Despite the loss of 21 million toys and a dip in its stock price, Mattel Inc. could find an upside to its recent spate of product recalls.
According to experts, the El Segundo-based toymaker has handled the crisis phase masterfully. Now the challenge moves to getting product back on store shelves in time for the critical holiday shopping season and beyond.
Mattel’s “pro-active stance from the very start has been right out of the crisis planning playbook,” said Andy Abramson, chief executive of marketing agency Comunicano Inc. “Their CEO being a guest on morning news programs has helped immensely. This is leadership from the front.”
“I saw this crisis dissipate faster than usual,” said Scott Montgomery, chief creative officer at consulting firm HLF Brandtailers, and previously creative director of Foote Cone Belding, Mattel’s former advertising agency. “Consumers have a short memory, so anything they see on the shelves by Christmas, they’ll assume it’s good to go.”
The company is recognized for honestly dealing with the revelation that toys that were made in China were contaminated with lead. Mattel had to recall millions of toys.
But Mattel “will find the public will pay them back with brand loyalty,” said Nancy Duitch, president of Vertical Branding, an Encino-based marketing firm. She added that “Barbie is the brand consumers most associate with Mattel,” and the fact that Barbie dolls weren’t involved in the recalls (only Barbie accessories) works in Mattel’s favor.
But “the danger for Mattel is to regard this as a crisis, to treat the symptoms and not the problem,” warned Alan Brew, senior vice-president at brand consultancy RiechesBaird. “Mattel made a choice to manufacture in China. It was a calculated risk, and they are living with the results of that risk. It is now incumbent on them to legitimize their decision and make manufacturing in China safer.”
Brew recalls that during the Tylenol scare of 1982, the classic product-safety nightmare, parent corporation Johnson & Johnson only put Tylenol back in stores after developing the safety cap, a visible device that guaranteed the product’s integrity in the minds of consumers.
“Mattel must do something similar,” Brew continued. “It’s an opportunity. If they look beyond the crisis, they should ask: ‘How can we become the guardians of toy safety?'”
Although several Mattel representatives did not respond to requests for an interview, Chief Executive Robert Eckert testified before Congress last week on the company’s response and its implications for the toy industry.
“I can assure this committee that we’ll share with other toy companies what we’ve learned to help improve industry practices overall, and to ensure that children play with safe toys regardless of who made them or where they were made,” he told lawmakers.
Toy money
Financially, the loss of so much product just before the holiday season assures shortages for Mattel. Economics dictate that during periods of scarcity, prices rise until demand and supply balance. But marketers warn against trying to recoup recall losses by raising prices.
“They should keep prices where they are and take their lumps,” said Duitch. “If they raise their prices, they’re not being consumer-centric and Mattel’s only choice now is to be consumer-centric.”
Besides, Duitch added, the masses “aren’t willing to pay a premium. The toy sector is very price sensitive.”
“A problem of this magnitude has got to be fixed right. It’s not a question of timing,” Brew said. “If they could fix it by Christmas that would better for business reasons, but if they try to fudge it by Christmas and don’t get it right, that would be worse than waiting.”
Eric Johnson, professor at Dartmouth’s Tuck School of Business Administration, has estimated that overall toy prices will rise 10 percent next year as toymakers implement costly quality programs to avoid Mattel-like recalls, or alternately, move manufacturing to the U.S. or Europe where higher safety standards prevail.
Mattel has handled the recall so that it will bear nearly all the costs rather than passing them on to retailers. In his congressional testimony, Eckert explained that retailers could return Mattel product for a full refund, while consumers can mail the recalled products at Mattel’s expense to receive equal-value vouchers for Mattel products.
Both procedures keep retailers off the hook, a key to re-establishing Mattel’s presence before the holidays.
“They didn’t charge retailers, so the retailers will put their product back on the shelves. They need Mattel. They need Barbie,” said Duitch.
On a tactical level, Mattel should “provide their retail partners with some very informative point-of-sale display materials. If they can work with their retail partners like Wal-Mart, Target, Kmart, Toys R Us, etc., they will have a very good shot at overcoming this,” said Abramson.
Marketers also believe that by the holidays, the memory of recalls will hurt China more than Mattel. Montgomery laments that even if the packaging has a starburst that says “No Lead Paint,” the bottom of the box will still say “Made in China.” Duitch predicts that parents will give special scrutiny to any painted toy from China, regardless of the brand or manufacturer.
Brew notes that several toy brands have taken the offense with the China angle. Lego, for example, has made a marketing point that its plastic pieces don’t come from China.
Mattel has invested too heavily in China to relocate, so its strategy emphasizes quality assurance. In his testimony to Congress, Eckert said Mattel maintains contracts with 37 Chinese manufacturers.
In recent weeks, Mattel’s stock price has gained ground in tandem with its consumer-friendly image. On June 7, the day before the first bad news on lead testing, the stock closed at $26.40. It hit a low of $21.17 on Sept. 10 a decline of almost 20 percent but late last week it rebounded to the $23.50 range.
Duitch believes the reaction of investors correlates directly to consumer sentiment for a consumer-goods company like Mattel.
Above all, Mattel management simply needs to stay the course and implement its quality assurance program, according to Montgomery of Brandtailers. “They need to prove to Wall Street, more than consumers, that safeguards are in place. And then pray and cross their fingers nothing like this happens again,” he said.
