MATTEL TOYS RECALL CASE STUDY Product

recall:
On August 14, 2007, the U.S. Consumer Product Safety Commission (CPSC) in cooperation with Mattel announced five different recalls of Mattel's toys. On September 4, Mattel announced three more recalls. Some were due to the use of lead paint, while others were due to small magnets coming loose. On August 2, 2007, Mattel's Fisher-Price subsidiary recalled almost one million Chinese-made toys, including the famous cartoon brands amongst kids:Dora the Explorer and Sesame Street toys, because of potential hazards from parts of the toys which were colored using lead-based paint that may have exceeded the US Federal limit of 600 parts per million. Q1. What should the country do to polish its image? -First, the central government must ensure that manufacturing quality standards and health and safety laws are tightened and enforced nationwide. Western multinationals have a role to play in ensuring their Chinese subcontractors deliver on quality, but Beijing must push provincial governments to upgrade and enforce existing laws. -Second, China must move towards an economy based on invention rather than imitation. Japan and Korea have made the transition. Brands like Sony and Samsung are now respected worldwide. The global aspirations of cutting-edge Chinese brands like Lenovo and Haier suffer when the misbehaviors of corrupt Chinese businessmen and government officials drag China's image down. Pretty soon, China will be exporting cars. Cars are a benchmark product that consumers worldwide will use to assess Chinese production quality across the board. The cars China exports better be as good as Hyundais and Toyotas.

-Mattels response:
A series of recent setbacks threaten China's new and improving image. As a result, China looks like a country that loves the world's markets but does not play by the world's rules. China is hardly alone in these behaviors, but its size as the third largest economy in the world now commands attentionand the expectation of better behavior. Not until recently has China's government given serious attention to the country's international image. Though the number of tourists and foreign investors grows apace, there is just not enough preexisting brand equity among the world's consumers to inoculate Brand China against the current tide of negative publicity.

-Reverse marketing:
Mattel has been criticized heavily for having to recall not once but twice in as many weeks 20 million toys manufactured in China with lead paint and/or loose, potentially dangerous magnets. Clearly Mattel did not have sufficiently tight quality control procedures in its supply chain to compensate for the extra risks of outsourcing to relatively new Chinese subcontractors. Clearly there were design flaws in the toys with the magnets that could come loose. But Mattel deserves praise for now stepping up to its responsibilities as the leading brand in the toy industry.

-What has Mattel done! :

The CEO has taken personal charge of the situation. He has apologized publicly and taken immediate steps to tighten quality assurance requirements on Mattel's suppliers. Mattel is effectively getting the word out about the recall. Among other methods, the company is using bold red ads on high-traffic Internet sites such as Yahoo.com to find owners

of the affected products and drive them to the Mattel Web site for more recall information. With this approach, consumers are being empowered to handle the problem themselves rather than clog customer service desks at Mattel's retail outlets, which would strain Mattel's dealer relations and cost the company extra dollars in processing fees. Mattel's recall Web site is a model of excellence. All the affected products are depicted and clear instructions are provided on how to return recalled products (including downloadable application forms and shipping mailers), which suggests strong contingency planning. Where Mattel has fallen short so far is in compensation. Mattel is offering equivalent value coupons good for other Mattel products in exchange for recalled products. Given the inconvenience caused to consumers and the need to motivate them to return the affected products, this offer may not be sufficient. Ultimately, the success of the recall will be determined by the percentage of affected products that are returned. Anything less than 90 percent within 3 months for a child safety hazard will represent failure. As long as the 2 recalls to date are the whole of the problem and not the tip of an iceberg, Mattel's brand reputation should survive. The CEO knows that Mattel's brand trust built up over 62 yearsis at stake, just ahead of the holiday selling season. And with 80 percent of U.S. toys sourced from China, other U.S. toy marketers are under equal scrutiny; if similar problems surface at other companies, Mattel may earn some credit for getting out ahead of the problem. By doing this, may be China will succeed in its effort to rehabilitate its brand.

Q2. How according to you can China succeed in such situation?

-Made in China: Could be Another Branding Problem!

In the wake of Mattel's recalls -- as well as recent news stories about defective or unsafe Chinese exports ranging from tires and pet food to toothpaste and pharmaceuticals -- the words 'Made in China' will most likely be suspect for a while, or regarded with a great deal of caution. The Chinese government, recognizes the significance of this problem and is trying to do what it can to ensure that 'Made in China' suggests [good] quality, not poor quality." One sign of this is the government's announcement that it will start inspecting all food exports and cracking down on violations of health and safety standards. But China is a very decentralized country, and the central government's ability to control local governments is limited. Chinese consumers have suffered for years from poorly made or unsafe products, with very little recourse to [bring about] change. Now the international trading community may be able to do for Chinese consumers what their own legal system can't." As for Mattel, its response should be considered just the first step. --In China, the production chain consists of contractors, subcontractors and sub-subcontractors. At the end of the day, this allows work to get done very cheaply because everybody is seeking the lowest price. But it also means that quality control is very difficult. --A company [should consider] actually owning its manufacturers. While this would be impossible in a sector like the automotive industry -- where foreign investors are limited to less than 50% ownership -- the toy industry is not considered strategic and there are no such limitations. Mattel, one way or another, should take control of the process." Ultimately, this holds true for all firms that are distributing and branding products in the West. --With demand increasing, many small, relatively new suppliers are springing up with little in the way of reputation or assets. There are no constraints to keep them

from opportunistic behavior. So it's a combination of everyone working in a cost-pressure market and others committing acts of fraud. [Actions] are not as well policed as they would be in a more mature economy that is growing at something less than a breakneck pace.