Mattel making headlines for all the wrong reasons

By Maria Gabriela Marin

There is nothing worse for a company than having a stained public image and/or experiencing a situation where the customer’s perception is that its products are substandard.

The reason is quite simple, public image is quite important because it can potentially affect your prospective customers. Those types of customers may prefer to do business with a reputable company with the highest levels of corporate, social, environmental & quality control standards. Furthermore, if existing or prospecting customers consider a company’s products as substandard, they will simply take their business someplace else.

Mattel, the biggest toymaker in the world, is a great example of the above strategic blunders. Mattel made headlines in 2007 for all the wrong reasons as it announced three toy recalls of Chinese-made toys, which not only raised questions about inadequate quality control standards but made parents consider its toys as substandard products.

Mattel's public image was battered last year when in early August, the company recalled 1.5 million Chinese-made toys (i.e. Big Bird, Elmo, Dora the Explorer and Diego) because of excessive levels of lead paint, which can cause brain damage if young children ingested it.

Later in the same month, Mattel recalled millions of more toys because of dangerous levels of lead paint or small magnets that could be swallowed by children. At the time, Robert Eckert, Mattel’s Chief Executive Officer, said that the “safety of children is our primary concern, and we are deeply apologetic to everyone affected." He added "we don't want to have recalls, but we don't hesitate to take quick and effective action to correct issues as soon as we've identified them to ensure the safety of our products and the safety of children." (link to youtube video of Mattel's CEO announcing one of the company's three toy recalls http://www.youtube.com/watch?v=xH9O8JlvOe4)

Making good on his word regarding safety of his company’s products, Eckert announced in September another recall of 848,000 Chinese-made toys (i.e. Barbie’s pet figurines and furniture sets) that contained excessive amounts of lead paint.

Damage was done. Mattel’s third quarter results were below analyst’s expectations and its stock price spiraled down to hit rock bottom in November. Since then, Mattel bounced back as parents regained confidence in the toymaker and forgot about these series of nightmarish recalls.

Formulating a Successful Business Strategy

By Maria Gabriela Marin

There are multiple ways for firms to achieve competitive advantage but I would like to focus on Product/Service Differentiation & Cost Leadership.

A few years ago, Cingular Wireless entered the wireless market with an excellent product/service differentiation strategy: "Rollover Minutes". Cingular was literally unknown in the wireless space when compared to well established companies such as AT&T, T-Mobile, Nextel and Sprint. The question was: Why would anyone switch to Cingular and risk poor network/service? Well the short answer was rollover minutes! There were so many people (including me) switching to Cingular because of its rollover minute feature. The strategy was a complete success and it didn't take long before Cingular's customer base grew so much to allow it to acquire AT&T.

Another good example of product/service differentiation is Dell. For years, Dell allowed customers to "customize" their personal computers to their needs. You didn't have to buy a pre-configured system with too little or lots of computing power. Your Dell was no more than you needed and on top of it, its website was so easy to navigate that ordering a computer online and having it deliver to your home in a few days, was key to Dell's success.

United Colors of Bennetton is another example of product/service differentiation. For garments with difficult to forecast demand for colors, Bennetton creates an undyed garment called "greige". Stores send feedback on customer's preferences and the company sends a test batch of "greige" garments dyed with the requested colors. According to the company, this process increases costs by 10% but it also increases profit margins as well as cuts on overstocking and discount costs.

The second strategy that I'd like to discuss is cost leadership. Nobody embodies cost leadership more than WalMart. Its founders understood from the very beginning that retailing was a volume driven business and offered its clients better value for their money. WalMart's concept of "every day low prices" knocked out competitors such as Sears & K-Mart. The company that started in 1962 has become one of the largest retailers in the world with thousands of discount centers, supercenters & neighborhood markets throughout the US and the world. WalMart's plans, for fiscal year ending 2007-2008, are to achieve a revenue target of $500 billion.

The low-cost passenger airline JetBlue is another example of cost leadership. The airline focuses on delivering an excellent flight experience in their 2-3 year old aircraft at a very affordable price. The company started in 1998 and became quickly one of the most profitable players in the aviation industry. JetBlue targeted high-fare areas to cut prices and easily undercut its competition. The company operates 50 destinations in the US, Puerto Rico, Mexico and the Caribbean. In addition to the affordable airfare prices, JetBlue offers vacation packages that have resulted in higher profits not only for the company but for its partner hotels and car rentals.

Porter's Five Forces Analysis for the Pharmaceutical Industry

By Maria Gabriela Marin

Porter's Five Forces Model helps strategic business managers analyze the industry in which their companies operate to determine what can be done to get an advantage over their existing competitors and also to determine how attractive a particular industry would be for new entrants.

Porter's Five Forces are: 1) Threats of entry posed by new or potential competitors; 2) Degree of rivalry among existing firms; 3) Bargaining power of buyers; 4) Bargaining power of suppliers and 5) Closeness of substitute products.

Below is an anlysis of the Pharmaceutical Industry using the above named forces:

1. Threats of entry posed by new or potential competitor (LOW)

• High entry barriers due to costs associated with research & development of new drugs (i.e. years of investment in R&D for a drug that may/may not work)
• Government regulation (i.e. FDA)
• The threat of entry posed by new or potential competitor is a LOW competitive force due to the above entry barriers & regulatory constraints.

2. Degree of rivalry among existing firms (HIGH)

High rivalry among main companies in the industry. For example the current rivalry in the erectile dysfunction space where Bayer & GlaxoSmithKline claim that Levitra works faster or Eli Lilly & ICOS claim that Cialis works longer than Pfizer’s Viagra

The degree of rivalry among existing firms is a HIGH competitive force

3. Bargaining power of buyers (MEDIUM)

• Hospitals & other health care organizations buy in bulk quantities and exert pressure on pharmaceutical companies to keep prices in check
• Regular patients have lost bargaining power due to price increases in generic drugs
• The bargaining power of buyers is a MEDIUM competitive force.
  

4. Bargaining power of suppliers (LOW)

• Sales for the pharmaceutical industry concentrate in a handful of large players and that has decreased the bargaining power of suppliers.
• The bargaining power of suppliers is a LOW competitive force
  

5. Closeness of substitute products (HIGH)

• Demand for generic versus brand name drugs has increased because of the costs
• Generic drug companies do not have the high costs associated with the research & development of new drugs and that allows them to sell at cheaper prices
• The closeness of substitute products is a HIGH competitive force

Overall and based on the above analysis of Porter’s Five Forces, we can conclude that the pharmaceutical industry is not attractive for new entrants.

Lehman Brothers' Mission Statement

By Maria Gabriela Marin

In the "Strategic Managemet A Primer" by Parthasarthy & Booke, we are reminded that a firm's mission statement "is a description of the firm's current task or business and market position (who the firm presently is), its vision for the future (what it intends to become), and how it plans to get to its future position (values and targets that will guide its actions toward the vision)."

For this analysis, I selected the mission statement of Lehman Brothers:

"We are One Firm, defined by our unweavering commitment to our clients, our shareholders, and each other, Our vision is to build unrivaled partnerships with and value for our clients, through the knowledge, creativity, and dedication of our people, leading to superior results for our shareholders."

Lehman Brothers' mission statement lacks a description of its core business and current market position. It will be difficult for someone, who is not familiar with the firm, to discern from the above statement that Lehman Brothers is a global financial services company that serves corporations, governments and individuals.

I believe that its vision for the future clearly states its purpose and more importantly its commitment to Lehman Brothers' clients and shareholders. Moreover, it describes how it intends to accomplish these results by relying on the talent of their people.

Welcome to my Blog!

Hi everyone & welcome to my blog!

My name is Maria Gabriela Marin. However, my family and close friends call me “Gaby”.

I was born and raised in Ecuador where I completed a Bachelor's degree in Business Administration with a Major in Productivity in the Pontific Catholic University in Quito.

I moved to the US in October 2004 and I was admitted as a Transfer Student to Baruch College two years ago. This is my last semester to complete a Bachelor's degree in Business Administration with a Major in Operations Management.

My hobbies and interests vary from spending a weekend re-decorating my place, to watching a good horror/comedy movie or reading a fiction book from Dan Brown, John Grisham or Michael Crichton.

I am looking forward to posting & responding interesting blogs for our Business Policy class.

Regards,

Maria Gabriela Marin