A Santa’s Helper Goes Online

Mattel's Web strategy threatens retailers, but makes good marketing sense

Release Date: December 5, 2000

BUFFALO, N.Y. -- It's "do or die" time for many e-retailers this holiday season, say industry analysts. Lagging sales and consumer doubts about the ability of e-retailers to deliver orders in time for Christmas have put many Web retailers on the ropes.

But amid speculation about the fate of eToys, Amazon.com and Priceline.com, one prominent toy manufacturer quietly has staked a claim on the Internet, arousing the suspicion of the big bricks-and-mortar retailers, says Arun K. Jain, Samuel P. Capen Professor of Marketing Research and chair of the Department of Marketing at the University at Buffalo School of Management.

Mattel, the nation's largest toy manufacturer, has begun selling many of its Barbie products over the Internet, at Barbie.com, and is even producing direct-mail catalogues -- initiatives that Jain says puts the company in direct competition with its four biggest retail partners: Wal-Mart, Toys "R" Us, K-Mart and Target.

"In a way, Mattel's move toward e-commerce and direct-mail selling is a challenge to the very hand that feeds it," says Jain, an expert on retail strategy. "It's definitely raised the eyebrows of the toy industry's 'four sisters,' who account for a lion's share of the volume in the toy industry."

According to Jain, Mattel's e-commerce and direct-mail strategy is partly a response to the four retailers' entry into toy manufacturing. Each of the 'four sisters,' Jain points out, has begun to manufacture toys in the Far East under its own brand name at bargain-basement cost. The move is likely to generate huge profits for the retailers, while shrinking profits for Mattel and other manufacturers, he says.

"Without any R&D and traditional marketing-related expense, the retailers can dramatically improve their bottom line," says Jain.

"Most retailers have little commitment to individual brands," he adds. "To them, a toy is a toy as long as it generates profit. They have no hesitation in walking over the backs of individual brands if it serves their purpose."

To protect and grow its brand equity, Jain contends that Mattel is wise to continue developing its Internet strategy. The Web, he says, enables the toymaker to showcase its full range of products, gather research for design of popular new toys and re-connect with consumers who prefer the convenience of Internet shopping to traditional shopping.

But, he cautions, Mattel must communicate clearly its Internet strategy to retailers, assuring them that it doesn't intend to offer discount pricing or aggressively circumvent the retailers. Otherwise, Jain says, the retailers could "punish" the toy maker by offering it less shelf space, understocking its products or by not featuring Mattel products in sales promotions.

"Mattel should never compete with the retailers on price, that would be suicidal," says Jain. "But there is great potential for Mattel and other manufacturers to use the Web to sell their products."

"The challenge is to assign the Web a correct strategic role that doesn't undermine traditional channels of distribution," he says. "For manufacturers, the Web is best used as a vehicle for communication, relationship building and serving hard-to-reach segments."

In the future, Jain envisions that Mattel and other toy manufacturers will use the Web as a simulated play area to launch complex new toys that require focused effort on the part of the consumer to appreciate the toy's full entertainment value.

"By using the Web to demonstrate toys in vivid colors and sounds, manufacturers will be creating opportunities to develop one-on-one relationships with customers, which will make it easier for them to cross-sell other products and, possibly, move with the consumers as they got older."

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