As a global leader in toy manufacturing and marketing

Mattel: Overcoming
Marketing and
Manufacturing Challenges

C A S E

Synopsis: As a global leader in toy manufacturing and marketing, Mattel faces a number
of potential threats to its ongoing operations. Like most firms that market
products for children, Mattel is ever mindful of its social and ethical obligations
and the target on its corporate back. This case summarizes many of the
challenges that Mattel has faced over the past decade, including tough
competition, changing consumer preferences and lifestyles, lawsuits, product
liability issues, global sourcing, and declining sales. Mattel’s social responsibility imperative is discussed along with the company’s reactions to its
challenges and its prospects for the future.
Themes: Environmental threats, competition, social responsibility, marketing ethics,
product/branding strategy, intellectual property, global marketing, product
liability, global manufacturing/sourcing, marketing control

t all started in a California garage workshop when Ruth and Elliot Handler and Matt
Matson founded Mattel in 1945. The company started out making picture frames,
but the founders soon recognized the profitability of the toy industry and switched
their emphasis. Mattel became a publicly owned company in 1960, with sales exceeding
$100 million by 1965. Over the next 40 years, Mattel went on to become the world’s
largest toy company in terms of revenue. Today, Mattel, Inc. is a world leader in the
design, manufacture, and marketing of family products. Well-known for toy brands
such as Barbie, Fisher-Price, Disney, Hot Wheels, Matchbox, Tyco, Cabbage Patch Kids,
and board games such as Scrabble, the company boasts nearly $6 billion in annual
revenue. Headquartered in El Segundo, California, with offices in 36 countries, Mattel
markets its products in more than 150 nations.
In spite of its overall success, Mattel has had its share of losses over its history.
During the mid to late 1990s, Mattel lost millions due to declining sales and bad
Debbie Thorne, Texas State University–San Marcos, John Fraedrich, Southern Illinois University–Carbondale, O. C. Ferrell,
University of New Mexico, and Jennifer Jackson, University of New Mexico, developed this case for classroom discussion
rather than to illustrate effective or ineffective handling of an administrative situation. Jennifer Sawayda provided editorial
assistance.

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business acquisitions. In January 1997, Jill Barad took over as Mattel’s CEO. Barad’s
management style was characterized as strict, and her tenure at the helm proved
challenging for many employees. Although Barad had been successful in building the
Barbie brand to $2 billion near the end of the twentieth century, growth slowed rapidly
after that time. Declining sales at outlets such as Toys ‘‘R’’ Us and the mismanaged
acquisition of The Learning Company marked the start of some difficulties for the toy
maker, including a dramatic 60 percent drop in stock price under Barad’s three-year
stint as CEO. Barad accepted responsibility for these problems and resigned in 2000.
The company soon installed Robert Eckert, a 23-year Kraft veteran, as chairman
and CEO. During Eckert’s first three years on the job, the company’s stock price
increased to over $20 per share, and Mattel was ranked fortieth on Business Week’s list
of top-performing companies. Implementing techniques used by consumer-product
companies, Eckert adopted a mission to bring stability and predictability to Mattel. He
sold unprofitable units, streamlined work processes, and improved relations with
retailers. Under Eckert, Mattel was granted the highly sought-after licensing agreement for products related to the Harry Potter series of books and movies. The company
continued to flourish and build its reputation, even earning the Corporate Responsibility Award from UNICEF in 2003. By 2008, Mattel had fully realized a turnaround
and was recognized as one of Fortune magazine’s ‘‘100 Best Companies to Work For’’
and Forbes magazine’s ‘‘100 Most Trustworthy U.S. Companies.’’

Mattel’s Core Products
Barbie
Among its many lines of popular toy products, Mattel is famous for owning top girls’
brands. In 1959, Mattel made the move that would establish them at the forefront of
the toy industry. After seeing her daughter’s fascination with cutout paper dolls, Ruth
suggested that a three-dimensional doll should be produced so that young girls could
live out their dreams and fantasies. This doll was named ‘‘Barbie,’’ the nickname of
Ruth and Elliot Handler’s daughter. The first Barbie doll sported open-toed shoes, a
ponytail, sunglasses, earrings, and a zebra-striped bathing suit. Fashions and accessories were also available for the doll. Although buyers at the annual Toy Fair in New
York took no interest in the Barbie doll, little girls of the time certainly did. The
intense demand seen at the retail stores was insufficiently met for several years. Mattel
just could not produce the Barbie dolls fast enough. Today, Barbie is Mattel’s flagship
brand and its number one seller—routinely accounting for approximately half of
Mattel’s sales revenue. This makes Barbie the best-selling fashion doll in most global
markets. The Barbie line today includes dolls, accessories, Barbie software, and a
broad assortment of licensed products such as books, apparel, food, home furnishings,
home electronics, and movies.
Although Barbie was introduced as a teenage fashion model, she has taken on
almost every possible profession. She has also acquired numerous male and female
friends and family over the years. Ken, Midge, Skipper, Christie, and others were

Mattel’s Core Products

introduced from the mid-1960s on. The Barbie line has even seen a disabled friend in a
wheelchair: Share a Smile Becky. Barbie’s popularity has even broken stereotypes.
Retrofitted versions of Barbie dolls, on sale in select San Francisco stores, feature
‘‘Hooker’’ Barbie, ‘‘Trailer Trash’’ Barbie, and ‘‘Drag Queen’’ Barbie. There are also
numerous ‘‘alternative’’ Barbies, such as ‘‘Big Dyke’’ Barbie, but Mattel does not want
the Barbie name to be used in these sales. Redressed and accessorized Barbies are okay
with Mattel as long as no one practices trademark infringement.

Barbie’s Popularity Slips Although Barbie remains a blockbuster by any standard,
Barbie’s popularity has slipped over the past decade. There are two major reasons for
Barbie’s slump. First, the changing lifestyles of today’s young girls are a concern for
Mattel. Many young girls prefer to spend time with music, movies, or the Internet than
play with traditional toys like dolls. Second, Barbie has suffered at the hands of new
and innovative competition, including the Bratz doll line that gained significant
market share during the early 2000s. The dolls, which featured contemporary, ethnic
designs and skimpy clothes, were a stark contrast to Barbie and an immediate hit with
young girls. In an attempt to recover, Mattel introduced the new line of My Scene dolls
aimed at ‘‘tweens.’’ These dolls are trendier, look younger, and are considered to be
more hip for this age group who is on the cusp of outgrowing playing with dolls.
A website (http://www.myscene.com) engages girls in a variety of fun, engaging, and
promotional activities.
Barbie’s Legal Battle with MGA Entertainment Since 2004, Mattel has been embroiled
in a bitter intellectual property battle with former employee Carter Bryant and MGA
Entertainment, Inc., over rights to MGA’s popular Bratz dolls. Carter Bryant, an onagain/off-again Mattel employee, designed the Bratz dolls and pitched them to MGA. A
few months after the pitch, Bryant left Mattel to work at MGA, which began producing
Bratz in 2001. In 2002, Mattel launched an investigation into whether Bryant had
designed the Bratz dolls while employed with Mattel. After two years of investigation,
Mattel sued Bryant. A year later MGA fired off a suit of its own, claiming that Mattel’s
My Scene dolls were an attempt to copy the Bratz line. Mattel answered by expanding
its own lawsuit to include MGA and its CEO, Isaac Larian.
For decades, Barbie had reigned supreme in the doll market. However, Bratz dolls
gave Barbie a run for her money. In 2005, four years after the brand’s debut, Bratz
sales were at $2 billion. By 2009, Barbie’s worldwide sales had fallen by 15 percent,
although Bratz was not immune to sluggish sales either once consumers began to cut
back on spending during the 2008–2009 recession.
Much evidence points toward Bryant having conceived of Bratz dolls while at
Mattel. Four years after the initial suit was filed, Bryant settled with Mattel under an
undisclosed set of terms. However, although some decisions were made, the battle
between Mattel and MGA has continued. In July 2008, a jury deemed MGA and its
CEO liable for what it termed ‘‘intentional interference’’ regarding Bryant’s contract
with Mattel. In August 2008, Mattel received damages of $100 million. Although

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Mattel first requested damages of $1.8 billion, the company was pleased with the
principle behind the victory. MGA is appealing the decision.
In December 2008, Mattel appeared to win another victory when a California
judge banned MGA from making or selling Bratz dolls. The decision was devastating
to the Bratz line, as retailers have avoided the brand in anticipation of Mattel’s takeover. Many industry analysts, however, expect Mattel to work out a deal with MGA in
which MGA can continue to sell Bratz dolls as long as Mattel shares in the profits.
MGA plans to appeal the court ruling. Whatever the outcome, Mattel has managed to
gain some control over Barbie’s toughest competition.

American Girl
In 1998, Mattel acquired Pleasant Company, maker of the American Girl collection—a
well-known line of historical dolls, books, and accessories. Originally, American Girl
products were sold exclusively through catalogs. Mattel extended that base by selling
American Girl accessories (not the dolls) in major chain stores like Walmart and
Target. More recent efforts to increase brand awareness include the opening of
American Girl Place shops in New York, Chicago, Los Angeles, Atlanta, Dallas, Boston,
and Minneapolis. The New York store features three floors of dolls, accessories, and
books in the heart of the 5th Avenue shopping district. The store also offers a caf
e
where girls can dine with their dolls and a stage production where young actresses
bring American Girl stories to life.
The American Girl collection is wildly popular with girls in the 7- to 12-year-old
demographic. The dolls have a wholesome and educational image—the antithesis to
Barbie. This move by Mattel represented a long-term strategy to reduce reliance on
traditional products and to take away the stigma surrounding the ‘‘perfect image’’ of
Barbie. Each American Girl doll lives during a specific time in American history, and
all have stories that describe the hardships they face while maturing into young adults.
For example, Felicity’s stories describe life in 1774 just prior to the Revolutionary
War. Likewise, Josephina lives in New Mexico in 1824 during the rapid growth of the
American West. Other dolls include Kaya (a Native American girl growing up in
1764), Elizabeth (Colonial Virginia), Kirsten (pioneer life in 1854), Addy (1864
during the Civil War), Samantha and Nellie (1904 New York), Kit (1934 during the
Great Depression), Molly (1944 during World War II), and Emily (a British girl who
comes to America during World War II). The American Girl brand includes several
book series, accessories, clothing for dolls and girls, and a magazine that ranks in the
top 10 American children’s magazines.

Hot Wheels
Hot Wheels roared into the toy world in 1968. More than 40 years later, the brand is
hotter than ever and includes high-end collectibles, NASCAR (National Association
for Stock Car Auto Racing) and Formula One models for adults, high-performance
cars, track sets, and play sets for children of all ages. The brand is connected with
racing circuits worldwide. More than 15 million boys ages 5 to 15 are avid
collectors, each owning an average of 41 cars. Two Hot Wheels cars are sold every

Mattel’s Global Manufacturing

second of every day. The brand began with cars designed to run on a track and has
evolved into a ‘‘lifestyle’’ brand with licensed Hot Wheels shirts, caps, lunch boxes,
backpacks, and more. Together, Hot Wheels and Barbie generate about 65 percent of
Mattel’s profits.

Fisher-Price
Acquired in 1993 as a wholly owned subsidiary, Fisher-Price is the umbrella brand for
all of Mattel’s infant and preschool lines. The brand is trusted by parents around the
world and appears on everything from children’s software to eyewear, and books to
bicycles. Some of the more classic products include the Rock-a-Stack, Power Wheels
vehicles, and Little People play sets. Through licensing agreements, the brand also
develops character-based toys such as Sesame Street’s Elmo, Disney’s Winnie the Pooh,
and Nickelodeon’s Dora the Explorer.
Fisher-Price has built a trust with parents by creating products that are educational, safe, and useful. For example, during recent years, the brand has earned high
regard for innovative car seats and nursery monitors. Fisher-Price keeps pace with the
interests of today’s families through innovative learning toys and award-winning
products. One example is the Computer Cool School, a kid-friendly keyboard with a
tablet and stylus, which turns a standard Windows-based computer into an interactive
classroom for kids ages 3 to 6. The product was awarded the ‘‘Best Toy of 2008’’ by
both Parents Magazine and Family Fun Magazine.

Mattel’s Global Manufacturing
As a U.S.-based multinational company owning and operating facilities and contracting worldwide, Mattel’s Global Manufacturing Principles reflects the company’s
needs to both conduct manufacturing responsibly and respect the cultural, ethical, and
philosophical differences of the countries in which it operates. These principles set
uniform standards, across Mattel manufacturers, that attempt to benefit both
employees and consumers.
Mattel’s principles cover issues such as wages, work hours, child labor, forced
labor, discrimination, freedom of association, and working conditions. Workers must
be paid at least minimum wage or a wage that meets local industry standards
(whichever is greater). No one under the age of 16 or the local age limit (whichever is
higher) may be allowed to work for Mattel facilities. Mattel refuses to work with
facilities that use forced or prison labor, or to use these types of labor itself.
Additionally, Mattel does not tolerate discrimination. The company states that an
individual should be hired and employed based on his or her ability—not on individual characteristics or beliefs. Mattel recognizes all employees’ rights to choose to
affiliate with organizations or associations without interference. Regarding working
conditions, all Mattel facilities and its business partners must provide safe working
environments for their employees.

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Manufacturing Issues Lead to Product Recalls
Despite Mattel’s best efforts, not all overseas manufacturers have faithfully adhered to
its high standards. In 2007, Mattel came under scrutiny over its sale of unsafe products
as it announced recalls of toys containing lead paint. The problem surfaced when a
European retailer discovered lead paint on a toy. An estimated 10 million individual
toys produced in China were affected. Mattel quickly stopped production at Lee Der,
the company officially producing the recalled toys, after it was discovered that Lee Der
had purchased lead-tainted paint to be used on the toys. Mattel blamed the fiasco on
the manufacturers’ desire to save money in the face of increasing prices. ‘‘In the last
three or five years, you’ve seen labor prices more than double, raw material prices
double or triple,’’ CEO Eckert said in an interview, ‘‘and I think that there’s a lot of
pressure on guys that are working at the margin to try to save money.’’
The situation began when Early Light Industrial Co., a subcontractor for Mattel
owned by Hong Kong toy tycoon Choi Chee Ming, subcontracted the painting of parts
of Cars toys to another China-based vendor. The vendor, named Hong Li Da, decided
to source paint from a nonauthorized third-party supplier: a violation of Mattel’s
requirement to use paint supplied directly by Early Light. The products were found to
contain ‘‘impermissible levels of lead.’’ When it was announced that another of Early
Light’s subcontractors, Lee Der Industrial Company, used the same lead paint found
on Cars products, China immediately suspended the company’s export license. Afterward, Mattel pinpointed three paint suppliers working for Lee Der: Dongxin,
Zhongxin, and Mingdai. This paint was used by Lee Der to produce Mattel’s line of
Fisher-Price products. It is said that Lee Der purchased the paint from Mingdai due to
an intimate friendship between the two company’s owners. In the latter part of 2007,
Zhang Shuhong, operator of Lee Der, hung himself after paying his 5,000 staff
members.
That same year, Mattel was forced to recall several more toys because of powerful
magnets in the toys that could come loose and pose a choking hazard for young
children. If more than one magnet is swallowed, the magnets can attract each other
inside the child’s stomach, causing potentially fatal complications. Over 21 million
Mattel toys were recalled in all, and parents filed several lawsuits claiming that these
Mattel products harmed their children.
At first, Mattel blamed Chinese subcontractors for the huge toys recalls; but the
company later accepted a portion of the blame for the trouble, while maintaining that
Chinese manufacturers were largely at fault. The Chinese viewed the situation quite
differently. As reported by the state-run Xinhua news agency, the spokesperson for
China’s state Administration of Quality Supervision and Inspection and Quarantine
(AQSIQ) said, ‘‘Mattel should improve its product design and supervision over
product quality. Chinese original equipment manufacturers were doing the job just as
importers requested, and the toys conformed to the U.S. regulations and standards at
the time of the production.’’ Mattel also faced criticism from many of its consumers,
who believed Mattel was denying culpability by placing much of the blame on China.
Mattel was later awarded the 2007 ‘‘Bad Product’’ Award by Consumers International.

Mattel’s Social Responsibility Imperative

How did this crisis occur under the watch of a company praised for its ethics and
high safety standards? Although Mattel had investigated its contractors, it did not
audit the entire supply chain, including subcontractors. This oversight left room for
these violations to occur. Mattel has moved to enforce a rule that subcontractors
cannot hire suppliers two or three tiers down the supply chain. In a statement, Mattel
claimed to have spent more than 50,000 hours investigating its vendors and testing its
toys. Mattel also announced a three-point plan designed to tighten Mattel’s control of
production, discover and prevent the unauthorized use of subcontractors, and test the
products itself rather than depending on contractors.

The Chinese Government’s Reaction
Chinese officials eventually did admit the government’s failure to properly protect the
public. The Chinese government is now promising to tighten supervision of exported
products, but effective supervision is challenging in such a large country that is so
burdened with corruption. In 2008, the Chinese government launched a four-month
nationwide product quality campaign, offering intensive training courses to domestic
toy manufacturers to help them brush up on their knowledge of international product
standards and safety awareness. As a result of the crackdown, the state AQSIQ
announced that it had revoked the licenses of more than 600 Chinese toy makers. Also
in 2008, the State Administration for Commerce and Industry (SACI) released a report
claiming that 87.5 percent of China’s newly manufactured toys met quality requirements. Although this represents an improvement, the temptation to cut corners
remains strong in a country that uses price, not quality, as its main competitive
advantage.

Mattel’s Social Responsibility Imperative
Because Mattel’s core products are designed primarily for children, the company must
be sensitive to social concerns about children’s rights. It must also be aware that the
international environment often complicates business transactions. Different legal
systems and cultural expectations about business can create many complex issues.
Finally, the use of technology may present many dilemmas, especially regarding
consumer privacy. Mattel has recognized these potential issues and taken steps to
strengthen its commitment to business ethics. The company also purports to take a
stand on social responsibility, encouraging its employees and consumers to do the
same.

Privacy and Marketing Technology
One issue Mattel has tried to address repeatedly is that of privacy and online technology. Advances in technology have created special marketing issues for Mattel.
The company recognizes that, because it markets to children, it must communicate
with parents regarding its corporate marketing strategy. Mattel has taken steps to
inform both children and adults about its philosophy regarding Internet-based

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marketing tools, such as the Hot Wheels website. This website contains a lengthy
online privacy policy, part of which reads as follows:
Mattel, Inc. and its family of companies (‘‘Mattel’’) are committed to protecting
your online privacy when visiting a website operated by us. We do not collect and
keep any personal information online from you unless you volunteer it and you
are 13 or older. We also do not collect and keep personal information online from
children under the age of 13 without consent of a parent or legal guardian, except
in limited circumstances authorized by law and described in this policy.
By assuring parents that their children’s privacy will be respected, Mattel demonstrates that it takes its responsibility of marketing to children seriously.

Expectations of Mattel’s Business Partners
Mattel also makes a serious commitment to business ethics in its dealings with other
industries. In late 1997, the company completed its first full ethics audit of each of its
manufacturing sites as well as the facilities of its primary contractors. The audit
revealed that the company was not using any child labor or forced labor, a problem
plaguing other overseas manufacturers. However, several contractors were found to be
in violation of Mattel’s safety and human rights standards and were asked to change
their operations or risk losing Mattel’s business. The company now conducts an
independent monitoring council audit in manufacturing facilities every three years.
In an effort to continue its strong record on human rights and related ethical
standards, Mattel instituted a code of conduct entitled Global Manufacturing Principles in 1997. One of these principles requires all Mattel-owned and contracted
manufacturing facilities to favor business partners committed to ethical standards
comparable with those of Mattel. Other principles relate to safety, wages, and
adherence to local laws. Mattel’s audits and subsequent code of conduct were designed
as preventative, not punitive, measures. The company is dedicated to creating and
encouraging responsible business practices throughout the world.

As a global leader in toy manufacturing and marketing

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