Mattel Case Analysis
Samantha Murray
MGMT 392
January 26, 2014
Issue and Decision Introduction
Mattel has found itself distributing and selling toys that contain elements unsafe for children.
The harmful materials in question are paint containing lead and glued magnets that can easily come
loose from the toy. Exposure to lead paint can cause developmental problems in children and
swallowed magnets can cause serious damage to internal organs that can be fatal (Bapuji & Beamish,
2008). Mattel does not want problems like these associated with its brand and products. The
offshoring of manufacturing of its toy products has made it more difficult for Mattel to monitor the
quality of toy production. Mattel is faced with the decision of which toys to recall and what other
actions should be taken to improve the quality of Mattel’s products.
Strategic Framework
Assuming the time of the case as present, Mattel is the top company in the toy industry.
Toys are a $71 billion industry globally, and Mattel accounts for $6.1 billion or 8.59% of that market
share (Bapuji & Beamish, 2008). Mattel’s greatest competitor is Hasbro, but Hasbro accounts for
nearly half as much of the market as Mattel, with approximately $3.1 billion in sales in 2006 (Bapuji
& Beamish, 2008). See Exhibit 1 for toy industry market shares. No other major competitors have
reached more than $1 billion in sales, placing Mattel in a relatively safe position as the dominator of
the toy industry. The toy industry in general is trending into more of a global industry, with
European and Asian toy sales growing much more rapidly than domestic sales. European sales are
growing by 5% per year and Asian sales are growing at 12 – 25% per year, compared with only 1%
growth for sales in the United States (Bapuji & Beamish, 2008). Thus the practices and interests of
Asian and European communities are of growing importance to survival in the toy industry.
Another global trend in the toy industry is the trend toward the offshoring of production of
the products of American companies, specifically to China. Only about 10% of toys produced for
American markets are manufactured in the United States, and of those toys produced offshore,
Chinese production is dominating. Between 1992 and 2006, the percentage of toy imports from
China grew from 41% to 86% (Bapuji & Beamish, 2008). Thus, Chinese standards and methods of
production have become more relevant to the toy industry. Chinese manufacturing offers
competitive pricing, though sometimes at the expense of production quality. Chinese manufacturers
sometimes sub-contract parts of production, making it more difficult to monitor and regulate quality
standards (Bapuji & Beamish, 2008). As a result, unsafe materials that are otherwise banned by
American regulations can find themselves in American toys.
This is the situation Mattel finds itself in with the 2007 lead paint difficulties. The first
incident of lead paint was found in products produced by Lee Der Industrial Company. The issue
was initially not discovered by Americans but by a French importer who tested the products. The
source was further traced to yellow pigments produced by supplier used by Lee Der. Lee Der
obtained its paint from Dongxing Energy Company, but when Dongxing ran out of yellow pigment,
it obtained some from Dongguan Zhongxian Toner Company. The lead was found in these
pigments from Dongguan. Normally Mattel only works with vendors are certified to supply safe
products, but the multiple layers of suppliers made it difficult for Mattel to detect. The second major
lead paint incident of 2007 came from a different manufacturer. Lead paint was found on Sarge cars
made by a Chinese plant of the Early Light Industrial Company. Like Lee Der, Early Light was a
manufacturer that Mattel had been working with for over a decade (Bapuji & Beamish, 2008).
The magnet incident is slightly different than the lead paint issue. While production of both
types of toys originated in China, magnets are not inherently unsafe. Many children’s toys have and
continue to contain magnets, but they become dangerous when not strongly secured to the toy.
Mattel changed the Chinese manufacturing to the more secure method, but older toys with loose
magnets still remain in existence (Bapuji & Beamish, 2008).
Analysis
Solutions to addressing Mattel’s unsafe toys will be evaluated based on their impact on the
firm’s financial value and brand value. Financial value is measured by the company’s financial
reports, especially in terms of sales data. The financial reports and information supplied in the case
will be used to inform this analysis. Brand value is a less tangible measurement but vitally important
to the long-term financial performance of the company.
The first major decision Mattel must make is what toys to recall. Since it is nearly impossible
to pinpoint exactly which toys the unsafe materials affected, a recall will have to involve both safe
and unsafe toys. Mattel can casts its net widely from all of the toys recently produced at the affected
plants down to a narrow range of toys produced from very specific lines during a very specific
period. The more toys recalled, the greater short-term revenue loss from those toys. Still, there will
also be a short-term loss of revenue from weakened consumer confidence in the brand, regardless of
the scope of the recall. Mattel far surpasses its competitors both in terms of sales and profits, so
short-term loss may not be as significant of a concern as it would be to a smaller company.
Even with a profitable and dominant firm like Mattel, it is still susceptible to long-term
financial and brand damage. The greater the range of the recall, the more likely it is unsafe toys will
be out of the reach of children. Fewer children harmed means fewer lawsuits and negative press
about suffering children. Negative press will hurt the brand’s image and thus has potential to steer
consumers away from the brand. Long-term revenue will be tied to the consumer-brand relationship
forged between Mattel and customers. Still, recalls are very complicated and expensive to organize
and implement. A wider recall will cost Mattel more money and resources. A wider recall will also
affect a larger number of people, which will bring more negative attention to the brand than may
otherwise have been absorbed by consumers.
The second major decision Mattel must make is how to enhance the quality of its products.
This scandal has spotlighted Mattel’s lack of control over its Chinese manufacturing. Solutions could
range from Mattel testing the quality of its products more frequently to Mattel moving more of its
non-core brands to company-owned facilities. The lead paint was not discovered until French
inspectors got to the products and was not confirmed until the toys reached buyers in the United
States. Inspection could be implemented while the toys are still in China. Catching issues earlier,
while costly to inspect in the short-term, can save Mattel the costs of larger recalls in the long-term.
In terms of the plants themselves, Mattel has to decide whether or not to continue with its
current production partners. It could cease partnership with the offending companies and plants or
continue to work with them while implementing stricter inspection. A more extreme solution would
be to take physical control over the manufacturing non-core brands. This would be a much more
expensive route. Consumers would likely feel more confidence in Mattel if they take control over
more of the process, and they would probably not be content with Mattel continuing to work with
the perpetrators of the safety issues. Like the case of the recalls, the reaction of consumers in this
case is important to the brand value and long-term performance of the company.
Recommendations:
The recommended action for Mattel is to perform a thorough recall of all painted products
produced by the offending plants during the estimated time of contamination. Mattel will experience
much loss of revenue from recalling so many products, but if Mattel were to make their recall too
limited and then end up making further recalls, the negative associations with the brand will pile and
snowball into a more negative view of Mattel than the news of a single, large recall may have. The
short-term loss is worth saving Mattel from the long-term consequences of a destroyed consumer-
brand relationship. When implementing the recall, Mattel should be as honest and empathetic as
possible to give a warm, concerned, and genuine image with consumers. The recall should then be
followed by an investment in consumer outreach and brand image improvement efforts to repair
and strengthen consumer perception and experience with the Mattel brand.
Since the manufacturing plants and decisions made surrounding them are much more distant
from consumer’s interaction with the Mattel brand, the quality enhancing strategy does not need to
be as drastic. Mattel should cease to work with the offending Chinese companies to both show
consumers that Mattel is taking measures to prevent further problems and framing the perpetrators
of the problems as the Chinese manufacturers and not Mattel. Taking over production of the noncore brands would be too costly in the short-term for Mattel, take too long, and be forgettable by
consumers after the issue dies down. Consumers will want a quick and digestible solution, and
promises of increased inspections will offer that for consumers and would be a preventative strategy
for Mattel.
Limitations and Assumptions
Due to the nature of a case study, the information about Mattel and associated suppliers are
limited to the information presented in the text and the date associated with the time frame
presented in the case. Additionally, since the case focused primarily on American recalls,
consequences and consumer reactions were based on predictions about American markets and
consumers. A more nuanced approach would have to be implemented on a country-by-country
basis. In general, the solution for a wide recall and increased inspection of Mattel products is a the
most effective solution that Mattel could afford that would cause the least damage to the Mattel
brand. While this course of action will be costly to Mattel in the short-term, a preserved relationship
between Mattel and its consumers is worth more to the company in the long-term.
Works Cited
Bapuji, H., & Beamish, P. (2008). Mattel and the toy recalls. Richard Ivey School of Business, University
of Western Ontario, London, Canada.
Exhibit 1
Global toy industry 2006 Mattel Hasbro RC2 JAAKS Paci:ic 8% 85% Source: Data found in case
Exhibit 2
5% 1% 1% Other