Overview of the company
Build-A-Bear Workshop, Inc. is an American company with its parent headquartered in Overland. The company specializes in the production and sale of toys to children all over the world. The firm was incorporated in 1997 with only one store located in America at the time (Lee 20). However, as time went by, the firm opened subsidiaries in other countries, making it a multinational company. The company’s growth is attributed to the customer-centered strategy that is in place in the firm. Under the strategy, customers are allowed to dress their toys, select their preferred sounds, and to name them accordingly. The company sponsors various projects as part of its philanthropic works in an attempt to gain customers’ loyalty. Currently, the company operates about 400 stores located in different countries around the globe. The stuffed animals are cheap since they cost between $12 and $30 depending on the features included.
The principal strategies that the firm expresses
Focused Differentiation Strategy
The company operates under a strategy that concentrates on a narrow buyer segment as opposed to wide buyer groups and markets. Under the strategy, the firm specializes in meeting the target customers’ needs through the assessment of their tastes and preferences. Build a Bare executes this strategy by allowing the customers to customize their toys depending on their tastes and preferences (Cohen and Liechty 49). The process of procuring a toy in the company follows the following steps
- Hear Me
- Choose Me
- Stuff Me
- Stitch Me
- Fluff Me
- Dress Me
- Name Me,
- Take Me Home.
At the ‘Choose Me’ stage, the clients are introduced to the various types of toys available in the company’s store. At the ‘Hear Me’ stage, the clients are allowed to select the sounds they would like the animals to make, and they have the option to record their voices (Russell 123). The sounds selected are recorded in a chip that is then fitted to the stuffed animals. This stage is called ‘Stuff Me’ and it is considered the most important phase since it allows customers to choose what is to be included in their animals. The “Stitch Me’ stage involves enclosing the different features into the animal in readiness for the dressing phase. Customers are then allowed to dress their animals in the fashions of their choice. After the dressing, the clients are asked to name their animals and to give other details such as the date of birth. In the ‘Take Me Home’ stage, the customers are issued with a birth certificate of the animal based on the information they gave at the previous stage.
Effectiveness of the strategy
The firm’s differentiation strategy aims at serving the target customers better than the rivals. The successful use of the strategy is highly dependent on the existence of a group of customers who exhibit appeal to special preferences and the ability of a firm to meet such special customers’ needs. The prices of commodities under this strategy vary depending on the individual customer’s preferences. The more specific a customer’s needs are, the higher the prices charged.
Face-to-face interaction with customers is greatly attributed to the success of the firm since it instills a sense of independence (Steinbaum 36). Serving a particular group of customers as opposed to a bigger group ensures that the customers’ needs are met, increasing the profitability of the business. The strategy helps the firm build a group of loyal customers giving the firm a sustained competitive advantage over the rivals. Build a Bear sells its products at differentiated prices, depending on the customer’s needs and preferences. The strategy accommodates the various classes of people with even the low-income earners allowed to make purchases in the company. Companies with undifferentiated strategy sell their products at fixed prices without considering the incomes of the customers. In that regard, the strategy may be termed as effective since it allows customers to manipulate the product according to their preference and financial power.
Lastly, the strategy empowers customers to be part of the production process, which gives them the ability to manipulate the quality to suit their individual needs. The main customers for toys are kids, and through the strategy, the company can identify the markets with a high number of kids. The identification of the right market avoids unnecessary wastage of resources through opening branches in areas where customers are limited.
Go global strategy
The other strategy that has helped boost the company’s performance is its ‘go global’ strategy. Since its establishment in 1997, the company has focused on expanding the local market by penetrating the international market. Currently, the company has over 400 branches in various countries in the world. This aspect has boosted its market share and increased consumer convenience. The company operates under a strategy of increased profitability, and low performing firms are closed to mitigate losses. The closure of stores is informed by the need to lower the administration costs by merging such stores to increase efficiency and profitability.
Effectiveness of the strategy
Competition is high in the toy industry since the industry players are big firms. Some of the notable rivals include Wal-Mart, Target, Kmart, and Toys ‘R’ Us (Meyer 104). The listed firms are all large multinational corporations and are likely to benefit from the economies of scale hence maintaining low prices for their products. Since Build a Bear outsources most of its raw materials from the same suppliers who provide such materials to the rivals, the company must have a considerable purchasing power. Going global is a sure way of increasing its sales and increasing its total purchases to benefit from the economies of scale.
Forces that have shaped the company and its current place in the marketplace
PESTEL Analysis
Politics
Politics plays a great role in the various countries that the company operates. The politicians have been enacting laws that could easily limit the company’s operations. The copyright laws are specifically one of the notable influences that the political environment has presented to the company (Clark 126). The firm has to abide by the changes made in legislation by politicians in the various countries of operations. Political instability in some of the countries in which the firm operates affects the operations and the customers’ purchasing power.
Economic
The economic forces have also greatly affected the company’s performance since its incorporation. The main economic factors that influence the company are economic downturns and inflation. The United States’ economic downturn of 2008 affected the firm, as people had not much to spend on luxuries. However, from 2010, the economy has been stable, thus increasing the customers’ expenditure. Inflation also affects the company’s performance since it is a global firm. In most developing countries, the currency fluctuates too often, leading to losses.
Social
The social factors tend to favor the company’s performance due to the wide variety of toy types produced by the company. The company allows the kids to select the latest fashions of clothes to wear toys to suit different events. The turnover increases on holidays when kids are at home, such as during the Christmas vacations.
Technology
Inasmuch as technology boosts the company’s turnover through online marketing, it has increased competition in the toy industry. Toy producers are partnering with technology firms to facilitate the inclusion of the various digital features in their toys to make them attractive to the kids (Cohen and Liechty 72). However, the new technology has facilitated the growth of the company’s sales in that it has allowed the firm to fix various Mp3 sounds in its toy animals. The creative inclusion of the technological features has greatly boosted the company’s competitive advantage over the rivals.
Legal
The law also affects the operations of the company in the various countries it operates. The environmental and patent laws vary from one country to the other, and the company must abide by the laws to avoid incurring fines. The minimum wage laws also affect the company’s performance since countries have distinct legislation governing the labor market. The ethical code of ethics for the company varies from one nation to the other, owing to the diversity of cultures in various countries.
Determining whether the firm faces more challenges than opportunities
The company’s strategies allow it to overcome the challenges presented by the environment, as illustrated by its tremendous growth. The profits of the company have been consecutively dropping, as illustrated in Appendix 1. The firm needs to formulate market-based strategies to counter the strengthening challenges for its continued success in the industry. As it stands now, the firm has more opportunities than challenges since it may manipulate its strategies to minimize the inherent risks. The existence of subsidiaries in various countries around the globe is a major strength since losses incurred in a certain store may be offset by the profits from the other stores (Meyer 109).
Build-A-Bear-SWOT Analysis
Strengths
The company’s branding is one of the sources of its competitive advantage over the rivals. The company has a customer-interactive strategy in place that allows customers to customize their animations during the process of procurement. Besides, the firm has an extensive retail presence in most countries in the globe, which allows customers to interact with the employees of the company. The face-to-face interaction between employees and the customers allows the firm to gain insight of the customers’ level of satisfaction. Such information is used as the basis for quality improvement to satisfy the customers’ needs. Lastly, the company has a strong e-commerce foundation that it uses to market its products online. Online marketing is cheaper compared to other promotional methods leading to low operation costs. In 2012, the company recorded an increase in online transactions with the electronic sales accounting for 7.7% of the total sales (Meyer 104). Besides, the firm had about 2.5 million Facebook users, 40,000 Twitter followers, and their YouTube channel had about 8 million viewers as of March 2013.
Weakness
One of the most notable weaknesses of the firm is its financial performance. In 2008, the firm recorded its highest revenues with sales amounting to $468 million. Since then, the company’s turnover has been sharply declining as illustrated in the following table
The firm’s cash flows have also exhibited a declining trend over the period in question. The diminishing cash flows may deny the firm the ability to expand and establish subsidiaries in the global market.
Opportunities
The firm’s sales were greatly affected by the economic downturn that occurred between 2008 and 2010 (Russell 49). During this period, the company’s sales declined significantly in the parent company. However, the economy is now stabilizing meaning that customers can now spend more on luxurious commodities. As of 2012, the customers’ spending was about 3% presenting new opportunities for the company (Steinbaum 36). The organization also has an opportunity to expand its market share by investing heavily in the global market to maximize its sales. In pursuit of this objective, it needs to partner with other global companies in the industry to ease its entry into the international market.
Threats
Change in legislations regarding the labor laws is a great threat to the survival of the company. Currently, most countries have enacted legislations setting the minimum wages. Build-A-Bear and other multinational companies have to comply with the labor law, which increase the operation costs and affects the profitability of the firm. Competition is yet another threat that is likely to affect the operations of the company. The competitors are big firms that are likely to benefit from the economies of scale hence maintaining the prices of their products as low as possible. Fluctuation in currency is also a major threat to the survival of the firm since it may lead to diminished profits of the firm.
What the firm must do to improve its performance and long-term sustainability
The company has a strong Internet marketing platform with customers from all over the world interacting with the firm via the social media. Digital marketing is cheaper compared to other forms of marketing hence the company needs to use the online promotional strategy to boost its sales (Clark 76). The company needs to embark on research to unravel the customers’ needs not satisfied by the rivals. The customers’ reviews obtained through the social media and the Internet at large should be used as the basis for improving the products. Each subsidiary should be encouraged to open their Facebook pages and Twitter accounts. Such accounts will bring together people from similar backgrounds to interact with each other and the company at large. Interacting effectively with customers via the social media may help sell the company to clients and create a group of loyal customers who may help market the firm’s products cost-free.
The rivalry is stiff in the toy industry with all the firms in the industry being multinational companies with a strong purchasing power. Competition is one of the greatest threats to the company’s success. Build a Bear should partner with other global companies in the international market to intensify its global presence. Partnerships with other global firms will ease its penetration to the global market and diversify the risks that may present in the course of pursuing such endeavors (Cohen and Liechty 56). The global market will help the company increase its diminishing revenues due to the increased turnover. It may also help neutralize the adverse effects of economic downturns in any of the country it has a subsidiary. A case in point is the 2008-2010 economic downturns that greatly affected the firm’s performance. If the firm had a strong global market, perhaps, the effects would not be that intense.
Human capital is one of the most precious resources of a firm. Successful firms invest heavily in the workforce to motivate them to produce high-quality products. In that regard, Build a Bear should make a considerable investment in its workforce to increase their productivity and boost their morale. The investment should come in the form of training programs devised to impart additional skills to the employees. The training should be devised in such a way that it is firm specific to mitigate job mobility. The trained employees should be rewarded competitively to avoid their absorption by the rivals. Promotions should be done from within whereby the best performing workers are promoted to managerial positions in the firm. This strategy will not only increase efficiency but will also motivate the workforce.
The company’s customers are mainly children who are usually very slippery to technologies. The company should remain innovative to improve the features included in the toys. The firm should partner with technological firms such as Apple to allow the inclusion of electronic devices in the toys (Lee 20). Some of the electronic devices that may be included in the toys include Mp3 players, digital timers, and various gaming applications. The inclusion of such features will make the company’s products attractive to the kids hence boosting the company’s sales. Employees should be encouraged to remain innovative when handling customers. New ideas should be rewarded to increase their innovation capabilities.
Appendices
Appendix 1
Works Cited
Clark, Maxine. The bear necessities of business: building a company with heart, New York: John Wiley & Sons, 2006. Print.
Cohen, Steven, and John Liechty. “Have it Your WAY.” Marketing Research 19.3 (2007) 34-78. Print.
Lee, You-Jin. “Build-A-Bear Workshop: Its Aesthetic and Ideology.” Art Education 61.6 (2008): 20-22. Print.
Meyer, Andrea. “Leading Innovation.” International Journal of Innovation Science 1.2 (2009): 103-109. Print.
Russell, Michael. Breakthrough teaching and learning, New York: Springer, 2011. Print.
Steinbaum, Harlan. “The Seven Universal Principles of Successful Executives.” The Journal for Quality and Participation 34.3 (2011): 36-38. Print.