MARKETING ASSIGNMENT

Marketing Environmental Analysis

Build-A-Bear Workshop
Name: K.A Course: DipCom 1 (Business Administration) Date: 30/11/2011

SITUATIONAL ANALYSIS
BACKGROUND INFORMATION Build-A-Bear Workshop (BBW) is the leading and only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. Its extensive and coordinated selection of merchandise includes over 30 different styles of animals to be stuffed and a wide variety of clothing, shoes and accessories for the stuffed animals. BBWs concept appeals to a broad range of age groups, including children, teens, parents and grandparents. Founded in 1997 by Maxine Clarke, the company and its franchisees currently operate more than 400 Build-A-Bear Workshop stores worldwide. Within the first 4 months of operation, BBWs sales were nearly $400,000. SINGAPORE FRANCHISE Build-A-Bear currently has four franchise stores in Singapore, which are located in convenient shopping malls (Nex, Plaza Singapura, Vivocity and United Square) with high consumer volume. These stores selectively promote seasonal products with special offers and promotions to maximize sales at peak traffic periods (e.g. school holidays) in the year. Also, strategies such as frequent shopper discounts, coupons and gift-with-purchase promotions are undertaken to drive traffic to these stores. Store associates, known as Master Bear Builder associates, build excitement and share the experience with customers at each phase of the bear-making process. Hence, regardless of age, customers enjoy this special place where they create a memory with their friends and family. TARGET CONSUMERS The stores primary target is families with children typically aged 3 to 12. Other consumer segments include grandparents, aunts and uncles shopping for gifts for children, teen girls aged 13 to 17, courting couples, child-centric organizations, leisure travellers and special interest collectors. MARKETING STRATEGY Build-A-Bear Workshop markets itself as an entertainment brand that appeals to a broad range of customers. This is achieved through the utilization of fully integrated marketing programs that include direct marketing, online advertising as well as national television advertising. To raise overall brand awareness, Build-A-Bear uses television advertising that
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targets new customers, consisting of both children and adults. It also periodically features specific new product introductions and promotions as a means to increase customer volume to stores. The company also engages in radio, print and online advertising to integrate its message across various touch points and has begun utilizing affiliate marketing opportunities in other on-line spaces that share the companys values and target groups. Build-A-Bear has also created a virtual world web site, primarily for children at bearville.com with enhanced capabilities, customization options and social connectivity features. This has been initiated with the aim of promoting brand recognition and raising awareness of in-store products and events. Furthermore, Build-A-Bear provides customers a highly interactive theme park experience in stores. This approach is very much centred on allowing each customer to personally design a teddy bear through an eight step process (Choose Me, Hear Me, Stuff Me, Stitch Me, Fluff Me, Dress Me, Name Me, and Take Me Home) in which the animal is fully put together. This involvement of the customers in designing their own toy not only ensured customer satisfaction but has made Build-A-Bear so successful that in 2008, the company had net sales of $467.9 million and a net income of $4.5 million (Bewerten, 2009). Moreover, the company also achieved the 25th spot on Business Weeks Hot Growth list of fast expanding small companies with CEO Maxine Clark winning Fast Companys Customer-Centred Leader Award as well (Shinn, 2010). STATEMENT OF CHALLENGES There are three critical strategic issues facing Build-A-Bear that may affect its long-term performance, as well as its local and international financial outlook. These include whether Build-A-Bear is able to ensure consistent growth, if it can continue to build brand recognition as a destination that provides affordable, experience-based retail stores and if it can overcome erratic changes in revenue and decreasing contribution margin to overall profit due to higher additional costs and expenditures. This essay would scan Build-A-Bears environmental climate using a political, economic, social and technology (PEST) analysis, use Porters five forces model to analyze the companys business strategies and discuss its strengths, weaknesses, opportunities and threats (SWOT) to examine closely the core competencies that drive Build-A-Bears success.

PEST Analysis
The PEST analysis is a useful tool for monitoring and evaluating forces which affect the organization over the long-term. Political: The political environment of Build-A-Bear in the U.S. is sound with on-going political stability. However, any changes in governments taxation policies will impact the organizations profitability indirectly. The international operations of Build-A-Bear are highly influenced by the individual state policies enforced by each government. In Singapore, the political arena is stable; with firm legislation. Corporate business tax rate is 17% and this is in fact lower due to partial exemption available to all companies and there are even more favourable exemptions available to new companies setup (Rikvin Group, 2011). This is an incentive for Build-A-Bear to open more franchise stores in Singapore. Economic: The economic environment is changing considerably as the U.S. economy is undergoing recession. Sales of toy retailing store, Build-A-Bear is directly related to consumer spending and the discretionary income of the population. Under current circumstances, consumer expenditure in the economy is expected to be low. Hence, this will create an impact on the already price sensitive customers in the industry to become more price oriented. In Singapore however, economy is currently booming and average disposable income among adults is rising (King, 2011). Hence, Singaporean consumers have more purchasing power and this could be an advantage to Build-A-Bear especially it if could introduce new products into the market specifically customized to bring out the Singaporean identity (E.g. Bears with Merlion themed accessories). Social: Consumer groups between 3 to 12 years of age are decreasing drastically in the U.S. and Singapore is also facing declining birth rates as people are getting more economically active. Thus, Build-A-Bear may have to consider expanding the target market group from just children and adults with children to creating an appeal for working adults or even the elderly. Technology: The state of the art stuffing machines in all of Build-A-Bears stores has led to a high standard in the quality of stuffed bears produced. Technological advancements in the area of e-commerce have also enabled Build-A-Bear to broaden its web presence by developing its interactive web portal buidabearville.com to extend personalized experience to its customers. However, more services can be provided by Build-A-Bear to its IT savvy

consumers in Singapore. The Singapore Government has also been hyping up business and technology needs with IT outsourcing, systems design and integration, applications software development and Web hosting. Build-A-Bear can tap on this expertise to increase its brand awareness among online consumers.

Five Forces Analysis

Porter's Five Forces analysis is an important tool for assessing the potential for profitability in an industry. It looks at five key areas namely competitive rivalry, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the threat of new entry. COMPETITIVE RIVALRY

Build-A-Bear Workshop doesn't face any direct competitors to what it creates. It is the dominant company in the stuffed animals industry and is the market leader. Build-A-Bears indirect competitors in the U.S. would include companies such as Pillow Pets, Webkinz and Hallmark. Pillow Pets produce pillows that are shaped like animals, WebKinz create stuffed animals that come with a code which allows customers to go online and form a virtual pet and Hallmark makes stuffed animals for any occasion. All these competitors produce stuffed animals, but they do not attract the customers like Build-A-Bear to create personalized bears. In Singapore, there is one direct competitor in terms of similar product concept to Build-ABear and that is CoolBear Workstation, located in the Esplanade Xchange. It offers the consumers choices in selecting bears, clothes and accessories but the variety is not as extensive as Build-A-Bear. Prices are also quite high, starting from $49.90 and with only one outlet providing very minimal information on the website. Furthermore there is little promotion and awareness about this store among Singaporeans. THREAT OF SUBSTITUTES

Build-A-Bear commands nearly a third of the $1.5 billion stuffed animals industry in the U.S. (Glacobbe, 2009). With such a strong market share and differentiated product concept from its competitors, the threat of a substitute affecting the company is very low. However, there is always a possibility that consumers may not know about the concept of personalizing their bears and instead may turn to off-the-shelves toys available (substitutes), such as the Paddington Bear which are readily available in stores like Toys R Us. Nevertheless, the
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experience and the entire process of a consumer creating a personalized Build-A-Bear stuffed animal is something that cannot be easily recreated. Moreover, there isn't a hike in demand for stuffed animals that can cause the market to grow significantly from where it is today. BARGAINING POWER OF BUYERS

Build-A-Bear Workshop customers do not have much power because of the control that Build-A-Bear has in the market. In addition, due to the very uniqueness of the stores initiatives to build customised stuffed toys, it is really in the hands of the consumers to decide whether they want to shop in the store. As the products are sold and bought based on the elements of personal choice, tastes and preferences, it reaffirms the fact that the buyers have very little bargaining power. BARGAINING POWER OF SUPPLIERS

In the stuffed toys industry, suppliers of materials do not have too much bargaining power since the stuffed toys are mass produced. Due to the standardised structure of the soft toys, the suppliers have very few reasons to try to considerably raise the cost of production, thus also not possessing the capacity to influence the market price of the stuffed toys sold by Build-A-Bear. THREAT OF NEW ENTRY

The threat of a new rival is rather low. It may be easy for any competitor to open a store at any shopping mall to sell stuffed animals. This competition can come from stores that offer a wide range of toys and not just bears, such as Toys R Us and Mini Toons. However, due to the market power that Build-A-Bear has and the world-wide reputation for creating customizable and personalised stuffed animals, not many competitors would be able to survive. This gives the company the first mover advantage in the industry and power over its competitors.

SWOT ANALYSIS
In this day of dominant discounters and shrinking margins, selling the experience is the best opportunity for many businesses to distinguish themselves in the market. Hence, when
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producing and selling distinctive or one-of-a-kind items, Build-A-Bear must realize that it has to offer customers a unique value proposition that differentiates its business and gives consumers a reason to continue doing business with the company. Therefore, in order to achieve long-term success by understanding the key issues and trends better, a SWOT analysis is effected below: STRENGTHS

Interactive Shopping Experience: Build-A-Bear took a commodity product like a teddy bear and moulded a customer experience around it. Through its innovative approach in engaging customers, the company has subsumed the store experience into the company culture. These custom-built bears also come with either a birth certificate or a story, and children can name and register their bear right in the store. As part of the registration process, buyers and recipients are required to give their names and addresses, which enable Build-A-Bear to consistently update their customers of its promotions and events via e-mail, for instance. Amicable Customer Service and Satisfaction: Good customer service is one of the most important components of creating a successful business (Wong, 2009). A customer can visit a Build-A-Bear store expecting to be greeted by an enthusiastic employee. This added personal touch from employees, who are driven to imbue excitement in the consumers, enhances the experience and also nails word-of-mouth publicity for the store. In addition to this, Build-A-Bear has effectively tapped into online social networking pages such as Facebook (having more than 1 million fans) and Twitter to further its reach on potential consumers. Strong Merchandising Expertise: Build-A-Bear also caters to individual needs by offering a wide variety of fashionable accessories ranging from hats to shoes for the stuffed toys. The company is also active in rethinking of possibilities to widen consumer choices by adding to the already extensive collection of merchandise. WEAKNESSES

Costs of Product: Outfits for the teddy bears start at $5 for just a shirt and can go up to about $16 for an entire ensemble. Shoes start at $3 and can go up to $10 for a pair of light-up Sketchers. Hence, a customer can buy a $10 bear, but easily shell out another $50 on just clothes and accessories.
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Waiting Time: The queuing time at the stores can be quite long and frustrating. This occurs especially in the stuffing line, when a consumer stuffs more than 1 bear and unexpectedly has to start the process all over again when there is a hole in one of the bears. This will delay the other consumers at the back of the line. Publicity and Positioning: Build-A-Bear brand awareness in the public is still relatively weak as it has not become a popular culture yet to seek out this store in particular to purchase bears as birthday presents or as gifts for other occasions such as Anniversaries, Valentines Day etc. This lack of publicity could result in a decrease in consumer volume to stores and thus, there is a need to advertise aggressively in order to draw customers' attention towards Build-A-Bear products. OPPORTUNITIES

Stores Expansion: There is continued opportunity to grow the Build-A-Bear Workshop concept and brand outside of North America, United Kingdom, Ireland and France primarily through franchise agreements. This is to create franchisees that are well capitalized and bring extensive retail experiences. The company can consider untapped markets like India, Malaysia and also some parts of South America. Social Media Advertising: Lane (2008) states that Build-A-Bear has no debt and significant cash, so they are able to invest in new initiatives. As the virtual and gaming worlds are in growth, enhancing Build-A-Bears new virtual world web site, bearville.com by adding revenue generating products and features that offer an authentic and unique merchandise assortment will take the whole brand experience of the real world into the virtual world. This will create a highly interactive entertainment experience in the long-term where customers can shop online too. Virtual Cub Advisory Council: Currently, stores in the United States have a Virtual Cub Advisory Council where consumers who have purchased the stuffed bears can suggest new ideas to CEO Maxine Clark to implement. This is not evident in other countries since outlets in these countries are franchises. Hence, by encouraging franchises to set up a similar feedback or suggestion Councils where consumers in other countries can suggest ideas for localized accessories in their own state, helps to promote and increase brand awareness and loyalty among them. THREAT
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Changing Trends: The toy industry is ever-evolving as trends come and go, which means that few toys stay popular for a very long time. Thus, competition in the form of electronic and/or virtual gaming can pose a threat to Build-A-Bear Workshop. According to Liz (2011), the average time every child spends online daily is about 1hour 48 minutes. Thus, with companies like Webkinz and Neopets vying for childrens attention in the online space, Build-A-Bear has to compete and look into alternate ways to offer the breadth and depth of the Build-A-Bear Workshop experience.

CONCLUSION
Earlier, three key issues facing Build-A-Bear were identified. These have important implications for the companys current expansion strateg y, impacting its long-term performance. Also, these issues involve critical decisions that have to be made at the corporate level that will ultimately influence operations locally in the U.S. and overseas. Hence, the most vital strategy now for Build-A-Bear is to generate more awareness and increase its brand experience. This can be achieved in various ways: Enhancing its frontline customer service through exclusive employee training and development. Investing more in marketing and advertising through different avenues of social media. Expanding international franchises that bring greater personalised store experience to customers. Providing rewards and privileges to delight customers by introducing value link gift card programs. As such, it is recommended that Build-A-Bear continue this strategy in the long-term, bringing in successful business models that are potentially lucrative to enhance its existing core competencies. This will not only help to develop experiential retail concepts that highlight the companys entertainment brand but will also ensure consistent growth in the future.

REFERENCES
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Bewerten, A., 2009. Build-A-Bear Workshop, Inc. Reports Fiscal 2008 Fourth Quarter and Full-Year Results. Finanzen.net, (online). Available from: http://www.finanzen.net/nachricht/aktien/Build-A-Bear-Workshop-Inc-Reports-Fiscal-2008Fourth-Quarter-and-Full-Year-Results-445974. Cited 13 November 2011. Glacobbe, A., 2009. How Build-a-Bear invented a bear market. CNN Money, (online). Available from: http://money.cnn.com/2009/11/02/smallbusiness/how_build_a_bear_got_started.fsb/index.ht m. Cited 13 November 2011. King, M., 2011. Low unemployment rate, rising disposable income and a strong tourism industry will ensure growth in the retail market in Singapore. Live-PR.com, (online). Available from: http://www.live-pr.com/en/low-unemployment-rate-rising-disposableincome-r1048935964.htm. Cited 13 November 2011. Lane, A. F., 2008. Build-A-Bear Workshop: Stock Report. Making Sense of Investing, pp.1-9. Liz, T., 2011. Screen addicts: Children spend more time in front of a computer or television every day than they spend exercising every week. MailOnline. Available from: http://www.dailymail.co.uk/sciencetech/article-1352361/Children-spend-time-computers-TVexercising-week.html. Cited 13 November 2011. Rikvin Group, 2011. Taxation in Singapore. (online). Available from: http://www.rikvin.com/singapore-taxation/. Cited 13 November 2011. Shinn, S., 2010. Build-A-Business Basics. BizEd Journal, pp.20-7. Wong, T., 2009. Build-A-Bear founder says creativity needed for business success. The Daily Northwestern, (online). Available from: http://www.dailynorthwestern.com/2.13894/build-abear-founder-says-creativity-needed-for-business-success-1.1921041. Cited 13 November 2011.