Chapter 16. Transformation of Marketing at the Ohio Art Company (A) OHIO ART COMPANY HISTORY The Ohio Art Companyamong Americas oldest toymakerswas headquartered in Bryan, Ohio, a small town in the northwest part of the state. Although Ohio Art made over 50 toy varieties including dolls and water toys, its flagship product was a drawing toy it had been selling for over 52 years: the Etch A Sketch (EAS). In that time, over 100 million units had been sold to consumers in dozens of countries. Ohio Arts slogan, Making Creativity Fun, demonstrated the companys commitment to arts and crafts products. Although most of its sales came from its toy business, Ohio Art also produced and sold custom metal lithography, which contributed onethird of the companys revenues and a disproportionate share of profits. In recent years, Ohio Arts toy business had experienced a bumpy ride, alternating between profits and losses throughout the 1990s and up through 2011. Product placement of EAS in the hit animated movie Toy Story was a shot in the arm for Ohio Art in 1995. In 1998, the company introduced a new doll called Betty Spaghetty, which was an initial hit with consumers, but its popularity and sales had waned over time. Aimed at girls ages four and up, the small doll featured interchangeable limbs, spaghetti-like hair, and a variety of accessories, such as a cell phone, a laptop computer, and in-line skates. Toy Supply Chain and Seasonality Toy retailing had become more concentrated, with Wal-Mart, ToysRUs, and Target accounting for the overwhelming majority of sales. The need for lower costs (to compete effectively in the mass-merchant channel) forced Ohio Art to shift all production of its toys to China in 2001. Making an EAS in China and delivering it to the warehouse in Bryan, Ohio, cost the company 20% to 30% less than making it on site. The shift in production to Asia magnified the already high risks of introducing new products. Long shipping times and the seasonality of most toy sales meant that inventory management and tooling risks were significant. In 1998, a major retailer abruptly canceled a $15.2 million toy order just before the holiday season. [Ohio Art] was left with a large amount of excess inventory and also was unable to cancel television advertising commitments that had been made in support of the holiday line. Fortunately, in 1999, the company was again helped by the release of Toy Story 2, which featured a 30-second spot showing the Etch A Sketch. Management attributed the 20% increase in holiday EAS sales to that exposure. The companys fiscal year ended January 31; November and December typically accounted for 45% of retail sales. Each of the other 10 months averaged close to 5.5% (see Figure 16-1). This same pattern was typical for almost all toys, including Ohio Arts. Figure 16-1. Ohio Art toy seasonality. The Ohio Art Company, International Directory of Company Histories, vol. 59 (St. James Press, 2004). The Ohio Art Company History, http://www.fundinguniverse.com/company-histories/the-ohio-art-company-history/ (http://www.fundinguniverse.- com/company-histories/the-ohio-art-company-history/) (accessed June 8, 2012). Wal-Mart had the highest market share at about 25%, followed by ToysRUs at 17%, and Target at 12%. Ruse in Toyland: Chinese Workers Hidden Woe, New York Times, December 7, 2003. http://www.fundinguniverse.com/company-histories/the-ohio-art-company-history/ (http://www.fundinguniverse.com/company-histories/the-ohio-art-company-history/). 1 2 1 2 3 4 5 3 4 5 PREV Chapter 15. Designing Marketing Experiments NEXT Transformation of Marketing at the Ohio Art Company (B) ! $ % Cutting Edge Marketing Analytics: Real World Cases and Data Sets for Hands On Learning https://www.coursehero.com/file/37123245/Chapter-16-Transformation-of-Marketing-at-the-Ohio-Art-Company-A-Cutting-Edge-Marketing-Analyti/ This study resource was shared via CourseHero.com Data Source: Ohio Art. Used with permission. THE ETCH A SKETCH EXPERIMENT Although the EAS line had been promoted initially with heavy television advertising, by late 2006, advertising budgets for the EAS were below $1 million, most of which went toward reimbursing retailers for cooperative advertising. Too often these funds did little more than fund temporary price reductions. No national television advertising had been done for several years. In late 2006, however, the companys advertising agency proposed a new campaign to enhance the toys continued popularity. In part, this was due to a recent request by Target to include the EAS in its own television spot. Although management was divided on whether an advertising campaign would be economical, it was decided to test the effectiveness of renewed television advertising through a field experiment that lasted three weeks from November 27 to December 16, 2006, a period during which about 35% of retail toy sales normally occurred. Management intended to assess the results by comparing the test and control market sales of its largest retail customer (25% sales). This retailer had retail stores in all control markets and POS systems that allowed accurate monitoring of sales. The expectation was that observed sales increases would accrue to all retailers. Sales data from the previous year were not available because the merchant had removed EAS from its shelves for much of the year due to a pricing disagreement. The resolution of that disagreement had put EAS back on the shelves, and some of the management team thought that a sales boost through advertising would be a timely move to restore good relations between Ohio Arts and the retailer. Television commercials for the EAS were aired during syndicated morning and evening talk shows, daytime soaps, and evening news programs only in Cincinnati, Ohio, during the three test weeks. There were internal concerns that Cincinnati might not be a good test market, since it is in the same state as the companys headquarters. But research showed that not only was company location not a concern for buyers, but an overwhelming majority of consumers didnt even know that EAS was made and marketed by an Ohio company. Commercials were not aired in any other place in the United States during the test period. The breakdown of the total advertising spend in the three weeks is provided in Table 16-1. The cost of working with an outside agency to develop the test EAS commercials was $75,000. The media spend called for over 100 spots, each with an average rating of 2.7 to be broadcast over the three weeks. The $30,150 media spend in Cincinnati would be equivalent to a $5 million national budget. Total annual unit sales of the EAS products were 3.1 million before the test. Table 16-1. Media spend in Cincinnati. Data Source: Ohio Art. Used with permission. Four other citiesCharleston, South Carolina; Cleveland, Ohio; Indianapolis, Indiana; and Pittsburgh, Pennsylvaniawere chosen as controls to evaluate whether the EAS advertising led to increased sales (see Table 16-2 for city demographics). In choosing test market cities, several factors should generally be considered. First, the test city (or cities) must reflect market conditions in the products market area, whether it is local, regional, national, or global. No city could represent all market conditions perfectly, and success in one city did not guarantee success elsewhere. Typical criteria for good test markets included similarity to planned distribution outlets; representative population size, demographics, income, purchasing habits, and freedom from atypical competitive activity. Table 16-2. Test and control city demographics. Data Source: Ohio Art. Used with permission. The greater Cincinnati area represented about 0.7% of the U.S. population. The average population of the control cities was around 2 million, which represented about 0.6% of the U.S. population. See Table 16-3 for sales data for EAS and another new Ohio Art product, Doodle Doug, in Cincinnati and the four control cities at selected stores of the major mass merchant. Doodle Doug was not advertised, but sales were tracked in the cities as an additional control in interpreting the results. One rating point was equal to 1% of the total population in a given area. Charles W. Lamb, Joseph F. Hair, Carl D. McDaniel, and Daniel L. Wardlow, Essentials of Marketing. (Cincinnati, OH: South-Western College Pub., 1999). Unit sales figures are not provided in some weeks, because EAS was not carried by the mass merchant in these weeks due to disagreements over price points. 6 6 7 7 8 8 https://www.coursehero.com/file/37123245/Chapter-16-Transformation-of-Marketing-at-the-Ohio-Art-Company-A-Cutting-Edge-Marketing-Analyti/ This study resource was shared via CourseHero.com Table 16-3. EAS and Doodle Doug weekly unit sales in test and control cities (1/1/052/2/07). Data Source: Ohio Art. Used with permission. One Ohio Art executive worried that the test would be difficult to read and that a split-cable test could be implemented in April of the following year for about $500,000. He believed the estimate of the projected sales lift from such a split-cable test would be much more accurate. The suggested retail price for EAS was $12.99. The Travel, Pocket, and Mini Etch A Sketch were less expensive at $8.99, $4.99, and $2.99, respectively. Given unit sales for each product, the weighted average of all EAS products sold in the holiday time period was $10.00. It was this $10.00 price that was suggested for use in calculating the percentage increase required for a national campaign. The suggested retail price for Doodle Doug was $14.99. The companys average gross margin for the EAS products was 58%, and the average retail margin was 36%. (See Figure 16-2 for pictures of the EAS and Doodle Doug.) Figure 16-2. Etch A Sketch and Doodle Doug toys. Source: Ohio Art. Used with permission. THE BETTY SPAGHETTY EXPERIMENT In mid-2007, the company implemented another field experiment for a revamped Betty Spaghetty product line. The test had three objectives: (1) estimating consumer demand for the revised Betty Spaghetty line, (2) testing whether advertising could increase sales (and profits) obtained for the redesigned Betty Spaghetty, and (3) convincing the merchandise manager at a mass-merchant chain that those sales of Betty Spaghetty would justify the allocation of shelf space. For the Betty Spaghetty experiment, television and radio commercials were aired in Arizona for four weeks from June 17, 2007, to July 14, 2007. The company purchased 600 gross rating points (GRPs) for the television advertisements for a total cost of $31,500. The ads were aimed at girls between ages 2 and 11 and were aired on local cable channels, such as Nickelodeon and the Cartoon Network. Management also purchased 64 GRPs for radio commercials for a total cost of $8,022. The radio commercials were aired during morning and evening commutes. Each of the television and radio programs selected for the commercials reached about 1.8% of the population in Phoenix. The cost of developing the commercial through an outside agency was $150,000. Management estimated that an equivalent ad budget for eight to ten weeks of preholiday advertising, factoring in certain economies as well as the higher seasonal cost of media, would be approximately $3 million. The average retail selling price of Betty Spaghetty during the test was about $15.00. Retailer and Ohio Art margins were about the same as for EAS, 36% and 58%, respectively. Given that some time would be required to read the test, obtain shelf space, and ship product to stores, management estimated that the fourweek test market sales period represented about 10% of the total remaining sales potential for the year. Table 16-4 reports weekly sales in 23 Arizona stores (test) and in 24 stores of the same mass merchant in California (control) for two versions of Betty Spaghetty. The stores represented 50% of the retailers Arizona sales and 10% of California sales, respectively. Arizona and California represented 2% and 12%, respectively, of the retailers national sales, and that same retailer was expected to account for 25% of total Betty Spaghetty sales. Management intended to use the test to help estimate Betty Spaghetty sales with and without advertising. Table 16-4. Weekly unit sales of Betty Spaghetty in test and control cities. Split-cable testing systems allow for delivery of separate advertising campaigns or a different level of advertising exposures to different groups of households within a given market and tracked purchases through consumer diaries or other panel data. This eliminated differences in retail environments, competitive activity, and other market characteristics among test and control groups. 9 9 https://www.coursehero.com/file/37123245/Chapter-16-Transformation-of-Marketing-at-the-Ohio-Art-Company-A-Cutting-Edge-Marketing-Analyti/ This study resource was shared via CourseHero.com Get the App / Sign Out 2019 Safari. Terms of Service / Membership Agreement / Privacy Policy Source: Ohio Art. Used with permission. PREV Chapter 15. Designing Marketing Experiments NEXT Transformation of Marketing at the Ohio Art Company (B)

Background

After reviewing the Chapter 15 of your textbook on Designing Marketing Experiments, read the Ohio Art Company (Part A) case in Chapter 16. The case is particularly useful as an introduction to the concept of marketing experiment design. Its main objectives are to:

• Expose you to the concept of field experiments when evaluating the effectiveness of advertising.
• Raise awareness of the issues in implementing and making causal inferences based on the data from field experiments.

Assignment Instructions and Questions

For the assignment, respond to the following five questions/evaluations related to the case.

A supplementary Excel spreadsheet (Ohio Art Supplementary Spreadsheet_Base Data for Experiment Designs) is available with the case .

MAKE SURE TO FIRST DOWNLOAD THE SPREADSHEET, AND THEN LAUNCH IT IN EXCEL (i.e., clicking on the data set from the launch window will only show the data; you cannot perform calculations, sorts, etc. unless you download it and launch in Excel)

1. Using the data supplement provided with the case, evaluate if the EAS and Betty Spaghetty advertising campaigns were effective in increasing sales.
2. How does the EAS experiment compare to the Betty Spaghetty experiment?
3. In your opinion, which experiment is more suitable for evaluating whether an advertising campaign is effective?
4. What are some concerns regarding the data available for evaluating the results of the experiments?
5. Is it a good idea for the Ohio Art Company to invest in a national advertising campaign for EAS and Betty Spaghetty?