Reference no: EM132113878
Read the stude case and the questions are at the end
Hobby Lobby International makes and sells radio-controlled toys, tools and accessories. What started in 1964 as a shop in a building lobby in Brentwood, Tenn., grew into a thriving mail-order business and, later, an online retailer with $9 million in annual sales. The company was owned by the same family until 2003, when it was sold to a private equity firm. In 2009, Mark A. Cleveland bought the company with the goal of opening more stores and expanding its lines of radio-controlled products.
CHALLENGE When Mr. Cleveland bought the company, he knew that it was frequently mistaken for Hobby Lobby Stores Inc., a national craft and art supply chain that is based in Oklahoma City and has more than 600 locations. The companies had a history of working cooperatively and, despite their common name, catered to very different consumers. “Roughly 98 percent of my customers are men,” said Mr. Cleveland, while most of the chain’s customers are women.
Soon after buying Hobby Lobby International, however, Mr. Cleveland realized that the confusion could be a serious problem. The issue became urgent in 2012 when Hobby Lobby Stores, whose founder is an evangelical Christian, filed a lawsuit over the Affordable Care Act provision requiring employers to provide coverage for all forms of contraception as part of employee health insurance. The case went before the Supreme Court in March; a decision is expected by sometime in June.
BACKGROUND Before buying Hobby Lobby International, Mr. Cleveland was president and co-owner of a truckload management company. In 2004, he sold the company and started looking for a new challenge. Among other ventures, he bought the building that is home to Hobby Lobby International and got to know the shop’s founder, James Martin, shortly after Mr. Martin sold his business to the private equity firm. In 2008, that firm approached Mr. Cleveland about buying the hobby company, which he did in early 2009.
At its peak in 2006, the company had more than $9 million in annual sales and 36 employees. By the time Mr. Cleveland took over, sales had fallen to roughly half that amount. Still, he believed there were opportunities to grow by opening new shops and expanding the lines of remote-controlled products.
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Those plans, however, were soon trumped by a more pressing concern: Roughly a quarter of Mr. Cleveland’s daily customer inquiries related to the other Hobby Lobby. “It was everything from store directions and product returns to human resources,” said Mr. Cleveland, who in 2009 was served the first of many lawsuits intended for the other company.
Initially, Mr. Cleveland took the problem in stride, contacting his Oklahoma counterpart to come up with a process for dealing with misguided customer complaints, gift cards, vendor inquiries and other mix-ups. “I put up a sign on our building that said ‘Hobby Lobby for Men’ because so many women were coming in the store looking for crafts,” he said.
The issues became increasingly problematic when Mr. Cleveland tried to optimize his company’s web traffic and venture into social media. “The brand confusion became astronomical with competition for these web and social media platforms,” said Mr. Cleveland, who managed to secure a Hobby Lobby Facebook page, Google app and Twitter handle before his Oklahoma counterpart.
In 2011, Mr. Cleveland reached out to the chief executive of Hobby Lobby Stores, David Green. That spring, the two chief executives met in Oklahoma City, where Mr. Cleveland proposed a partnership in which his company would be the larger chain’s exclusive supplier of radio-controlled toys; at the time, Hobby Lobby Stores did not sell such devices. Mr. Green seemed interested, Mr. Cleveland said, but the chain wound up sourcing the products from another supplier. “They basically cut me out of the deal,” Mr. Cleveland said. (Hobby Lobby Stores declined to comment on whether any such agreement had been in place.)
Mr. Cleveland then sent a letter noting that Hobby Lobby International had a trademark for hobby products and demanding that Hobby Lobby Stores stop selling remote-controlled products, which they did. “They did an honorable thing,” said Mr. Cleveland, who continued to field complaints and returns from people who had bought remote-controlled products from the craft store chain.
Still, this did nothing to solve the name problem. National attention on social issues, including gayy marriage and abortion, put Hobby Lobby Stores in the spotlight, and that attention spilled over to Mr. Cleveland’s company. It peaked in 2012 when Hobby Lobby Stores filed suit over the contraceptive rules in the Affordable Care Act. News of the lawsuit caused a spike in erroneous calls and comments to Mr. Cleveland’s company. “I didn’t want to pick a fight with that company,” Mr. Cleveland said. “But that’s when I knew I had no choice.”
OPTIONS Mr. Cleveland made up his mind to force a resolution, even if it meant taking legal action against a billion-dollar company. Believing he had a strong legal position because he had the trademark for hobby products sold under the Hobby Lobby name, Mr. Cleveland wrote a letter to Mr. Green, this time giving him an ultimatum: Hobby Lobby Stores could get out of the hobby business altogether or compensate Mr. Cleveland’s company for the cost of rebranding.
And if Hobby Lobby Stores would not oblige? Mr. Cleveland knew that a lawsuit would cost millions, but he said he told his wife, " ‘I’m prepared to put everything I own into this.’ I was ready to fight.”
WHAT OTHERS SAY Timothy Calkins, clinical professor of marketing at Northwestern University’s Kellogg School of Management: “Mr. Cleveland’s best option is to embrace another name. This is clearly a problem for both of these companies, but it’s a bigger problem for Hobby Lobby International. The craft store is a much bigger player and, socially, is a very polarizing company. For Mr. Cleveland, the question isn’t whether he should change the brand, but how he can convince the other company to pay for it. Big companies don’t like legal fights, and they don’t like distractions, but they won’t settle unless they think it’s a credible threat.”
William Barnum, partner with Brentwood Associates, a consumer-focused private equity firm: “This is a worst-case scenario for brand confusion. Hobby Lobby International has to change its name, but in such a way that it doesn’t lose its core customers. It should do whatever it can to keep its brand attributes, including the logo and key words. They also need a good plan for how they communicate the change to brand evangelists, the people who closely follow and blog about the company and its products. This tactic worked for us when we rebranded one of our portfolio companies, The Teaching Company, as Great Courses because it was frequently confused with a company called The Learning Company.”
Terri Williamson, owner of Water Music, a body care, perfume and candle company she founded in 1999 as Glow but rebranded in 2004 after a legal battle with Jennifer Lopez, who introduced a perfume with the same name: “My advice to other entrepreneurs in this predicament is to find not just a great attorney, but one with experience in trademark litigation. Going to court is expensive, exhausting and ultimately very risky. It worked in my favor — I negotiated a settlement — but I am a big fan of avoiding litigation. In hindsight, the minute Jennifer Lopez started using my name, I probably had no alternative but to rebrand. My company would forever be associated with her. I think that’s the case with Hobby Lobby International. As a branded company, you don’t want to be associated with anyone but yourself or the people of your own choosing.”
Questions
1) examine thoroughly the swot analysis
2) according to case study discuss the porter’s generic strategies which strategies are better for this company?
3) if you were a consultant of this company what would suggest to this company
4) analyses competitors and the attitudes of this company towards competitors.