This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
9/12/2007
Mattel CEO Pledges to Improve Toy Safety
To be totally honest, I don't ever read the labels on the toys that I buy for my kids, but whenever I hear or read about a toy recall, I find myself going thru my kids toys to see if I've been the victim of a Chinese lead painted toy manufacturing malfunction. However, I wonder if companies like Mattel that voluntarily recall more than 21 million toys over concerns of a danger such as paint with too much lead actually see an increased demand in the long run for their toys? Obviously in the short run, the demand will decrease for toys made in China and sold by Mattel when consumers run out to purchase substitutes to Mattel's toys for the upcoming holiday season. But do you think that the demand for their toys will eventually increase to a point that is higher than the pre-recall levels because consumers will see Mattel as a responsible retailer who is first concerned with the well being of their customers? I think it potentially could unless Mattel is found to have really drug their feet in recalling the toys as if having a hard time making that kind of decision over what costs may be associated with a recall. Consider the Tylenol example of when cyanide was discovered in several locations around the States after it had killed several people. Tylenol made a tough and costly decision to pull all bottles of Tylenol off the shelves at that time. History has proved that to be a good decision and so with Mattel. Of course, only time will tell if parents are willing to put their money where their children's mouth is, literally, when it comes to buying toys made in China and sold by Mattel.
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11 comments:
Timothy - I'm conflicted about whether to take off points for poor grammar, or to ask which drugs those feet are taking.
Anyway, I think this gets to the heart of ManEc: a critically important question on which no one really has a clue.
Nobody really has any idea whether Mattel is better off coming clean or not. Clearly, they have to do something really drastic because they have a valuable and fragile brand image, and we have a legal system that is very effective at destroying that sort of value.
On the other hand, there is feedback as well: we have the legal system to build and transfer value, and there is feedback in that as the values get larger, the legal system becomes larger and more effective. It's very hard to sort out in that environment where a firm should draw the line on this sort of decision.
Unlike Timothy, I don’t have kids. However, it is easy for me to relate to the Tylenol example. I respect Tylenol as a company, and I trust their product, but when I walk into the store to buy a pain killer, I am going to buy the most effective product for the best price. That may be Tylenol, or it may be another brand. I would not buy Tylenol just because of their good reputation. I also would not buy the least expensive product if I had the slightest idea that there may be a problem with its quality. So, in the case of Tylenol, I don’t think that they will increase sales in the long run due to their moral recall unless buyers become more skeptical of the quality and performance of pain killers as a whole. As for now, in my opinion, they have only preserved their ability to sell their product.
I am in the same situation as Timothy. As soon as I heard about the toy recall, I looked at all of my son’s toys to make sure they were safe. If I put myself in Mattel’s situation, it would be extremely difficult to determine the right solution to the problem. A recall would be expensive, but it could payoff in the long-run. Tylenol’s decision to pull every bottle off the shelves of stores was very risky, but what would have happened if the public found out about the problem before Tylenol recalled its product? Would Tylenol exist today? I agree with Timothy about the long-run. Mattel could potentially rebound in the long-run and strengthen the loyalty of its customers. Many companies that recall products have overcome the short-run losses, but I also assume that many companies were unable to make it through the difficult years after a recall. When is a recall the right decision?
There's also a scale issue involved here.
The potential liability from Mattel's recall appears to be rather small compared to the one with Tylenol.
I can see the logic behind the arguments that have been made in this blog and comments about companies that come out publicly and are honest about the defects that their products have, and how these companies' customers in the long-run are going to be more trusting of the companies that do recall products. However, with a company like Mattel that has multiple recalls a year, I wonder when people are going to get sick of the recalls and simply start purchasing toys from a different company. As a consumer I am glad that companies do product recalls, but when a company is recalling product after product it becomes ridiculous. I say it is better off to take ones business elsewhere until these companies can figure out how to make a decent product.
I have no problems with what Sophie said, but, it's a good time to point out for ManEc students one of the inequities of business law in the U.S.
That is, that it actually wouldn't be legal for a seller to do the same thing to a buyer. You can discourage people from buying from you, but it is discriminatory to simply refuse to sell to them.
I don't believe that it will strengthen loyalties with Mattel for coming clean with the lead paint. In Tylenol’s case it directly producing a product and found out that an individual had contaminated the drugs. They recalled everything off the shelves and took care of the problem by modifying the packaging of the product. I don't think that Mattel can produce toys in a way that consumers believe guarantees that the toys are safe for their children. I think that they did save themselves from an even greater disaster by coming out with the recall and making an effort to fix the problems their toys. People will still buy Mattel toys, just as they still buy Tylenol; however, I don't believe that any customer loyalty will come of it.
I agree with Hailey. I don't think that brand loyalty will come with this decision. All it does is continue to keep them in the market place. If they didn't do the recall, then demand for their products goes down because of trust issues that their product isn't safe. I think they will some decrease anyway, but it will probably bounce back after a while. The toy industry seems pretty elastic so things other than price can effect the demand for their products. I think in the long run it was a good thing but I don't think people will buy their products because of any brand loyalty. Because the industry is elastic, they could always lower their prices to offset some of the damage done by the bad toys.
-1 on Hailey and Caden for grammatical errors.
Dr. Tufte,
It seems that in all of the marketing classes I have taken, coming out with the problem and having a nationally televised apology has been the best solution for any company. From what I studied those companies that came out with the problem and admitted to their mistakes faired a lot better than those that said nothing and allowed the media to go off in their speculations and rumors.
-1 on William for a homophone error. Nice point though.
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