ADVERTISING EXPERIMENTS AT THE OHIO ART COMPANY

Recent Performance History

The recession of the early 1990s helped Ohio Art to a certain degree, because many
toys retailed for less than $20 and thus appealed to budget-conscious parents.
Sales and profits peaked at $55.6 million and $3.4 million in 1992.
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Sales increased 27% in 1998 to $45.9 million, as the company scored a hit
with its newly introduced Betty Spaghetty doll.
Despite betty popularity, Ohio art failed to post a profit in 1998, losing $1.8
million, mainly because a major retailer abruptly canceled a $15.2 million
toy order just before the holiday season
1999, the company was again helped by the release of the smash-hit movie
sequel Toy story 2, the attendance free advertising helped boost sales of the
drawing toy by 20% during the 1999 holiday season.
Revenues 1999 increased 16% and Ohio art achieved a profit of $356,000

Toy stores.
Dominated by 3 majors retailers that controlled more than 50% of the market.
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Wal-mart 25% market share

ToysRUs 17%
Target 12%
Traditional specialty tor stores 12% market share
Online toy sales $1.3 billion by overall toy sales. (34% market shares)

Mass merchants held substantial power in the distribution channel. Growth of mass
merchants came at the cost of several specialty toy retailers, including KB Toys and
FAO Schwarz (sold unique items such as $300 stuffed giraffes and customized toys).
Ks Kids product line of the Ohio Art Company, designed specifically for specialty
retailers, targeted toward infants and toddlers and priced from $6-$85.
Shifting Production.
An etch a sketch made in china and delivered to the companys warehouse in Bryan
was found to cost 20% - 30% less than one made it in Bryan.
2001 Ohio art recorded its highest profits in nearly a decade $1.3 million. The gain
was attributed to major restructuring efforts in the previous year that included
shifting production to china.
The etch a sketch experiment
It was decided to test effectiveness of television advertising through a field
experiment that lasted 3 weeks form November 27 to December 16, 2006.
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Annual unit sales of all models of Etch a Sketch through this mass merchant
in 2006 was 785,519
Holiday season spanning the months of November and December accounted
for about 45% of the annual sales of the Etch A Sketch Product line.

TV commercials were aired during syndicated morning and evening talk

shows, daytime soaps, and evening news programs in ONLY CINCINNATI.
Reached about 3,7% of the population in Cincinnati.
Cost of developing the commercials with an outside agency was $75000/
4 other cities, chosen as the control cities to evaluate whether the advertising
led to increased sales.
Cincinnati area represented about 0.7% of the U.S population. Average
population of the control cities about 2 million, which represented about 0.6%
of the U.S population.
Case following information:
o Depending on the SKU and the month, the market share of the mass
merchants that participated in this experiment ranged from 15% to
30%.
o Detailed media plan for Cincinnati
The average gross margin for the etch a sketch product was 58% and the
average retail margin was 36%.

Betty Spaghetti Experiment.

The experiment had dual objective:
1. Testing whether advertising could increase sales obtained for the redesigned
Betty
2. Convincing the merchandise manager at a mass-merchant chain that sales of
Betty justified their shelf space.
For betty experiments:
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TV and radio commercials were aired in Arizona for 4 weeks from June 17,
2007 July 14, 2007.
2 products, the Betty spaghetti color crazy and betty spaghetti Go Go Glam,
were the focus of this experiment.
The company purchased 600 gross rating points (GRP) for the TV
advertisement for a total cost $31,500. Aimed at girls 2 and 11, was aired on
cable channels such as Nickelodeon and the CN in Arizona.
Purchased 64 GPR for the radio commercials at a total costs of $8022, aired
during the morning and evening commutes.
Each tv and radio programs reached about 1.8% of the population in Phoenix.
Cost of developing the commercial through an outside agency was $150,000.
The case dataset contains:
o Weekly sales data from 23 stores of mass merchant in Arizona and 24
stores of the same mass merchant in California (control group) for 2
products, color crazy and go go glam. 23 stores represented 50% of
the total stores in Arizona, and 24 Stores represented 10% of the total
stores of this mass merchandiser in CF.
o Year-to-date sales until July 07 from the mass merchant for color crazy
and go go glam in Arizona and California.
Depending on the SKU and the month, the market share of the mass
merchants that participated in betty experiment had a national market share
that ranged from 10%-15%.

California represented of 12%, Arizona represented about 2% of the U.S

population.
Each price point for betty spaghetti represented different SKU
Some SKU came as a pack of two dolls while others had more options such as
different hair styles for the Betty doll.
The retail margin for the Betty product was 36% on average and ohio art
obtained a gross margin 56%.

Decisions
Some of the differences in the experiments should affect the eventual decisions.
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First on their mind was the highly seasonal nature of toy sales.
Etch a sketch experiment was conducted in December peak season.
Some alternatives considered for measuring the economic worth of
advertising etch a sketch including:
o Directly evaluating the difference between Nov 06 and December 06
etch a sketch sales in Cincinnati.
o Comparing etch a sketch sales in Cincinnati during December 06 to the
corresponding sales in the other 4 control cities.
o Adjusting for seasonality in December 06 sales using the December 05
etch a sketch sales before performing any analysis.
o Adjusting for seasonality in December 06 etch a sketch sales using
sales of doodle doug in all the cities, including Cincinnati and the 4
control cities before performing any analysis.

Management wondered how conducting the betty spaghetti experiment in June, a

slower month, affected their advertising decisions.
Sales information on betty spaghetti was only available for the time periods the
experiment was conducted. The media plans also different. The etch a sketch
commercials were aired during TV programs most likely to be watched by adults,
whereas the betty spaghetti commercials clearly targeted children.
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The result from the experiments would determine whether ohio art moved
aggressively to build consumer demand through advertising.
A GRP on national TV cable was expected to cost $3473 for the betty
spaghetti campaign.
Nationally syndicated TV was planned for the Etch A Sketch campaign, which
was expected to cost $2,499 per GRP
The cost of advertising during the last quarter of a year that included the
holiday season was expected to be at least 15% higher than the rest of the
year.
About $2 million each was allocated for the Etch A Sketch and Betty
Spaghetty national advertising campaigns that were planned for two months
during the 2008 holiday season.

DEFINITION OF 'STOCK KEEPING UNIT - SKU'

A store's or catalog's product and service identification code, often portrayed as a

machine-readable bar code that helps the item to be tracked for inventory. A stock
keeping unit (SKU) does not need to be assigned to physical products in inventory.
Often, SKUs are applied to intangible, but billable products, such as units of repair
time or warranties. For this reason, a SKU can be thought of as a code assigned to a
supplier's billable entities.

INVESTOPEDIA EXPLAINS 'STOCK KEEPING UNIT - SKU'

SKUs are used by suppliers within their data management systems, to help track
amounts of product in inventory, and/or units of billable entities sold. SKUs help
suppliers be able to track efficiently, the numbers of individual variants of
products/services sold or remaining in stock. They are not to be confused with the
model number of a product, although model numbers and attributes are often
included to form all or some of a SKU.