F.A.O Schwarz: Case Study

Executive Summary

In the contemporary business world, strategy is of the essence when carrying out business activities. The main aims of strategies are to enhance the profitability of a company, competitive advantage in the market, market share, and most importantly, to increase shareholders’ funds. There are a number of strategies that can be employed. Examples are merging with other companies, acquiring other companies, conglomeration, and franchises among others.

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F.A.O Schwarz is a privately held company that was founded in 1862 and it is the oldest toy store in the United States. Toys R Us Bought this company in 2009 and is currently operating the company. Furthermore, ‘toys R Us’ was franchised to Saudi Arabia in 1996. Thus, this research treatise attempts to review whether F.A.O Schwarz should franchise in Saudi Arabia just like Toys R Us did or not. The treatise adopts qualitative and quantitative research to extrapolate on the competing variables.

Introduction

F.A.O Schwarz is a privately held company that was founded in 1862 and it is the oldest toy store in the United States. The company is known for its life-sized stuffed animals, dolls, and games. However, most of its toys can be categorized as expensive ranging from $1,500 to $25,000. They provide custom-made toys; this is why they tend to increase the price of a certain costumed toy. ‘Toys R Us’ bought this company in 2009, and are operating the company franchised to Saudi Arabia in 1996. Thus, this analytical research treatise attempts to explicitly review whether F.A.O Schwarz should franchise in Saudi Arabia or not.

Theoretical Framework

The main concepts that will be discussed include franchising and market mix theories, and their link to the market segmentation aspect in entering into a new market front.

The work discusses ways in which cross-platform franchising help to create a sustainable competitive advantage. Also, it discusses the marketing mix in Saudi Arabia. Finally, it selects one market segment and discusses how Disney can reposition itself to appeal to the new market segment. The researcher will use the above aspects and theories to illustrate the expectations of a franchised business in the unique Saudi Arabian business environment. The researcher will then suggest the most appropriate approaches to the franchise in Saudi Arabia.

Methodology

This is a systematic but comprehensive method of data collection, grouping, and analysis in order to scientifically apply reasoning from the analyzed data. As a matter of fact, the result of this process combines the outcome, the purpose of the research, and actuality. The study opts for the Quantitative and data collection method since it is economical on time, finance, and energy, unlike the qualitative method which may not be economical especially when the sample size is put into the picture.

Research Design

Both descriptive and qualitative research methods will be used in this inquiry. The descriptive qualitative research method as a design investigates behavior when it naturally occurs in a non-contrived situation. On the other hand, descriptive survey designs will be used in preliminary and exploratory studies to allow the researcher to gather information, summarize, present, and interpret for the purpose of clarification. Descriptive investigative research is anticipated to produce statistical information about facets of education that concern policymakers in education. Investigation of the problem will be conducted by means of both literature synopsis and empirical investigation.

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Sample Population

A sample is a small segment of a target population while sampling means selecting a given number of subjects from a defined population to be representative of that population (Gelder 22). From the toy industry in Saudi Arabia, the researcher targets to interview 20 senior employees of F.A.O Schwartz on the current financial position, challenges, weakness, strengths, and strategies that might help the company to successfully franchise in Saudi Arabia.

This research will be conducted using a qualitative case study approach. The researcher chose the qualitative approach rather than a quantitative because the scope of the research is focused, subjective, dynamic, and discovery-oriented. The qualitative approach is best suited to gain proper insight into the situation of the case study. Besides, qualitative data analysis is more detailed than a quantitative one. Moreover, this approach will create room for further analysis using different and divergent tools for checking the degree of error and assumption limits (Travis 23).

Data Sources, Rights of the Participants, and Projected Challenges

A set of primary data was used in addressing each research question. The primary data collection method used was questionnaires interviews. The study opts for a close-ended questionnaire in data collection since it is economical on time, finance, and energy, unlike the qualitative method which may not be economical especially when the sample size is put into the picture. The researcher approached the 20 participants. Their opinion and finding would support the study hypotheses. The researcher conducted one-to-one interviews with subject matter experts in the field and analyzed the findings. In accomplishing this motive, the researcher faced the challenges of time constraints, unclear responses, and a few instances of biased answers.

Sampling Procedure

Purposive sampling was used to select participants who are conversant with the topic under discussion. In this regard, a simple random sampling technique was employed to interview the targeted 20 senior employees of F.A.O Schwartz.

Data Collections Methods

In the collection of data procedure, the research adopted a drop and pick module for the sample population. Each respondent was given a time frame of a week to respond to questions in the questionnaire. Where necessary, further clarification was accorded to participants. Adopting semi-structured open-ended questions interview, data collection through one-on-one interview took a period of six days. The choice of the one-on-one interview was based on the rationale of gaining insight on the feelings, opinions, and experiences besides official findings. Moreover, the semi-structured interviews give room for further probe depending on the nature of data collected.

Data to be gathered will be regarding:

  • How the company grew over the last ten years
  • The projected success of the company in Saudi Arabia
  • The challenges facing the company in Saudi Arabia
  • The possible recommendations for reversing these challenges

Findings

This section will focus on the characteristic demographic profiles of the participating respondents. It will also present the analysis of the main research questions that relate to the leadership practices of the responding organizations. The operational hypothesis so is tested using the Pearson Product Moment Correlation. The results that have been generated from the multiple regression analysis will demonstrate the strength of the correlation between organizational effectiveness and leadership practices. Presented data will be based on the research questions and hypothesis.

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The research findings revealed that 100% of those interviewed agreed that the company is currently not doing well in the Saudi market. 36% of the respondents indicated that the ideal approach to solving the company’s challenges would be through cross franchising in the Saudi market. 14% of the respondents argued that the challenge was a result of high prices in the Saudi market. However, 18% of the respondents argued franchising must be organized in order to be successful. This is indicated in the pie chart below.

Pie chart

Key:

1:Franchising is the way to go
2: Poor performance is due to high prices
3: Franchising should be controlled and well organized
4: Management styles in the company have failed in addressing organizational challenges

Analysis and Recommendations

It is apparent that the proper matching of soft skills such as team building, organizational effectiveness, leadership, decision making, problem-solving, creativity, flexibility, and team building are essential in measuring the quality and performance of a business. The success and failure of a business entity are dependent on the effectiveness and quality of the operations management since it determines planning, integration, implementation, and control. In order to strike an optimal performance balance, the process of designing a quality operations management system should commence with a clear overview of budgeting, objectivity, and scheduling, as seen in the structure of the F.A.O Schwartz Company.

SWOT analysis of F.A.O Schwartz Company

A key strength of the corporation is its strong global presence. It is ranked the market leader both in the US and international market. It also leads to the toy industry. In addition, the company uses economies of scale for reducing costs associated with expansion and economic risks. Also, the firm has a strong real estate portfolio. It has one of the world’s most recognized logos and strongly branded menu items.

Finally, other than revenue from the sale of toys, it receives revenue from investments in customization of the toy business. One of the weaknesses is that it has a high employee turnover. They lack innovative products. It uses advertisements that target mostly children. Also, The Corporation is yet to move towards the trend of affordable customized toys.

The corporation is surrounded by great opportunities. Introduction of the human size dolls is a great opportunity for the business. In fact, they can be the first company to be allowed in Saudi Arabia to sell these types of toys. Also, they can provide optional allergen-free items for every purchase of the toy brands to the Saudi Market. The group can slow down on direct sales and concentrate on franchising in Saudi Arabia.

The corporation is also exposed to the threat of slow growth due to the perception that the products are expensive (Parente 56). Finally, the global recession has negatively impacted the revenue streams of the business. Also, the economic meltdown has exposed the business to currency fluctuations. Therefore, in as much as it is a renowned corporation with a heavy global presence, it faces a number of weaknesses and threats just like any other ordinary business; thus, it should franchise its Saudi market.

Recommendations

Franchising is a model comprising of businesses that share a trading name. In this model, the parent company allows other business owners to use the company’s brand name and strategies (World Bank 31). The consideration that the parent company receives comprises preliminary fees and percentages of revenue. Apart from the trade name, the franchisee also receives free training and advertisement.

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Cross-platform franchising entails sharing licenses with businesses trading in different products (Belch and Micheal 29). Franchising offers the parent company a faster and cheaper way to grow since the parent company does not need to incur the initial costs of starting up a business when venturing into new markets. Further, it costs the parent company less when the franchises are managed by third parties. The F.A.O Schwartz Company should use this model of business to franchise its Saudi market. The model will enable the company to grow to be the market leader in Saudi Arabia’s toy industry.

Cross-platform franchising will enable the company to gain a strategic competitive advantage in a number of ways. First, established franchises across the Saudi market will enable the company to carry out comprehensive market research across the market. The results of such research will allow the company to develop a marketing strategy for the regions they intend to open stores. In doing this, the company will be able to keep its mission, vision, and goals. Further, it will enable the company to reduce the risk of market flop that results from the failure to carry out adequate market research of the target market segment (Eugene and Michael 31).

Secondly, cross-platform franchising entails the use of the market segmentation plan. The plan enables the company to understand the needs of each segment. This will help the company to come up with a package that meets the needs of each group in the expansive Saudi market. Further, it promotes innovation in the company. Also, it ensures maximum customer satisfaction. In general, cross-platform franchising promotes a better understanding of the markets, lines of business, and customer needs. This increases the competitive advantage of the company. Thus, the company should adopt franchising to penetrate the Saudi market.

The franchise should come up with products that suit children in the Saudi geographical location. An example of a product that can suit the market segment is Jasmine and Aladin’s story. The story contains Jasmine who was a princess dressed like an Arabic girl with Arabic facial features. The attire worn by the characters in the story would attract children in the Middle East since it rimes with their culture. Besides, the story is founded on Arabic Folktale. Therefore, the product touches on their way of life. For promotion, the company should use companies of Arabic origin to advertise the products. This will attract the target market segment.

On pricing, the Middle East has a high purchasing power (Moncrief & Marshall 18). Therefore, the franchise should use a skim pricing strategy since the demand for the product is relatively inelastic. Concerning the place, the franchise should use Saudi Arabia channels to keep in touch with the target segment. Apart from the TV channels, the franchise should also use the parent company’s local channels to reach out to the market segment. Moreover, the franchise can enter into a strategic partnership with other companies to advertise the products (ABC News Network 3).

Conclusion

The research provided an ideal ground for learning the theorization of the franchise in practicality. Reflectively, franchising is critical in surviving a volatile market that is segmented along with unique customer demands such as Saudi Arabia. As a matter of fact, the company should franchise in the Saudi Arabia market so as to reap maximum benefits within minimal risks associated with costs, market dynamics, and changed consumer preferences (Hitchner 24).

The study also showed how factors like corporate leadership practices, planning systems, social responsiveness, management control, background information and the organization performance relative to other organization impact the performance of a company in foreign markets.

Works Cited

ABC News Network 2013, Company Profile. Web.

Belch, George, and Micheal, Benard. Advertising and Promotion: An Integrated Marketing Communications Perspective, Boston: McGraw-Hill, 2009. Print.

Eugene, Brigham, and Michael, John. Financial management theory and practice, USA: South-Western Cengage Learning, 2009. Print.

Gelder, Van. Global Brand Strategy: Unlocking Branding Potential Across Countries Cultures and Markets, London: Kogan Page Publishers, 2005. Print.

Hitchner, James. Financial Valuation: Applications and Models, United States of America: John Wiley & Sons, Inc., 2011. Print.

Moncrief, Warren, and Marshall, Willy. The Evolution of the Seven Steps of Selling, Hoboken: John Wiley & Sons, 2007, Print

Parente, Donald. Advertising campaign strategy: A Guide to Marketing Communication Plans, Ohio: Thomson South-Western, 2006. Print.

Travis, Thomson. Doing Business Anywhere: The Essential Guide to Going Global, Hoboken: John Wiley & Sons, 2007. Print.

World Bank. Doing Business 2008: Comparing Regulation in 178 Economies, New York: World Bank Publications, 2009. Print.

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StudyCorgi. (2021, March 17). F.A.O Schwarz: Case Study. Retrieved from https://studycorgi.com/f-a-o-schwarz-case-study/

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"F.A.O Schwarz: Case Study." StudyCorgi, 17 Mar. 2021, studycorgi.com/f-a-o-schwarz-case-study/.

1. StudyCorgi. "F.A.O Schwarz: Case Study." March 17, 2021. https://studycorgi.com/f-a-o-schwarz-case-study/.


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StudyCorgi. 2021. "F.A.O Schwarz: Case Study." March 17, 2021. https://studycorgi.com/f-a-o-schwarz-case-study/.

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