the job well, the next time we’re confronted with the same job, we tend to hire that product again. And if it does a crummy job, we “fire” it and look for an alternative.
—CLAYTON CHRISTENSEN, author of The Innovator’s Dilemma
WHY PRODUCT EXPANSION MATTERS
Existing customers are 50 percent more likely to try new products and spend 31 percent more, when compared to new customers.
Sixty percent of global consumers with Internet access prefer to buy new products from a familiar brand rather than switch to a new brand.
In the consumer products business, forty-two of the fifty-four major categories have lost market share to younger, previously unknown companies.
By 2025, Thomson Reuters data shows that 72 percent of the world’s consuming class will live in the developing world.
One in three hundred products makes a significant difference to customer purchase behavior, the product category, or the company’s growth trajectory.
WHAT IS A PRODUCT?
Don’t find customers for your products, find products for your customers.
—SETH GODIN, author of Linchpin
In today’s fast-paced, fiercely competitive business world, it’s no longer possible, or necessary, for companies to rely solely on high research and development (R&D) budgets and long, sequential production schedules when contemplating developing and launching new products to drive growth.
For example, I met with a very large technology company several years ago to discuss a new product they were planning to launch targeted at the small and midsize business (SMB) segment. The product itself was not “new” per se, but it was an extension of an existing product built with a very specific customer segment and buyer in mind. This provided huge economies of scale, faster time to market, and institutional knowledge they could tap into of what had worked (and not worked) in the past. The company was already a market share leader in the SMB space for many other products and services in its portfolio, making it an existing market, which made this launch a perfect Product Expansion adjacency play because it was looking for additional top-line growth. This effort became the most successful in the history of this product line for a company that sold millions of units in this (product) category each year.
What this shows is that if the Product Expansion path is something you are considering, you don’t always need to go back to the drawing board and start from scratch in order to design a “new” product. The first and most important reason for any new development should be to provide “value” to a customer by solving a personal, business, or societal need. Without this, there is no reason for them to pay for what it is you are offering. The new and increasing value is what keeps customers coming back and companies growing. If the value offered is not increasing, or a product stagnates, the company risks losing ground in the market as competitors, or even newcomers, increase their value and leave it behind. In this case, this company’s product hit on all the customers’ value-based needs.
But in the twenty-first-century climate, the definition of what a product is and what
value it can bring might not be as cut-and-dried as my example above.
FORBES’S TOP TEN OF THE WORLD’S MOST INNOVATIVE COMPANIES
All you have to do is look at the 2017 Forbes Annual List of the World’s Most Innovative Companies to understand that the “products” these companies sell are far from monolithic. Some of these companies are twentieth-century companies still innovating in the new century, while others have had the benefit of twenty-first-century technologies to build extremely innovative and disruptive products. In the service realm, the sharing economy has turned the idea of product “ownership” on its head. Uber owns no cars. Airbnb doesn’t own any hotels. Yet, they sell a lot of rides and rooms to rent. They are merely a conduit, a digital market of sorts, for customers to gain access to a network of available product (cars and rooms). So, what exactly is the product?
The truth is: it may be all of those things, which makes this particular growth path as full of challenges as it is full of opportunities.
It isn’t sufficient enough to have a great product and expect to succeed. Only having a great product—even if it’s the best of breed—is no longer enough. You obviously need to invest in developing your product, and there is nothing wrong with being “product-led.” Regardless of whether you make apparel, cupcakes, camping equipment, or luggage—it doesn’t matter.