Symbiosis Institute of Media and Communication, Pune Brand Management Prof. Atul Tandon Lego Case Study Lego – The way the world plays An Introduction: LEGO Lego) is a privately held consumer product company engaged in the manufacture and distribution of a wide range of toys, video games and online games. A powerful and instantly recognized global brand has been a key feature of Lego’s success. Lego has worked hard to establish this brand through a number of routes. The group organizes its business into four main categories: the core business of play materials, family attractions, lifestyle products, and media.
In each of these categories the brand is clearly and consistently applied. At the heart of Lego’s business are its play materials. Here the Lego brands feature across a plethora of offerings. In order to cater for a target age range of 0 to 16 years, the company has split its offerings into nine different product programmes. These include Lego Primo and Lego Duplo sets aimed at 0 to 5-year olds. The 4 to 9-year age ranges can enjoy, amongst others, Lego Basic and the ZNAP vehicle/monster transformation sets. Older Lego customers can collect Lego Technic or investigate Lego Mindstorms, a revolutionary new microchip based system.
Losing Its Sheen: For many today the Lego brand brings back happy childhood memories. The success of world renowned toy manufacturer Lego has always been linked to its physical attributes such as its simplistic but distinctive basic brick design. Its commitment to fostering creative imagination has been its unique brand positioning. Even iconic brands like Lego needs to revitalize time and again to remain relevant and competent in today’s competitive world. Lego has seen a paradigm shift in its product offerings and is finding it difficult to continue its dominance in the toy market. SWOT on Brand Lego:
Strengths: * Strong hold on European market * Strong brand name * Big scale business * Consistent commitment to innovation * Quality * Global retail network Weakness: * Coordinating production with demand * Family Style of Leadership and Management in 2003 * Weak Distribution Networks Opportunities: * Developing markets * e-Retailing and Internet Buying * Licensing Deals with Entertainment Houses * Technology Based Product Designs using Augmented Reality Threats: * Substitutes from Asian Markets like India and China * Computer and video games * Quality Checks (Export Related)- Product recalls Shift in children’s taste – Category Killers Preference of Video Games over Physical Toys * Dipping Birth Rate in Developed Markets Question 1: There are a few areas Kjeld Kirk Ksitiansen needs to address: * Business Strategies need to be revisited: Understand the changing business environment of the toys industry and identify gaps in the existing markets, explore newer markets (developing countries like BRIC) as some of their primary markets are becoming less attractive due to maturity or showing lesser demand due to inherent environmental problems like lower birth rate.
Requires an in-depth PESTEL and Situational Analysis. Hence the company needs to reflect on the expansion of its operation based on market segmentation, appropriate marketing mix, new product design and development, including total quality management for outsourcing new partners. * Understanding Business Disablers: It is important for Lego to identify business disablers. Example – Children are moving away from physical construction toys to computer games. * Identifying the right target audience: When young mothers started preferring Mega Bloks as a better alternative Lego needs to review its strategies on targeting.
They seem to be neglecting the age group of 5 years to 9 years (Boys) while they have made attempts to popularise Lego usage amongst girls. * Competitive Strategy: Limit the loss of market share to ‘Me Too’ Competitors (New Entrants and Cheaper Toy Manufacturers) who have ‘Low Cost, Almost Equal Quality’ product offering which is almost disruptive innovation * Rebranding Exercise: To re-brand Lego in an attempt to boost sales or reposition the brand in the eyes of the customer. Re-positioning: Reposition Lego without compromising or diluting the brand promise of quality, inspiring creative imagination and that only the best will do for its customers. * Extensibility: It needs to review product diversification Example With an aim to become a lifestyle brand Lego diversified into clothes, video games and watches. Care needs to be taken not to dilute the brand equity while increasing product offerings * Improve Distribution: Bionicle was a successful toy but it was criticised for having poor stocks though the product had a high demand, and the lesser popular toys were available in stores.
Hence a weak distribution network can be proving detrimental in such a competitive environment. Question 2: In 2004, Lego continued its promotional and product tie ups with Harry Potter and Spiderman. This move is critical since sales and company profits will have to depend on these partnerships and there may be times when there is no release of the particular blockbuster series movie and this dependency can prove detrimental if it’s the sole business driver.
Too many of these tie ups will be viewed as a block to creativity and then fail to deliver the open ended imaginative play aspect of Lego on which the brand is essentially hinged on. Most of the forces applicable are negative and has high impact, shows that LEGO is operating in an industry highly competitive. The stronger the power of buyers and suppliers, and the stronger the threats of entry and substitution, the more intense competition is likely to be within the industry.
However, these five factors are not the only ones that determine how firms in an industry will compete – the structure of the industry itself may play an important role. Internal Rivalry: Here it is high, as in this industry there is a threat of substitute products and existing power of suppliers and buyers in the market. Threat of Substitutes: Entry of new competitors who are able to mass produce similar products at a lower cost and at reasonable quality, this has a negative and high impact on the performance of Lego.
Me too products have the potential to eat into Lego’s retail shelf space, soon make a foothold into Lego’s market share and slowly create a customer base of its own. Bargaining Power of Suppliers: There is a possibility of forward integration of suppliers. Bargaining Power of Buyers: This explains the power exerted by the customers in that particular market. Since the switching costs are negligible and the basic needs of the consumers are met easily brand loyalty may cease to play a crucial driver during purchase and hence Lego needs to seriously need to tackle this.
Threat of New Entrants: In an Industry like this, economies of scale come into play as there are benefits associated with bulk purchasing. Cost of entry and establishing distribution channels might be reasonable hence the cost advantages are not relative to company size. Patents help in this domain, but in Lego’s case it was overruled, hence there is a high and negative impact of new entrants. Favourable Government Legislations will further drive the competition for example Chinese makers. Brand Strategy:
Get Back to Basics – ‘Lego the way the worlds plays’ – Focus back on boys Technologically Simple Digital Presence – Augmented Reality CSR autistic children angle. Collectors Items – Old Lego Players Unite all Lego Brands Speak One Language Legacy Harp on Lego is re-branding its entire product range and introducing a new slogan to simplify what the Lego brand stands for. Lego says that in the past, consumers have been confused by the different sub-brands, such as Lego Technic, Duplo and Primo, and not realised that they were all part of the Lego group.
Each of these new categories will be represented by their own set of colours. The new product structure replaces the previous branding structure which largely categorised Lego products by target age range. At the same time, a new slogan called “Play on”, will come into effect, replacing “Just Imagine”. It is meant to represent the five values behind Lego: creativity, imagination, learning, fun and quality. Lego also plans to open a chain of branded retail stores, beginning with one in Cologne and a second in Milton Keynes. LEGO building blocks to teach social skills in autistic children.