Build-A-Bear Workshop, Inc – Global Strategy

Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal experience. The company currently operates more than 400 stores worldwide. Including franchise stores in Europe, Asia and Australia, which make Build-A-Bear Workshop the leader in interactive retail.

The Workshop offers an experience to children they have never had before, allowing them to “make” their own best friends in a teddy bear themed environment from start to finish.

The BBW is very reliant on customer feedback, as it is the driver of the business in many instances. They are known to be involved in cause marketing as well, partnering with the WWF to spread awareness of endangered wildlife, and participating in many philanthropic activities.

In 2003, BBW began to expand its stores on a global scale, and faced both successes and slight disappointments as a result of the expansion in Germany, due to their high demand and sales however, they were able to afford the declines.

The BBW undertook several strategies while marketing their product, their in store marketing strategy included a very “hands on” entertainment strategy, assisting the children throughout the making process and interacting with them. They used a value added method to drive customers to their stores; their prices were very reasonable and affordable.

1) How would you characterize the current global BBW strategy?

There are nine possible strategic windows that can be recognized. In order to identify which strategic window does the build a bear workshop fit to, we need to analyze its marketing strategy, financial position, and the company’s growth.

Build – a – bear workshop operates in the Toy ; Hobby Stores industry in the services sector. If we look at the financial data, we can see that BBW does not have any direct competitors. It is the market leader by the revenue growth in the industry, return on equity, and the long-term growth rate (; 5 years) (Yahoo Finance, 2010). Since the opening of its first store in 1997, Build-A-Bear Workshop has been the “developer and leader of the make-your-own-stuffed animal store concept for mall-based retailing” (Business Wire, 2001). Yahoo Finance however identifies the indirect competitors of BBW as Enesco, LLC, which is a privately owned company that collects from collectibles and offers wide variety of products that include music boxes, plush animals, and ornaments; Gund, which focuses on stuffed animals and their virtual lives; and The Vermont Teddy Bear Co., a company that “makes old-fashioned, jointed teddy bears up to 3 feet tall.

They’re available in several colors and about 190 different outfits, such as ballet tutus, wedding gowns, and sports uniforms” (Yahoo Finance). The three companies together however have a lower market cap and revenue growth. Build-A-Bear founder Maxine Clark prefers to see any company that “competes for guests’ time” as competitors. Playthings Magazine ranked BBW as the tenth largest toy retailer in the US for 2007 based on sales. An example of other retailers in the US would be Toys R Us.

Pricing-wise Build-A-Bear does not have competition either. The products are priced within 10 – 25 US Dollars range, whereas in comparison Toys R Us offer a 15inch brown fluffy bear at US $39.99 (Toys R Us, 2010) and a simple 18inch Gund Teddy Bear is priced at £29.99, which is around US $47. (Gund Teddy Bears, 2010).

Back in 2001, the company was in a strategic window where they would consider expansion in international markets. The company was an adolescent in its business and had a global potential. Since then the company opened its own stores in England, Scotland, Wales, Ireland, and France, having 345 company-owned stores by early 2009. By that time company also counted 62 franchised stores in Japan, South Africa, Australia, Singapore, Russia and other countries.

Today BBW is a global world-wide known brand. Its strategy however is directly connected to the customer contacts in the BBW store area. United States is known to be the entertainment center of the world. therefore the company focuses on providing the entertaining experience for its customers rather than the usual shopping experience. Because of the first-mover advantage and a high differentiation, BBW offers a unique experience that allowed it to be in demand internationally. We think at this stage the company should focus on acquiring more global alliances that would allow the brand to expand even more and strengthen its global position.

BBW is partnered with the World Wildlife Fund, where it donates US $1 to WWF for each stuffed animal purchased from the “Collectifriend” series. They are also partnered with Bearemy’s Kennel Pals, where BBW “donates a portion of the proceeds from the sale of each full-sized Bearemy’s Kennel Pals friend to local animal shelters and stray pet rescue and rehabilitation organizations around the country” (Build-A-Bear Workshop, 2010). Also the company has its Build-A-Bear Workshop Foundation and Nikki’s Bear programs which are “committed to improving communities and impacting lives through meaningful philanthropic programs that support causes for children and families” (Build-A-Bear Workshop, 2010). The newest BBW partner is First Book(r), a national literacy organization. BBW donates US$1 to First Book for each toy purchased from the Read Teddy(tm) collection.

Out of these partners only WWF is the international organization. Therefore even though the company has a strong global position through its franchises, it may look into other possible partnerships with the international organizations and companies.

In 2006, the company announced its partnership with McDonalds to create several lines of miniature toys included in Happy Meals. In 2006 BBW created 8 different toys to be featured in the Happy Meals. These promotions took place in May 2006, August 2007 and October 2010 however were only available in McDonald’s in the United States. Such partnership is an important collaboration in order to reach masses internationally. therefore we believe partnership with McDonald’s is a great marketing strategy to target and reach the international market that would allow BBW to strengthen its global position.

2) Is the headquarters of BBW in the USA following the right mixture of own stores and franchised stores?

In order to answer the question we have to look at the franchising model used by BBW and the success of its model so far.

Build-A-Bear has adapted to use of indirect franchising model. Out of the two major types of franchising, BBW sells the product and trade name franchising. In this case, dealers use the trade name, trademark and product line.

The company has 52 franchised stores around the world, which represents 15% of all Build-A-Bear stores. Considering that the company has been originated in the United States and created experience to satisfy initial American consumer, we expect that the US sales per store would be higher than the European sales. As we have learned from the case, the revenue from international franchises was US $3.6 million in 2008, which represents less than 1% of total revenues. Does 1% of total revenues justifies the work of the franchised stores? We think the number of franchised stores can be increased, but before, higher control over the franchised stores should be achieved in order for the new franchised stores to be successful.

“All stores outside of the US, Canada, the United Kingdom, Ireland and France are currently operated by the third-party franchisees under separate master franchise agreements covering each country” (Hollensen, 2011). The master franchisee in this case is Choose Holding ApS that controls the workshops in Denmark, Norway, Sweden and Germany. BBW “receives an initial, one-time franchise fee and continuing royalties based on a percentage of sales made by the franchisees’ stores” (Hollensen, 2011).

“The franchise system suppose to combine the advantages of economy of scale offered by the franchisor with the local knowledge and entrepreneurial talents of the franchisee” (Hollensen, 2011). In 2005 Choose Holding ApS acquired the franchise rights for Germany for US $750,000. Even though the brand was well known, BBW shops opened in that country were not successful. The Master franchisee is based in Denmark, which is a Scandinavian country. As we know the cultural differences between Scandinavian people and German people are significant, therefore due to the highly different market that the company did not adjust to, BBW in Germany was not highly successful.

Meanwhile BBW company provided all assets of its company for a successful business, Choose Holding ApS did not make a needed research before launching the store in Germany. Also, because of the indirect franchising model, Build-A-Bear was not able to control or intervene into the adaptation process for the store in Germany.

The Intermediate modes model for franchising shows that the Research and Development as well as Marketing strategies are in control of the franchisor, whereas the Production stage and the Sales and Services are solely franchisee’s responsibilities.

If the company continues using the indirect franchising model, then it must create a department as a part of its Research and Development stage where the specialist would research the specifics of the German market, built the German consumer profile and then communicate the adaptation strategy to the Master franchisee or sub franchisor. The indirect model however restricts company’s ability to have direct communication with the local franchisees therefore cannot be sure that the findings and the strategy will be well communicated to the local franchisee and rightfully implemented.

We believe the company should switch its model to the direct franchising model which will not have the Master Franchisee. Franchisees should be most familiar with customer’s preferences. they should sense the trends and opportunities of the local market.

Using direct model, the franchisee will be a local entrepreneur who has a knowledge on the specifics of its culture and will be able to adapt the BBW franchised store that would serve specifically for the people of the local origin. This will most likely boost the sales and increase the total revenues.

If the company is able to use one of the suggested solutions and implement the benefits of each, then they should increase the number of franchises across the world because the concept is unique and matching it with what is appealing to the local customer will lead to the successful business model.

The production part and the service itself is done by the consumer, therefore as long as the franchisee uses similar methods, the franchiser should not be concerned over these stages.

3) What would you consider as the main reasons for Build-A-Bear Workshop failure in Germany?

According to the Chairman and Chief Executive Bear, Maxine Clark, ” Germany is a large and exciting market for Build-A-Bear Workshop, and we are eager to introduce our brand in Germany” (Wire, 2006)

The franchisee and their team were highly experienced and successful, and they understood Build-A-Bear Workshop and their brand thoroughly. It had also appeared at the beginning of the launch in Germany that the stores were operating well and at the same profitable rate the other international stores were running at. But in reality the functioning of the stores were not quite as up to standards as expected.

There was a major difference in the cultural market environment in which Germany is operating in, in comparison to a market environment such as the Scandinavian one, or perhaps the US or the UK.

These cultural differences often pose major difficulties in international negotiations and marketing management, reflecting differences in personal values and in the assumptions people make about how business is organized. (Hollensen, 2011) This is reflected in the case, when the flagship stores where opened in Germany, and it was seen that children with bears were older than usual, and that the parents were the ones who were involved in the buying process.

Even though these differences may appear minor in theory, but in practice they pose a large threat to the operations of Build-A-Bear Workshop, as it is targeted at a certain age group and the idea behind the whole concept is to allow the child to participate in the process of making the bear. It is of utmost importance that the sales staff is interactive and knowledgeable, not only of the product and brand itself, but of the culture of customers they will be dealing with. This allows them to engage more with customers, which is one of the key characteristics of the Build-A-Bear Workshop staff, or as they are called, the “master Bear Builder associates” (Hollensen, 2011).

Since they share the experience with the customers at each phase of the bear-making process, they must adapt to directly communicating with the customers.

“Where best friends are made” makes a bigger impression as a slogan, than its German translation “Best friends to make for oneself”. The attempt to adapt to the German culture seemed to fade away the initial cosiness the brand portrays.

It was clear that no GloCal strategy was implemented, where the company would think global but act local. This was mirrored in the way the function of the business was in place, whether on the shop floor, or possibly the lack of research they had done regarding their surrounding environment, which effected the national market responsiveness.

(Emeraldinsight, 1987)

Since it is the responsibility of the franchisee to ensure all brand images, and cultural adaptation is taken care of in a correct manner, in our opinion Build-A-Bear Workshop, given an option, should have used a direct model for franchising, without opting for a master franchisee. This would have given them more control over the operations and of the miniature details that would have made all the difference.

4) How should Build-A-Bear Workshop manage the global comeback?

According to table below, net profit has been declining over the years from 2006 to 2008. The global financial crisis has clearly had an effect on the sales in 2008 taking it down to the lowest it has been in years. It is also clear that the main problems are from the international stores that have been opened in recent years.

With globalisation spreading at light speed, the BBW must stay up to date with the emerging markets and opportunities they offer in order for them to differentiate their products and present new and innovative ideas that allow them to follow current trends.

Looking back at the way BBW could manage cultural adaptation in Germany to improve issues that arise with cultural problems, a cultural department could be set up, aimed at creating cultural bears or icons in the country the shop is located in.

For example, given they decide to expand to China, where the country is of rich culture, and has many icons that symbolise its culture, a cultural department in the store could include pets such as, dragons, the animals on the Chinese zodiac…etc. This would allow though integration of the culture in the business, and ensure a good blend in the culture and society, attracting more local customers to buy their bears and also portraying the image that they preserve their culture, and aim to encourage children to learn more about it.

Another marketing technique that could be used is further promotion of their products in creative ways. Mass media and direct communication could not be sufficient enough to sustain customers, and gain potential ones. An idea of such promotion would be, for instance, given that a real bear is pregnant for a period of four months, a buy two get one free promotion method in this instance could be used. Given that the child has a mama bear, and then returns to the shop to create a papa bear, as a surprise, four months after the purchase, the shop will send a baby bear to their home. This method allows the parents to become loyal customers of such a company that directly communicates with its customers, and shows full support and care.

In order for them to keep up with the fluctuating tastes, Build-A-Bear Workshop has in fact launched some digital products already, which are in line with current digital trends, such as PC games, video games, iPhone applications and an online website which is quite popular with the children. This however is not sufficient to keep them at the high standard global rate competing with other toy stores out there, and video games for children.

With the emerging digital platform over the years, technology has been used as the major tool for marketing products, whether it is by twitter, facebook, blogging, or just by looking at the retailer’s websites. This has made a great impact on the way products are marketed. As with one bad review, an entire network of individuals stop buying that product. This has shifted the marketing perspective in many ways, where the firm’s focus now will have to lie in customer profitability, rather than product profitability only.(Rust, Moorman, ; Bhalla, 2010) Given this certain case, the marketing should be targeted to the mothers of the children. With more and more mothers integrated into the digital world, more emphasis on that area would be needed over time.

Conclusion:

We believe the company should focus on acquiring more global alliances that would allow the brand to expand even more and strengthen its global position.

The number of franchised stores can be increased, but before, higher control over the franchised stores should be achieved in order for the new franchised stores to be successful. For that the company should reconsider the franchising model it is using.

If the company will be able to use the solutions suggested in this paper and implement their benefits, they would be able to implement the concept in a way that is unique and matching with what is appealing to the local customer. The would also be in hand with the developing technology that creates opportunities for the business expansion.