Recovering From a Bad

Mattel's world-class competitive intelligence system crunches sales reports, children's play-pattern studies, and even findings on where kids go online. The system picked up signals that young girls, heavily influenced by the gyrations of pop star Britney

To stop the bleeding from The Learning Co., Eckert signed an unusual deal. He gave The Learning Co. to Gores Technology Group, a turnaround firm in Los Angeles, in exchange for "future consideration." Mattel would get a share of any profits Gores could coax from a revitalized Learning Co., or part of the proceeds if, as eventually happened, Gores sold it. Mattel got $21.3 million—a sliver of what it paid. But Eckert had freed Mattel from the drag of funding a money-losing software firm.

Eckert also forged a financial realignment plan in late 2000, to save $200 million over the period from 2001 through 2003. Mattel closed factories in Kentucky and Mexico along with some international offices, and lopped 2,570 people from its 27,000 workforce.

Amid Mattel's upheaval, Bratz' mojo grew.

Zwiers, the former Barbie marketing leader, says her alma mater needed to work harder to figure out where to take Barbie.

"Leadership at the very top of Mattel had changed," she notes. "There was not the same understanding of the level of ferocity needed to cut someone off immediately and not let them gain a foothold."

Former Barbie marketing director Lewis says Mattel intelligence had picked up wisps of age compression from internal surveys and external lifestyle studies even when she was there in the mid-1980s.

Mattel did bring out dolls wearing flashier clothes, such as its Diva Starz line. But with no competitor yet capitalizing on those concepts—and Barbie's sales still growing—Mattel didn't push this new direction.

"Mattel did not have an incentive to turn the fashion-doll aesthetic upside down," Zwiers says. "Only someone trying to unseat Barbie could do that."

When Bratz arrived next to Diva Starz on toy-store shelves, the Mattel dolls' rounded heads and muted makeup looked immature. Diva Starz are still available but have been repositioned for "transitional" girls age 6 to 8, rather than tweens.

In addition to the My Scene dolls, in June 2003 Mattel tried to further dilute the market for trendy dolls, adding an even edgier line called Flavas. But the dolls, meant to evoke the hip-hop music scene, incensed some parents who felt Mattel had turned Barbie into a tart. By early 2004, Eckert killed the product.

"Every year we have products that work well and products that don't and simply said, Flavas was one of those that didn't work well," he told financial analysts in a February 2003 conference call.

Mattel acknowledges that today few segments of its Barbie product line are doing well—mostly those intended for girls under age 5. Other Barbie versions, including those competing against Bratz, "need more work," Eckert acknowledged in an April conference call with financial analysts. He vowed to continue "rebuilding relevance with girls."

The lesson? A giant that rules its market can't get comfortable, says Day of the Wharton School. Instead, he says, it should create crisis internally, to teach itself how to respond when trouble does appear.

If Mattel, as part of its intelligence operation, had set up an internal "attack team" to strategize about how it would compete with itself, he says, it would have known to move faster when MGA first launched Bratz. "Ask yourself what have been your blind spots in the past and what's happening there now," he says (see sidebar, p. 45).