Lego Case Study - The Great Turnaround

LEGO Group – Building StrategyISS 509E Marketing Management – 05.11.13Fatih Coban, Yusuf Oktay, Vanessa Schuller,

Jasper Schwenzow

Structure

1. Lego – The Company 2. SWOT Analysis3. Strategy Analysis4. Recommendations 5. Lego – Now

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LEGO – Timeline 1

1932 Foundation by Danish Ole Kirk Kristiansenwooden toys

1934 Name LEGO 12 Employees„only the best is good enough“

1947 first plastic injection molding machine

1949 LEGO bricks invention

1960sExpansion to EU,US,CAN,JPN,AUSFocus on LEGO bricksFirst LEGOLAND theme park

1970sProduct differentiation and variation>2500 EmployeesNew CEO

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LEGO – Timeline 2

1980sEducational lineLEGO magazine

1990s>7.000 employeesLEGO storescomputer gamesOne of top 10 toy manufactures

2000sAcquisition of licensesmore product linesVirtual online LEGO universe

Now 2010>9000 employees4. largest toy manufacturerAnnual sales 3.7 billion US$ Net profit 0.86 billion US$

Internal problems4 out of 7 years loss-> production process optimization-> reduction of suppliers-> reduction of design variety-> distribution optimization

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SWOT – Internal

Complex structurePatents lose value

Compatible competition's building setsReduced product design possibilities

Broad differentiation & new computer gamesStrong brand image & media presence worldwideSeveral branches & touching pointsImproved company‘s structureProducts fun & valuableHigh quality productsImproving key figures

STRENGTHS

WEAKNESSES

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SWOT – External

Huge market & building sets‘ fast growthLego market leaderUsage of new computer technologiesGrowing markets worldwide

Design no longer protectedStrong and growing competition

Disney controls entertainment licensing

OPPORTUNITIES

THREATS

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SWOT Focus CompetitionHasbro: - 2. largest toy maker- Long-lasting success- Holds licenses - Kre-O to be launched- Net revenue 4 billion US$- Investment (property etc.) 0.23 billion US$- Investment (intangible assets) 1.6 billion US$- Net earnings 0.4 billion US$

MEGA Brands: - Main rival competitor

(building sets)- Won court battle- LEGO Compatible system- Net earnings 0.13 billion US$- Investment (property etc.) –

0.1 billion US$

Mattel (indirect): - Largest toy maker (revenue 5.8

billion US$)- Popular products- Holds many licenses

Disney (Licensor): - Acquisition of Marvel- License monopoly

LEGO key figuresRevenue 3.7 billion US$Net earnings 0.86 billion US$

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SWOT – Complete Analysis

Strength:- Strong brand- Valuable, differentiated

products

Weakness:- Complex structure

Threats:- Direct & indirect

competition- License market

Opportunities:- Market growth- New technologies

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SWOT – Change Over Time

NOWMain problem: external threats- Strong, growing competition- License market - Trademark protection loss

PASTMain problem: internal weaknesses- Costly designs- Inefficient production,

distribution, sales

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Corporate-level Strategy – Business Units

Business Unit Important Features

Non-licensed Building Sets Company's main product

Licensed Building Sets Company's main product

Video Games Non-violent, recent growth

Board Games

Theme Parks Important touching point

Stores and Merchandise Touching points, discounts

Online Website Innovation possibilities

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Corporate-level Strategy – Segmentation & Targeting

Target Market Applied Products Examples

Communication Channels

Children under 5(Buyer ≠ Consumer)

Duplo Via parents

Children & Teenagers Building sets, Video Games

Magazine, TV advertisement, Website

Fans (adults) Special products Different Websites, LEGO shops

Educational market Extra line for schools, Mindstorm

Probably Website

Families Theme Parks, Board Games

Mouth to mouth, media advertisement

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Corporate-level Strategy – Positioning

Goals:1. Maintain market dominance in building toy market2. Financial success3. Expand and develop product lines

Mission: „Our ultimate purpose is to inspire and develop children to think creatively, reason systematically and release the potential to shape their own future – experiencing the endless human possibility“

Motto: „Only the best is good enough“

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Business-level Strategy – Building Sets

LEGO against competition• High quality and safe products• High customization and adaptation• Educational aspects included and forwarded• Strong media presence

Dangers of current strategy:• Costly • Losing market share by competitor‘s low

price policy• Suppliers dependency (Star Wars)

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Recommendations 1Problem: License monopoly

Idea: LEGO Toy producer LEGO Entertainment producer

Strategic implementation: • Developing own stories• Promotion via movies, magazines, internet

finding partners (e.g. Google)• Adaptation of Merchandising

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Recommendations 2Problem: Competitor‘s building sets are compatible

Idea: Enhancing community / network effect

Strategic implementation: • Stronger dependency between business units

discounts in Theme Parks codes in building sets for website offers segmentation of communities further supporting community events

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Recommendations 3

Further recommendations to maintain LEGO‘s leading status• Acquisitions of smaller toy producers• Keep prices steady, just careful discounts on

special occasions• Enhance position in developing markets (Asia) if needed adapt products

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LEGO NOW

• Own story lines (Chima)• Strong growth in new markets, new

headquarter in Singapore• Forwarding environmental and social

issues

Key figures 2012• Revenue 4.1 billion US$• Net profit 1.0 billion US$

Thank You For Your Attention!

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Sources

• Case Data• Internet sources

• http://www.shareholder.com/visitors/DynamicDoc/document.cfm?DocumentID=2935&CompanyID=HAS&zid=4d6301e3 (28.10.13)

• http://www.megabrands.com/sites/all/files/media/pdf/corpo/en/reports/Financial_Statements_2010-2009.pdf (28.10.13)

• http://aboutus.lego.com/de-de/lego-group/annual-report (28.10.13)• http://aboutus.lego.com/de-de/sustainability/our-approach (28.10.13)

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