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Advertising Experiments At The Ohio Art Company

case review




ADVERTISING EXPERIMENTS AT THE OHIO ART COMPANY Recent Performance History The recession of the early 1990s helped Ohio Art to a certain degree, because many toys retailed for less than $20 and thus appealed to budget-conscious parents. Sales and profits peaked at $55.6 million and $3.4 million in 1992. - - - Sales increased 27% in 1998 to $45.9 million, as the company scored a hit with its newly introduced Betty Spaghetty doll. Despite betty popularity, Ohio art failed to post a profit in 1998, losing $1.8 million, mainly because a “major retailer” abruptly canceled a $15.2 million toy order just before the holiday season 1999, the company was again helped by the release of the smash-hit movie sequel Toy story 2, the attendance free advertising helped boost sales of the drawing toy by 20% during the 1999 holiday season. Revenues 1999 increased 16% and Ohio art achieved a profit of $356,000 Toy stores. Dominated by 3 majors retailers that controlled more than 50% of the market. - Wal-mart 25% market share Toys”R”Us 17% Target 12% Traditional specialty tor stores 12% market share Online toy sales $1.3 billion by overall toy sales. (34% market shares) Mass merchants held substantial power in the distribution channel. Growth of mass merchants came at the cost of several specialty toy retailers, including KB Toys and FAO Schwarz (sold unique items such as $300 stuffed giraffes and customized toys). K’s Kids product line of the Ohio Art Company, designed specifically for specialty retailers, targeted toward infants and toddlers and priced from $6-$85. Shifting Production. An etch a sketch made in china and delivered to the company’s warehouse in Bryan was found to cost 20% - 30% less than one made it in Bryan. 2001 Ohio art recorded its highest profits in nearly a decade $1.3 million. The gain was attributed to major restructuring efforts in the previous year that included shifting production to china. The etch a sketch experiment It was decided to test effectiveness of television advertising through a field experiment that lasted 3 weeks form November 27 to December 16, 2006. - Annual unit sales of all models of Etch a Sketch through this mass merchant in 2006 was 785,519 Holiday season spanning the months of November and December accounted for about 45% of the annual sales of the Etch A Sketch Product line. - - - TV commercials were aired during syndicated morning and evening talk shows, daytime soaps, and evening news programs in ONLY CINCINNATI. Reached about 3,7% of the population in Cincinnati. Cost of developing the commercials with an outside agency was $75000/ 4 other cities, chosen as the control cities to evaluate whether the advertising led to increased sales. Cincinnati area represented about 0.7% of the U.S population. Average population of the control cities about 2 million, which represented about 0.6% of the U.S population. Case following information: o Depending on the SKU and the month, the market share of the mass merchants that participated in this experiment ranged from 15% to 30%. o Detailed media plan for Cincinnati The average gross margin for the etch a sketch product was 58% and the average retail margin was 36%. Betty Spaghetti Experiment. The experiment had dual objective: 1. Testing whether advertising could increase sales obtained for the redesigned Betty 2. Convincing the merchandise manager at a mass-merchant chain that sales of Betty justified their shelf space. For betty experiments: - - - TV and radio commercials were aired in Arizona for 4 weeks from June 17, 2007 – July 14, 2007. 2 products, the Betty spaghetti color crazy and betty spaghetti Go Go Glam, were the focus of this experiment. The company purchased 600 gross rating points (GRP) for the TV advertisement for a total cost $31,500. Aimed at girls 2 and 11, was aired on cable channels such as Nickelodeon and the CN in Arizona. Purchased 64 GPR for the radio commercials at a total costs of $8022, aired during the morning and evening commutes. Each tv and radio programs reached about 1.8% of the population in Phoenix. Cost of developing the commercial through an outside agency was $150,000. The case dataset contains: o Weekly sales data from 23 stores of mass merchant in Arizona and 24 stores of the same mass merchant in California (control group) for 2 products, color crazy and go go glam. 23 stores represented 50% of the total stores in Arizona, and 24 Stores represented 10% of the total stores of this mass merchandiser in CF. o Year-to-date sales until July 07 from the mass merchant for color crazy and go go glam in Arizona and California. Depending on the SKU and the month, the market share of the mass merchants that participated in betty experiment had a national market share that ranged from 10%-15%. - California represented of 12%, Arizona represented about 2% of the U.S population. Each price point for betty spaghetti represented different SKU Some SKU came as a pack of two dolls while others had more options such as different hair styles for the Betty doll. The retail margin for the Betty product was 36% on average and ohio art obtained a gross margin 56%. Decisions Some of the differences in the experiments should affect the eventual decisions. - First on their mind was the highly seasonal nature of toy sales. Etch a sketch experiment was conducted in December – peak season. Some alternatives considered for measuring the economic worth of advertising etch a sketch including: o Directly evaluating the difference between Nov 06 and December 06 etch a sketch sales in Cincinnati. o Comparing etch a sketch sales in Cincinnati during December 06 to the corresponding sales in the other 4 control cities. o Adjusting for seasonality in December 06 sales using the December 05 etch a sketch sales before performing any analysis. o Adjusting for seasonality in December 06 etch a sketch sales using sales of doodle doug in all the cities, including Cincinnati and the 4 control cities before performing any analysis. Management wondered how conducting the betty spaghetti experiment in June, a slower month, affected their advertising decisions. Sales information on betty spaghetti was only available for the time periods the experiment was conducted. The media plans also different. The etch a sketch commercials were aired during TV programs most likely to be watched by adults, whereas the betty spaghetti commercials clearly targeted children. - - The result from the experiments would determine whether ohio art moved aggressively to build consumer demand through advertising. A GRP on national TV cable was expected to cost $3473 for the betty spaghetti campaign. Nationally syndicated TV was planned for the Etch A Sketch campaign, which was expected to cost $2,499 per GRP The cost of advertising during the last quarter of a year that included the holiday season was expected to be at least 15% higher than the rest of the year. About $2 million each was allocated for the Etch A Sketch and Betty Spaghetty national advertising campaigns that were planned for two months during the 2008 holiday season. DEFINITION OF 'STOCK KEEPING UNIT - SKU' A store's or catalog's product and service identification code, often portrayed as a machine-readable bar code that helps the item to be tracked for inventory. A stock keeping unit (SKU) does not need to be assigned to physical products in inventory. Often, SKUs are applied to intangible, but billable products, such as units of repair time or warranties. For this reason, a SKU can be thought of as a code assigned to a supplier's billable entities. INVESTOPEDIA EXPLAINS 'STOCK KEEPING UNIT - SKU' SKUs are used by suppliers within their data management systems, to help track amounts of product in inventory, and/or units of billable entities sold. SKUs help suppliers be able to track efficiently, the numbers of individual variants of products/services sold or remaining in stock. They are not to be confused with the model number of a product, although model numbers and attributes are often included to form all or some of a SKU.