Case Study:Alliance Formation with Direct Selling Companies: Avon and Mattel

Lawrence B. Chonko

Abstract

This paper provides an assessment of the recent alliance formed between Avon and Mattel. The alliance represents,among other things, a blending of Avons sales expertise with Mattels high quality products,including the Barbie product line. The alliance is evaluated on the basis of seven requirements. Managerial suggestions and research ideas are presented.

Strategic Alliance Formation: A Brief Overview

A company such as Mattel,Inc.can enter a foreign market in one of three waysMagrath 1992

Establish a Foreign Subsidiary. Acquire Competitors and/or other Business. Form Alliances and/ or Joint Ventures.

Strategic Alliance Formation: A Brief Overview

Magrath1992goes on to identify four types of marketing alliances

Establish Product and/ or Service Alliances. Establish Promotional Alliances. Establish Logistic Alliances. Establish Pricing Alliances.

Strategic Alliance Formation: A Brief Overview

Alliance seekers hope to achieve a number of benefits,as shown below

Gain Access to Local Markets Derive Learning Economies of Scale Block and/or Co-Opt competitors Obtain Manufacturing Economies of Scale Offset Competitive Disadvantage Shape the Nature of Competition Gain Access to Needed Technologies

Strategic Alliance Formation: A Brief Overview

The Avon-Mattel Alliance

In 1997,Avon Products,Inc. and Mattel,Inc. began a series of joint marketing initiatives. Among the joint initiatives was the sale of new Barbie dolls and other Mattel products in the U.S as well as a new line of Barbie cosmetics to be marketed internationally. The alliance is expected to generated $100 million in sales to Avon in 1998. Avon and Mattel marketed two exclusive-for-Avon Barbie dolls in 1997, a Spring Blossom and a Winter Velvet Barbie.

The Avon-Mattel Alliance

The Avon-Mattel alliance can be characterized as a product alliance for Avon and a promotional alliance for Mattel. Both Mattel and Avon are seeking benefits of a larger scale through resource poolingAvon benefits from Mattels products and Mattel benefits from Avons sales expertise and both companies retain their independence. The Avon-Mattel alliance also has some of the characteristics of Kantors1989opportunistic alliance.

The Avon-Mattel Alliance

Mattel brings well-known brands and licensed properties to the alliance.Mattel is enabling Avon to become a primary source of Mattel products in a direct selling format. Avon brings a strong global distribution network to the alliance. The existence of this distribution enables Mattel to expand the growth of both Mattel products and properties.

Evaluation of the Avon-Mattel Alliance

In order to withstand the rigors of international competition,an organization should posses the following characteristics
1. 2. 3. 4. 5.

A well-respected product or service. Time-tested internal process. Significant financial assets Experience in international trade Knowledge about foreign cultures and laws.

Evaluation of the Avon-Mattel Alliance

Seven characteristics are commonly associated with successful global ventures.

Global Vision Managers International Experiences Strong International Business Networks Preemptive Technology or Marketing Unique Intangible Assets Closely Linked Product/Service Extensions Closely Coordinated Worldwide Organization

Results
While the jury is still out,the Avon-Mattel alliance should produce results in the following areas

Improved Customer Service Quality Improved Support of Core Businesses Improved Employee Performance Improved Operating Procedures

Managerial Issues Associated with Alliance Formation

Focus on cost improvements that can be achieved through consolidation and elimination of redundancies,before looking for alliance arrangements. Communicate, to all employees,all the essential aspects of the alliance. Assign a dedicated team of the best people to the project,recognizing that an alliance my be the future of the company. Make sure that some people participate in all phases of alliance consideration.Having some people who have been through it all lends continuity to communications and understanding of the reasons for alliance consideration in the first place.

Managerial Issues Associated with Alliance Formation

Maintain good relationships with vendors.This is imperative for continued successful customer service. Explain,though multiple communication sources,why change is needed.Such communication is particularly useful when resistance to change is a function of the lack of information. Bring those responsible for implementation into the design phase of alliance formation.This will increase their commitment to future changes. Encourage managers to be supportive by providing training necessary to facilitate and implement alliance formation.

Conclusion

Alliances may become so critical that they serve as basic building blocks in the operation of selling organizations. Internally,cross-functional activities and team formation have become norms of doing business. Firms employing these strategies are in position to offer a broad-based set of capabilities to customer. Internally,training and education have emphasized these broad-based skills and capabilities.

Conclusion

These internal capabilities have been emphasized as companies drive toward sustainable advantage. As alliances form,sustainable advantage becomes relevant for both partners and the internal,broad-based training orientation of two companies must be blended with an external and an internal focus.