The Vermont Teddy Bear Co., Inc.: Challenges Facing a New CEO

The Vermont Teddy Bear Co., Inc.: Challenges Facing a New CEO

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The Vermont Teddy Bear Co., Inc.: Challenges Facing a New CEO

Introduction

The Vermont Teddy Bear Company (VTBC) was founded in 1981 by John Sorinto. Unfortunately, for John, the company became too big for him to oversee since he was an entrepreneur. However, he gracefully stepped down in 1995 and supported the hiring of a new CEO that would lead the company into its future success (Vincelette, p. 27-3). One thing that has remained is the companies focus. The Vermont Teddy Bear's "...focus has been to design, manufacture, and direct market the best teddy bears made in America using quality American materials and labor." (p. 27-1) In fact, "American made with American materials" is the basis of the company's mission statement.

In the year following the change of CEO, VTBC tried changing its name to 'The Great American Teddy Bear Company". However, this tactic failed when customers grew confused. As a result, the Vermont Teddy Bear Company name was reinstated. Again, trying to reinvent themselves, the company decided to change their current distribution method in 1996. The decision they made was to shift away from the company's signature Bear - Grams, which was very successful, but not creating growth. In its place, they wanted to go into retail stores and expand their catalog (Vincelette, p. 27-3). This, too, proved to be less than a success and eventually Bear-Grams were once again their focal means of distribution and strategic marketing.

Finally, in 1997, Chief Executive Officer R. Patrick Burns stepped down and Elisabeth Roberts, Chief Financial Officer, became the new President and CEO. Roberts vision for the future of the company included cutting cost (Vincelette, p. 27-4). Forced to look at their materials from a purely financial view, something had to be done. The answer Roberts sought was "...offshore sourcing of materials, outfits and manufacturing..." (p. 27-4). Thus, Vermont Bear Labels now read, "Made in America, of domestic and foreign materials" (p. 27-6).
Elisabeth Roberts also believed that Vermont Teddy Bear was not simply a "stuffed animal" market, or merely a "toy". Rather, she defined the competition as being those businesses that "...sold chocolates, flowers, and greeting cards. They target the last minute shopper who wants almost instant delivery." (p. 27 -4) Knowing that their competition went beyond toys, they were able to market their product in several areas and the success of that is seen in sales.

Environmental Scanning

The purpose of environmental scanning is to assess those elements surrounding your company and market.

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A SWOT analysis identifies strategic factors, which are the company's strengths, weaknesses, opportunities and threats, that will determine its future (Wheelen, p. 9). Specifically, it involves monitoring, evaluating and sharing the "...information from the external and internal environments..." with "...key people within the corporation." (p. 52).

Knowing your external environment makes you aware of your company's opportunities and threats. Knowing the internal environment teaches you about the company's strengths and weaknesses. A way to measure these factors is by creating a EFAS (External Factor Analysis Summary) or IFAS (Internal Factory Analysis Summary) table. Scores on these tables inform a company how well they are "...responding to current and expected factors..." in their respective environments (Wheelen, p. 101).




When creating the EFAS Table I found Bear-Grams, Retail Stores, Offshore sourcing, Creating an "edgier" look and the small Teddy Bear Common to be opportunities that were created by scanning the external environment of VTBC. Following are my reasons:

1.The Bear Market is so big, that there's no recorded number of how many are sold a day throughout the entire market. Despite the huge market, Vermont Teddy Bear Company has remained as a front runner and their bear is as recognizable as the President it was named for, Theodore Roosevelt.

2.Retail stores did offer a new chance for expansion and growth. It allowed customers to purchase the product by sight, rather than over the phone. It also brought a visual awareness that was missing in the radio ads.

3.Offshore sourcing was a great opportunity for the company to expand its product line and cut costs. This enabled them to contract with foreign and domestic markets, which increases production and profitability. What they sacrificed was the all American label and philosophy they had used for years.

4.Creating an "edgier" look allowed Vermont Teddy Bear to broaden its market segment and change its strategic marketing by giving the company a look that pleases "Kids from 1 to 100". It was an opportunity to think outside the box and be more than just a teddy bear. It makes the company unique and therefore places them ahead of competition.

5.The small village Teddy Bear Common also created a new connection with customers. Those visiting could wander the grounds themselves, or choose a guided tour. Customers can feel safe there, like they belong.

In contrast, I found that Vermont Teddy Bear's threats were its competitors, the changing of CEO's in a short period of time and Disney. Reasoning is as follows:

6.The VTBC's competition, as stated by CEO Elisabeth Roberts, are chocolate, flowers and greeting card companies. Being quite aware of their unique product that can cater to all of these needs and more, the threat to the company is low. However, they do need to stay alert for changes in trends, as well as price.

7.Between 1995 and 1997 the company under went three CEO's. The first was the founder of VTBC who realized the company needed a strong leader to grow. Second, R. Pat Burns who tried changing the company for the better, but failed more than twice. Third, and currently, Elisabeth Roberts, former CFO. This could have been seen as instability and shareholders could have backed out. Banks may have also been concerned with the constant changes and refused to give loan for the future.

8.Disney posed another potential threat when their biggest teddy bear, Pooh, was marketed as a "gram" also. VTB claimed that their patent and trademark had been used and customers would, once again, become confused. The problem was resolved and the two companies now have an agreement.






When scanning the internal environment at the Vermont Teddy Bear Company I found several strengths and they are as follows:

1.Quality of employees at this company are dedicated, caring people. As such, all employees are known as "Bear People". Those employees who answer customer service calls are called "Bear Counselors". As of 1998, their were 181 "Bear People", no union and employee had favorable relations.

2.Customer Service at the Vermont Bear Company is like no other. As stated above, those answering the phones are called "Bear Counselors". I addition to this endearing theme, those bears that have tattered, torn or chewed up can be replaced at anytime. However, when you fill the form out, it is as if you were taking it to a hospital. They have created an entire world with these bears and customers flock to it.

3.The quality of the bears has always been the companies main concern. The founder wanted his company to produce American made with American materials and it did up until 1998. Offshore sourcing hasn't, however, diminished the quality or time spent making sure each bear is perfect. They even changed the way they packed them (they use air) so that the fur wouldn't be matted in transit.

4.One of the company's internal strengths is its actions in protecting its product, name and trademark from being imitated. As the case study showed, Disney tried to skirt there way around the Pooh-Gram idea, but Vermont Teddy Bear won due to their registered trademarks and patent protection. This ensures that no company can try and create a similar business and become competition.

5.The companies distribution methods is what makes them, in part, famous. Customers want to be able to order a last minute gift and shipping is an important part of that process. With the use of internet ordering customers can now see each bear as they create their gift. Likewise, expanded catalogs have allowed customers a more visual reference for holiday gift buying.

6.Bear - Grams have long been Vermont Teddy Bear's most notable and profitable distribution method. They once tried to walk away from this and find something new, but nothing seemed to catch as wildly as this had with customers. When they shifted from Bear-Grams to retail stores and larger catalogs in 1996, business dipped.

Weaknesses of the Vermont Teddy Bear Company are the changing of CEO's and their finances:

7.After the problems of 1995 founder John Sortino knew he'd gone as far as could with the company and stepped aside as President and CEO of his company. His successor, Patrick Burns, had hopes to change the direction of the company, but several failed attempts led to his resignation as well. With the company mission still intact (American made with American materials) Elisabeth Roberts took the reins. After an evaluation she saw the company's only refuge was to break its long standing philosophy and push the company into a more cost efficient, cost effective direction. The resulting cuts were made when the company began offshore sourcing for materials and various other tasks. Thus, its weakness became its one of its most cost effective factors.
Throughout the term of the VTBC life, finances have been very highs and more recently, some disappointing lows - despite efforts to cut back and expand. Due to its many dips during and after 1995, the company's financial recovery has been minimal, even though they remain highly successful. In its most desperate of times, the company got a loan, but in turn gave the lender warrants to purchase 100,000 shares of common stock for within seven years of loans start. Unfortunately, the financial struggles remain.


References

The Vermont Bear Company (2004) www.vtbear.com

Vincelette, Joyce P.; Fogarty, Ellie A.; Patrick, Thomas M. and Wheelen, Thomas L. (2004) Strategic Management and Business Policy. Case 27: The Vermont Teddy Bear Co., Inc.: Challenges Facing a New CEO. (pp. 27-1 - 27-21) Upper Saddle River, NJ. Pearson Education, Inc.

Wheelen, Thomas L. & Hunger, J. David. (2004). Strategic Management and Business Policy. (9th Ed.) (pp. <Tab/>51- 102). Upper Saddle River, NJ. Pearson Education, Inc.
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