After reading each of the following cases, answer the questions that follow by creating two different posts. Each of your posts should be well-thought out and at least half a page long. Comment on two other posts by providing additional support or critique.
For Luxury Automakers, Selling Toys is no Game
The three big German automakers, BMW, Mercedes, and Volkswagen's Audi have been locked in a tight fight for the domination of the luxury car market. Besides competing in automobiles, they have extended their product lines to include playground offerings, with sleds and push cars that target the next generation of drivers. The top offering came from Audi with a scale model of its 1930's racer, the Auto Union Type C, which retailed for $13,300, and quickly sold 400 out of the total of 500 that were produced. The toy car is suitable for children up to 4 feet 5 inches and features an aluminum frame, oak dashboard, leather-clad steering wheel and seven speeds. As an alternative, Audi also offers a plastic pedal-powered version of the Type C for $410.
While BMW offered snow sleds with either a Mini or a BMW brand for approximately $110, Mercedes countered with a toddler version of its gull-wing SLS supercarfor $123. To ensure that their toys represent the technological prowess and quality that their automobiles represent, luxury carmakers go to great lengths to make sure their toys stand out. Mercedes' foot-powered SLS Bobby-Benz is designed to closely resemble its $183,000 counterpart, and features quiet running tires, tight steering, and an impact-absorbing steering wheel. BMW's snow sled features replaceable metal runners, a horn, as well as a suspension-system in the steering ski.
The technology the firms use in its toy offerings is partially derived from its automotive products, and helps them leverage their core competences, thus obtaining more than just some additional sales, through product positioning in the mind of the next generation of drivers. Skills and retail space used to sell luxury automobiles are also used to tap into a new market segment--premium toys--and also to further reinforce their value proposition, by reinforcing their brand image.
Source: Reiter, C. 2010. For luxury automakers, selling toys is no game. Bloomberg Businessweek. November 29: 26.
1. Given the high cost of producing quality toys that would sustain the rigors of child play, is this a good strategy (if the toys break, it would reflect negatively on the company)?
2. Should the firms focus only on doing what they do best, namely produce cars? Why/why not (benefits/costs)?
Mattel Falls Prey to Egotism with the Learning Company
In 1999, Mattel found itself in a difficult situation. Its growth was slowing, its flagship product, Barbie, was losing market share, and it did not have a strong position in computer-based games. Mattel CEO, Jill Barad, thought that the solution was for Mattel to shift its attention to the faster growing computer-based interactive games market. To move aggressively in this market, she decided to acquire the Learning Company, a maker of interactive and educational games. The price was steep - $3.5 billion which was 4.5 times the Learning Company's annual revenue. It turned out to be a very expensive move. Mattel found that the Learning Company was generating little free cash flow and had a stable of aging brands. To make matters worse, Mattel didn't have the skills to renew the product portfolio of the Learning Company. Mattel lost two-thirds of its market value after the acquisition. Jill Barad lost her job. And the Learning Company was sold off for a paltry $27 million.
One of the key mistakes with this acquisition was that Mattel was over-confident in its ability to run the Learning Company. They thought that their managerial talent and knowledge could be easily transferred to run the Learning Company. What they found, instead, was that the skills needed to run a computer software company were very different than those needed to run a toy company. Also, they had little appreciation for the differences in the market dynamics of the software business. Mattel would have been much better served by focusing their attention on being the strongest competitor possible in their core market, a market where they should have had the competencies needed to build a competitive advantage.
Source: Hirsch, E. & Rangan, K. 2013. The grass isn't greener. Harvard Business Review. 91(1): 21-23.