Case Study: Hasbro and Collaborating for ProfitBy Anne Field | Posted 06-10-2002
Case Study: Hasbro and Collaborating for Profit
Headquarters | Pawtucket, R.I.
Year founded | 1923
CIO | Doug Schwinn
CMO | Edward Kriete
IT employees | 300 worldwide
Business units | ThreeU.S. Toys, Games and International
Top brands | Nearly 100, including G.I. Joe, Easy-Bake Oven, Furby, Monopoly, Play-Doh, Pokémon, Scrabble and Zoids
Revenues | $2.9 billion in 2001, down 23% from $3.8 billion in 2000
Net income | 59.7 million in 2001, versus a loss of $144.6 million in 2000, with a loss of $17.1 million in the first quarter of 2002
Number of Web sites | 55 in 1999; 20 in 2001
As one might expect, there are toys everywhere at the Pawtucket, R.I., headquarters of Hasbro Inc. A larger-than-life Mr. Potato Head stands in greeting outside. The lobby is festooned with original artwork made from such Hasbro board games as Scrabble and Boggle. Even a bathroom sports an embossed portrait of two Potato Heads holding hands.
But the business mood is hardly playful these days at America's No. 2 toymaker. Hasbro's revenues were down by $930 million, or 23 percent, last year, and off by another $11 million for the first three months of this yeartraditionally, the toy industry's worst sales quarter. Profits, meanwhile, in the red by $144 million in 2000, were barely back in the black last year. To reassure skittish investors, CEO Alan Hassenfeld has ordered budget cuts of $100 million in a second round of cost cuts that will save Hasbro a total of $200 million by 2004.
Hasbro is also under increasing pressure to innovate. Hasbro's brands have scored classic hits nearly every decade since the 1920sTinkertoys in the '20s, Tonka trucks in the '40s, Play-Doh in the 1950s, G.I. Joe and Easy Bake Ovens in the 1960s, Nerf balls in the 1970s, and Trivial Pursuit and Pictionary in the 1980s. In the '90s, Hasbro found itself without a hot new classicand toward the end of the decade, stuck with a hodgepodge of more than 50 separate Web sites that weren't reaping any revenues or new insights about the people buying Hasbro toys.
Sure, Hasbro, like No. 1 Mattel, does quite well in retail stores, selling nearly 30 percent of its toys through high-powered distributors like Wal-Mart and Toys "R" Us. Analysts have said however, that Hasbro also needs to learn more about customers directly and get a whole lot smarter about the Web.
Enter Hasbro chief marketing officer Ed Kriete and CIO Doug Schwinn, hired within months of each other in 1999. One day that year, they found themselves, by chance, sharing a car ride to a business meeting in Boston. During that trip, both men recall, they discovered they shared similar views about what was broken at Hasbroand how to fix it.
Enemy No. 1, both men agreed, was Hasbro's uncoordinated and costly online initiatives, born during the reckless early days of the Internet boom, when experimentation and payouts were running high. Besides there being too many sites showcasing individual brands55 just for toys and games aloneonly two were actually generating sales and customer data. "Everybody (at Hasbro) was putting up Web sites to put up Web sites, but there was no e-commerce," Kriete recalls.
Under the old Web strategy, customers could register and tell Hasbro the basicstheir addresses, birth dates, the gender of their children, e-mail addresses and product preferencesbut Hasbro brand managers, as it happened, weren't actually doing anything with the data. "These weren't bad people," Kriete says. "It's just that the previous Web strategy wasn't really a strategy at all. It was driven by the need for speed. You had to have Web sites to gain market advantage, everyone believed. But nobody really knew what they were doing, and some didn't really understand why."
So Kriete and Schwinn brainstormed over how Hasbro needed to overhaul its entire marketing strategy, and in Kriete's words,"rebuild the house"use the Web not simply to showcase various toy brands, but to cross-sell them, gather customer data, drive traffic into retail stores and set up online focus groups to establish customer-driven innovation.
Establishing Web sites to boost brick-and-mortar traffic, learn more about individual customers and help them to comparison shop is hardly a new concept. But when Kriete and Schwinn arrived at Hasbro Kriete from The Readers Digest Association, and Schwinn from OfficeMaxe-commerce was something relatively new for the toy industry. In a business where some 80 percent of products are turned over every year, the focus of toy marketing executives traditionally had been on product development, solidifying relationships with retailer-distributors and backing them up with mass-market television advertising. Recalls Schwinn: "We knew there had to be a better way to build this mousetrap."
There was. Today, three years later, the Kriete-Schwinn partnership has evolved into one of the industry's most successful examples of IT-marketing teamwork. Since the start of their collaboration, the company's Web design and technology costs have declined by more than 50 percent, net-driven sales are up in stores, and customer service costs have dropped 20 percent. Instead of calling Hasbro's toll-free number, customers now go to a new Hasbro super-site to find where to go to replace a lost piece to Clue, or buy the latest G.I. Joe doll.
Better still, the Kriete-Schwinn collaboration has been institutionalized at Hasbro, in the form of an IT-business steering committee composed of top business and IT managers, which meet frequently to discuss strategy and make sure everyone's on the same page when it comes to new projects. "There's a gravitational pull that occurs when you have a strong CIO and a strong business executive who, for some reasonusually something like financial crisis or another type of clearly-shared goaldecide to work closely together," says Ranjay Gulati, professor of management and organizations at Northwestern University's Kellogg School of Management. That force, he says, by its nature, pulls together CIOs, marketing chiefs and inevitably, their teams, into "alliances of necessity."
At first, Kriete and Schwinn kept their new strategic alliance under wraps from Hasbro colleagues. In late 1999, the Web boom was still in full flower, and, "Nobody was exactly in the mood to start shutting down Web sites," Kriete explains. For that reason, they knew they'd need hard numbers on Web site traffic and online revenues, if any, in order to make a solid case for waste-cutting and change. And that wouldn't be easy either. "This information was being hoarded, or spread out across the divisions, or being held close by brand managers throughout the company," says Schwinn.
But fate came to the rescue. In 2000, amid a downturn in toy sales, CEO Hassenfeld, the grandson of Hasbro's cofounder, held a corporate retreat at which he announced that 2000 revenues would be off by $144 million. He ordered, on the spot, between $50 million and $70 million in the first of what would be two rounds of cost-cutting.
It was the green light Kriete and Schwinn needed to press forward. Kriete recalls: "I immediately turned to Doug and told him that the marketing department could bring in all the [Web] design work from the agencies and save money. Doug said, 'Yeah, well, I can bring in all of the hosting that is done at external services, and I can save another wad of money.' So all of a sudden, we just thought, 'Wow.'"
Success, though, would also require a detailed management strategyto prove to top execs and middle managers that the new Web project would be in everybody's best interest. They decided early on that input would be solicited from everyone. Says Kriete: "We wanted it clear that this wasn't just a corporate mandate, strictly orders from the top. We wanted both IT and business people, top people and middle managers, to be an integral component of the overall strategy so that they would own it and we wouldn't have to execute it by ourselves."
As with everything else, Kriete and Schwinn divided to conquer. Schwinn met with top management to lay out the full financial and operational scope of the plan. Kriete, meanwhile, sought to win the buy-in of brand managersa far stickier proposition. "Many of these guys' egos were wrapped up in some of these individual brand sites," Kriete recalls. Trust was at stake. "You could have all the mandates in the world from senior management, but if you didn't have the trust of the brand managers to ensure their brand was portrayed effectively, it wasn't going to work," he says.
At first, says Kriete, some brand managers were openly reluctant, telling Kriete they thought the Web was overhyped. In some cases, managers of some of Hasbro's nearly 100 brands hadn't developed Web sites at all, preferring to spend their money for marketing solely on TV ads. In still other cases, brand integrity was the biggest worry on brand managers' minds. In each case, Kriete met with each manager individually, first talking about their individual business objectives, then showing them how the project wouldby tying all the company's brands togethergenerate more interest per brand, and help consumers to migrate from one featured product to another. "The G.I. Joe crowd probably wouldn't have even looked at a Tonka toy product before," he says. "With the new Web strategy, it would all be there with the click of a button."
The two also dispatched staff researchers to gather as many facts as possible: how much each brand manager was spending, for example, and how much bang they were getting for each buck. Historical and current site traffic also was studied, along with such issues as whether the brand was on the downside or upside of its cycle, whether managers were planning a big new product rollout, or whether the site represented one of the company's core brands.
About a half-dozen customer focus groups also were created to see what customers really wanted in a Hasbro Web site. The answer? Consumers liked to shop by age and product categorypreschoolers for action figures, for example. And they also wanted a Hasbro site to provide something very simple: product information, like how to get replacement parts and game instructions, instead of making customers dial the company's toll-free number. Hasbro also learned that consumers didn't care whether or not they purchased from Hasbro online or another retailer. In fact, they didn't particularly want to buy their toys from the site. Rather, they were more interested in the ability to comparison shop online.
Kriete had already suspected that: His research showed that for every dollar spent online, customers typically purchase $2 to $8 more at a brick-and-mortar store. So Kriete came up with the idea of affiliate retail relationshipslinks to participating retailers through the site. Consumers interested in buying online, or in investigating price information, would be linked to affiliates like Walmart.com or Toysrus.com. Kriete assigned a person from his staff to work full-time with retailers on the program.
On the technology side, meanwhile, Schwinn began looking for places to cut costsdramatically. He saw that Hasbro was relying on nearly 50 outside Web hosting systems, so he suggested the company bring those services inside, for a savings of as much as 50 percent. Schwinn also figured he could use Web designers at the Seattle offices of Wizards of the Coast Inc., a Seattle-based trading card game company Hasbro bought in 1999, to help create the basic standards and design template, using a Windows-based system (the old patchwork of systems used a mix of Unix, Linux and Windows), along with a small development and design team in Pawtucket.
Eventually, the company would redesign and convert all the Web sites over to a new standard and install a hardware system using Dell servers. The result: Savings on the technology side of at least $1 million a year in Web costs alone. In fact, the Web strategy overhaul promised the economies of scale that the Internet, at its best, offers many companies. "Cutting ongoing maintenance alone reaps big savings," says Richard Villars, vice president of Internet research at International Data Corp. But, more important, he says, instead of providing a service to one small part of the customer base, Kriete and Schwinn saw that service could be made available to everyone simultaneously, for even further savings. "We had to rebuild the house," Kriete recalls, "and ended up cutting spending in half but boosting impact by three or four times."
But Kriete and Schwinn aren't finished yet. Now, they're working together to put the finishing touches on a super-portal for Hasbro, one central site that can push all of Hasbro's brands to visitors in one-stop shopping. This enables the mother looking for the perfect G.I. Joe for her seven-year-old to investigate, say, a Star Wars light saber or the latest Transformers for her preschooler in one-click searching, rather than having to go to those specific sites.
It's the latest facet of the Kriete-Schwinn Web strategy: Customers will be directed to the super-site through information written on product packaging and through mentions on TV ads. Targeted promotions will still be developed from customer information, but they will include offerings from all over the company. For example, the parents of a four-year-old born in July would, sometime in June, receive an e-mail about appropriate Playskool and Tonka toys, along with a promotional coupon to be used at participating retailers. The upshot: "You can better track how deeply your customers are establishing a bond with you," says Villars of IDC. Ultimately, he says, "You know not just how often and for how long they come to you, but you also get a better sense of who may be buying your product. And you also know, for example, that it's the same person who is interested in a light saber and a Transformer, not two separate consumers."
And best of all? The super-site might help Hasbro better nab the "tween" market and keep kids in the Hasbro fold as they outgrow particular categories. "People would be reminded every time they logged onto the site that there are other products they could move to, when they're ready for the next level," says Schwinn.
Kriete is also mulling a move toward tying television commercials to individual Web sites, which research shows boosts site traffic and traffic to stores. Visits to G.I. Joe's toy site spiked recently after a recent TV ad campaign, and continued for several months afterward.
Can it all help Hasbro boost profits? The Web strategy could help. "Given how many late starts there have been in Web strategies in the corporate world, it's probably safe to say that if Hasbro's strategy works, it will be early to the game, not late," says David Leibowitz, managing director of Burnham Securities Inc. in New York.
Win or lose, the guaranteed payoff is the new IT-business relationship Kriete and Schwinn have already put into motion. "It's through this kind of relationship that you can develop realistic goals, work together to get everyone else on your side and, ultimately, bring your plan about," says John Parkinson, chief technologist for Cap Gemini Ernst & Young. "Making these kinds of relationships work is enormously complicated and difficult, but when they happen, they can be golden."
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Problems & Solutions
Customer service costs were rising, in part because of calls by consumers to a Hasbro toll-free number for game instructions and toy assembly help. Average cost per call: $5.
Put instructions for Hasbro toys and games like Clue to Scrabble online and reduce service costs to pennies per query.
20% cut in customer service costs because consumers can now download toy and game instructions.
Hasbro had 55 different Web sites, each promoting a different brand, and only two were interactive.
Consolidate the sites by market segment and cross-sell brands as appropriate, online and off.
50% in savings on Web site design and development, by reducing the total number of Web sites from 55 to 20. Further, traffic to stores is up, thanks in part to the company's new Web strategy.