Abstract:

Hello Kitty was the name of a cartoon cat developed in 1974 by Sanrio Co. Ltd. (Sanrio), a Japanese company that sold characte r-
branded goods in Japan and other parts of the world.

Sanrio initially used the character to adorn petty merchandise like coin purses and pencil boxes targeted at small girls.

However, after Hello Kitty became hugely popular, Sanrio extended the brand to a variety of other products.

By the early 2000s, Hello Kitty featured on products ranging from vacuum cleaners to DVD players, toilet paper to cars, and
computers to candy, and was thought to be one of the most powerful brands in the world.

This case discusses the reasons for the popularity of Hello Kitty, and tries to analyze the unique features of the brand. It also talks
about the various steps Sanrio took over the years to revive and reinvent Hello Kitty when sales showed signs of flagging. Th e role of
celebrity endorsements in creating brand value is also discussed. The case concludes with a commentary on Sanrio's efforts to
convert Hello Kitty into a luxury brand.

Issues:

» To trace the evolution and growth of a hugely popular global brand.

» To understand the strategies companies adopt to revive and reinvent brands.

» To examine the role of celebrity endorsements in creating brand value.

» To analyze the role of licensing in extending a brand.

» To study the role of co-branding in branded-goods market.

» To examine the pitfalls involved in over-extending a brand, and to analyze whether a brand with a primarily juvenile image can be
extended successfully to luxury products.

"She (Hello Kitty) is the original, and it is hard to replace her. She became the icon of cute for a whole generation. You can't buy that
kind of lucky coincidence."

- Ken Belson, co-author, 'Hello Kitty: The Remarkable Story of Sanrio and the Billion Dollar Feline Phenomenon', in
2004.

"Hello Kitty was propelled from day one by the character's cute and simple design. After 30 years, we're glad to see that people are
still buying her products."

- Bill Hensley, marketing director, Sanrio Inc., in 2003.

Hello Kitty Goes Luxe

In early 2005, Sanrio Co Ltd. (Sanrio), the Japanese company which created the popular cartoon cat Hello Kitty, entered into a
licensing agreement with jewelry designer Kimora Lee Simmons' (Simmons) company, Simmons Jewelry Co., to create a line of
diamond jewelry -- the "Hello Kitty Collection by Kimora Lee Simmons." Simmons' jewelry line, which included pendants, rings, and
diamond watches, was priced in the range of $350 to $3,500 , and was launched in March 2005. The diamond watches, which were
reportedly the best selling items in the line, were priced between $1,875 and $3,250 and were available in eight different designs.

All of Simmons' jewelry was available exclusively at Neiman-Marcus outlets across the US. (Refer to Exhibit I for pictures of some of
Simmons' jewelry pieces).

Diamond jewelry was only a small part of the Hello Kitty merchandising universe. The Hello Kitty brand was also used on desig ner
apparel, accessories, and perfumes. High-end pet accessories were sold under the label the "Hello Kitty Collection by Little Lilly" at
upscale boutiques in the US.

On the technology front, a Japanese company called Business Design Laboratory created a 20-inch tall Hello Kitty robot that could
perform the job of front-desk personnel in the early 2000s.

Apart from luxury products, consumers could also buy affordable products like Hello Kitty pencil boxes, purses, and apparel f rom
various stores worldwide. Reportedly, as of early 2006, there were thousands of different Hello Kitty products available in over 40
countries around the world.
Sanrio first introduced Hello Kitty in 1974, as an embellishment on a small coin purse sold by the company. Children, especially small
girls, loved the cartoon and the cat became very popular. Keeping the character's popularity in mind, Sanrio produced several Hello
Kitty branded products, aimed at small girls and preteens over the late 1970s.

However, during the 1980s, the growing popularity of other cartoon characters such as Doraemon (another cat) resulted in the Hello
Kitty brand losing some of its appeal. Therefore, in the mid-1990s, Sanrio repositioned the brand to make it appealing to a wider age
range of female customers. The repositioning was successful, and Hello Kitty regained its popularity.

Over the years, Sanrio launched the Hello Kitty brand in various countries in Southeast Asia, Europe, and the Americas. In Southeast
Asia, analysts noted that girls showed almost a fanatical devotion to the brand. Apart from Southeast Asia, Hello Kitty was also
hugely popular in the US -so popular that she was considered to be in the same league as cartoon characters like Mickey Mouse,
Snoopy, and Winnie the Pooh. Such was Hello Kitty's popularity that she was chosen the UNICEF 5 ambassador for the USA in 1983
and for Japan in 1994.

By the early 2000s, however, Hello Kitty began facing brand fatigue 6 in its domestic market, Japan. In 2002, Winnie the Pooh
replaced Hello Kitty as the best-selling character among female consumers in Japan. This in turn had an impact on Sanrio as Hello
Kitty was the company's main brand and Japan its key market. In the early 2000s, Sanrio was trying to reposition the brand on ce
again by associating it with jewelry and luxury products.

Background

Shintaro Tsuji (Tsuji), the founder of Sanrio, was born in 1927 in the Yamanashi region of Japan.

Tsuji was an engineering graduate, and worked for the Japanese government before resigning to pursue his entrepreneurial
ambitions.

Tsuji set up the Yamanashi Silk Center (YSC) in 1960, through which he sold silk goods like purses, slippers, etc. However, Tsuji did
not find much success in this business initially.

In 1962, Tsuji started selling a line of slippers that had the picture of a strawberry on them. These slippers went on to bec ome a
huge success and gave a boost to Tsuji's struggling business. Tsuji realized then that consumers were more attracted to items that
had been embellished with some design or character. He was later quoted as saying, "If you attach added value or design to th e
product, they sell in a completely different way."

After the success of the slippers Tsuji concentrated on developing designs and pictures that could be used to adorn his merchandise.
In the meantime, he received a license from Charles Schulz to use the famous Snoopy character on his merchandise. Apart from
this, Tsuji also began selling Hallmark greeting cards and Barbie dolls in Japan.

However, these products did not find a good market in the country as Japanese consumers considered them to be too 'western'.
Over a period of time, Tsuji recruited artists to develop characters that could be used to decorate items like key chains, cups, etc.

By the end of the 1960s, he had put together an in-house creative team that was responsible for churning out new designs and
characters.

Tsuji's intention was to take advantage of the Japanese custom of giving gifts. In Japan, people often exchange small and
inexpensive gifts like key chains and other tokens. Even children like to exchange small gifts and small stationery items.

Tsuji noted that there was a huge market for merchandise such as pencil boxes, small purses, etc., that young people could afford to
buy...

Hello Kitty through the Years

During the early 1970s, Sanrio carried out a consumer survey which revealed that the most popular cartoon characters in Japan
were those of dogs, bears, and cats. Accordingly, the company asked its creative team to develop new characters based on these
animals. In 1974, Shimizu Yuko (Shimizu), one of the designers who mainly designed wallets for the company, created several
characters including designs for a cat, a dog, and a bear.

The design of the cat character was interesting in that it had an oversized round face with two dots as eyes, a button nose, and no
mouth.

It also had six whiskers and a red bow on its left ear. The cat, like most other cartoon characters, sat in a human-like posture. One
of the most striking features of this cat, however, was that its face was completely expressionless (Refer to Exhibit IV for a picture of
the first Hello Kitty design)...

Sanrio's Licensing of Hello Kitty

According to analysts, Sanrio's decision to put Hello Kitty on a wide variety of products was largely responsible for keeping the brand
in the public eye for more than three decades. After featuring the cat on a coin purse in 1975, Sanrio had, over the years, branched
out to include several other items under the Hello Kitty brand.

Analysts commented that Sanrio had put Hello Kitty on practically everything. Only Hello Kitty featured on items ranging fr om
vacuum cleaners to DVD players, toilet paper to cars and computers to candy.

Said Bruce Guiliano (Guiliano), senior vice president of licensing, Sanrio Inc., "In Japan, it's possible to have your entire house
decorated and fixturized in Hello Kitty…. There's even a Hello Kitty dishwasher."

What made Hello Kitty click?

Over the years, experts have tried to analyze the reasons for Hello Kitty'sextraordinary popularity worldwide. They were puzzled as
to why only Hello Kitty, from among the many other characters created by Sanrio, clicked in the market.

They have tried to discover the reasons that made Hello Kitty the 'Queen of cute' for many female consumers worldwide. Many
analysts attributed Hello Kitty's success in Japan to the prevalence of the Kawaii culture in the country. The Japanese, regardless of
their age, were known to have a passion for 'cute' objects.

For instance, it was considered normal for grown women in Japan to be seen with mobile phone cases that were adorned with
cartoon characters, or for banks to print check books with pictures of cartoons. The postal department issued stamps featurin g
popular cartoon characters, and it was said that even the local police departments in Japan had cute-looking mascots.

Is Hello Kitty losing her charm?

Even though Hello Kitty was still among the top-selling brands in Japan as of early 2006, the avenues for future growth seemed
limited. The increasing popularity of Winnie the Pooh among female consumers prompted analysts to say that Hello Kitty's cachet
was at risk in Japan.

Analysts noted that Sanrio had succeeded in reviving the brand in the 1990s by repositioning Hello Kitty to make her ap pealing to a
larger number of people. However, they were doubtful if the company could pull off the same trick a second time. There were several
reasons for this. Hello Kitty had already been placed on a wide range of items and there were few new items left.

Further, a demographic shift was taking place in Japan, with the number of young people decreasing over the years owing to low
birth rates. This in turn limited sales as Sanrio's target consumers were young people. Also, as the character-goods business in
Japan had its roots in the Kawaii culture, brands like Hello Kitty and others were expected to lose their appeal once the culture died
out in the country.

Exhibit I: Hello Kitty Diamond Jewelry Collection by Kimora Lee Simmons

Exhibit II: Sanrio's Main Businesses as of Early 2006
Exhibit III: Various Subsidiaries of Sanrio as of Early 2006
Exhibit IV: The First Design of Hello Kitty
Exhibit V: The Hello Kitty Coin Purse
Exhibit VI: Celebrities Endorsing the Hello Kitty Brand
Exhibit VII: The Hello Kitty Platinum Statue
Exhibit VIII: A Brief Biography of Hello Kitty
Exhibit IX: Operating Profit/(Loss) of Sanrio by Business Segment from 2004 to 2006