Introduction & Key Issues
The Lego Group (TLG) is one of the leading companies producing plastic building toys in the world. The company was established by the Danish carpenter Kristiansen in 1932. The company produced wood toys. In 1934, appeared the well-known name of the organisation, LEGO, which was a neologism that could be translated into English as ‘play well’. It is noteworthy that one of the major focuses of Kristiansen was the products’ quality. Another key value developed in the company has been the principle of non-violence.
In the 1950s, “classical physical interlocking bricks” were developed and “Play and Learn principle was introduced” (Wingate, 2015, p. 349). In the 1970s, the company introduced LEGO figures and the concept of role-play (Wingate, 2015). The 1990s was the era of the focus on computer games, robotics and education. This concept is still persistent in the company’s culture. The TLG faced a number of tough periods but the company managed to overcome the difficulties. The management strategies that have been employed since 2004 have been successful in the vast majority of cases (Knowledge@Wharton, 2012).
Nonetheless, the company is still facing numerous issues. For instance, it has been acknowledged that girls comprise only around 10% of the LEGO toys users. Clearly, this market has a great potential and the company has to work in this direction. First steps have already been undertaken as the company introduced a new line, Lego Friends, which is aimed at girls. However, it is quite unclear whether the new product line will be success and will enable the company to increase the number of its female customers.
Another issue is a very tense competition the company has to handle. It is clear that new players in the market have taken up a significant share of the market that used to belong to LEGO. Therefore, it is unclear whether the company will be able to create the value to win loyalty of customers.
It is also possible to note that the company has come up with loads of new products and there are risks that it will be unable to remain focused on its non-violence culture. For instance, new line including Star Wars imply appearance of certain kind of weapon. Thus, it is not clear whether the company should remain faithful to its non-violence culture in the future and how its choice will affect its operations.
External Analysis
To better understand key issues the company is facing, it can be helpful to perform an external analysis. It is possible to consider five Porter’s Forces. According to Porter, one of the forces is the intensity of competition among established organisations in the industry (Stead, 2014).
Competition among Established Companies
As has been mentioned above, there is a significant competition in the field. Importantly, the company’s patent on its brick expired in the late 1970 and other organisations obtained an opportunity to enter the market by producing similar products. Prior to that moment, LEGO was the company that offered quite a unique product. Nonetheless, at present there are several alternatives. For instance, a Canadian company introduced their new product Mega Blocks, which was similar to LEGO’s products. Now, Mega Blocks can be seen as a very serious rival as the company offers products that are cheaper and more affordable.
Thus, TLG is losing a significant share in the world market especially in emerging markets where people still tend to buy cheaper products. Clearly, the quality of products of Mega Blocks is significantly lower but the price is very tempting and many buyers prefer them to LEGO. Of course, it is important to remember that such companies as Nintendo and Sega are also significant competitors as TLG is actively operating in the field of multimedia.
New Rivals
Another Porter’s factor is the risk of entry of new competitors (Stead, 2014). Of course, it is clear that the company will also have to handle appearance of new competitors who also produce similar products and can offer lower prices (Harrison & John, 2013). Again, TLG will have to come up with strategies to be able to retain its focus on high quality and offer more attractive products. It will be essential to develop the strategy to create an additional value in products provided.
The Bargaining Power of Suppliers
It is possible to note that the bargaining power of suppliers is quite beneficial for TLG. There are many companies that produce the necessary materials for the industry (Harrison & John, 2013). It is noteworthy that many of such organisations are located in Asia and Latin America. Thus, TLG can benefit from cooperation with these companies. It does not mean that TLG should outsource and launch its facilities in these regions, as this can be quite ineffective due to significant logistic costs associated with delivery to major markets (which are mainly the North America and Europe). At the same time, buying raw materials and components can be beneficial for the company.
The Bargaining Power of Buyers
The next Porter’s factor to be mentioned is the bargaining power of buyers. As has been noted above, in emerging markets, LEGO products are less attractive than similar products of other companies due to the high prices. This can be a significant issue for the company that is constantly expanding and, as any other toy maker, is trying to win a share in these markets. As for the company’s major market (western countries), the bargaining power of buyers is quite high though there can be some drops associated with financial constraints of certain countries.
Threat of Substitutes
Finally, Porter also stresses the threat of substitute products (Stead, 2014). There is always a risk that children will switch to other types of toys, as this market is highly competitive. Cultural peculiarities and new trends emerging in the society may affect people’s choices and children may find new ways to express their creativity and satisfy their needs in games. Video games can be seen as some of the most serious threats. The company has already responded to that by developing their own multimedia including video games (Wolf, 2014).
Threats and Opportunities
It is clear that significant competition is one of the most serious threats the company is facing. Established companies as well as new rivals provide similar products at lower prices. The market of toys is expanding all the time and new products appear. These products may potentially substitute LEGO toys. The company has managed to reduce its expenditure due to effective strategies. However, these strategies may potentially violate major principles of the company (non-violence culture). The company will also have to come up with ideas to retain high quality of products and offer better prices as buyers tend to purchase more affordable products.
At the same time, the company still has lots of opportunities. For instance, there is a way to expand the number of customers through targeting girls. New lines of products can be effectively employed. Technology and science provide various opportunities for producers. Thus, the company may collaborate with various partners and high-quality materials (which are cheaper) can be associated with lower costs. Of course, trends in the society are changing and it can be sometimes difficult for TLG to remain faithful to its core values. At the same time, these core values can be utilised as the basis of the company’s culture. TLG has almost a century history and its focus on quality and non-violence have paid-off. Thus, it is necessary to focus on these two core values with only some possible adjustments.
Internal Analysis
As has been mentioned above, strategies used after 2004 have proved to be effective. The company focused on the decrease of expenditures and production of new products. The company production and logistics methods are also very effective. Thus, the company reduced the number of details produced that substantially reduced the costs. This can be seen as a competitive advantage of the company. Diversification is another important advantage. Thus, new product lines (themed sets) are effectively marketed during the period of new releases of the famous films (Seppala, 2015).
It is noteworthy that cooperation with companies such as Disney is also an effective strategy. TLG is expanding its multimedia line through cooperation with such companies as IBM. The company also pays a lot of attention to the sector of robotics, which is a popular trend in the industry (Liu, Cheng, Lin, Chang & Chen, 2008). Importantly, virtual world of LEGO is expanding through creation of new virtual communities (Robinson, 2014).
Implementation of these strategies have led to significant economic advances. Thus, the company’s revenue increased by 13% and in 2014 it reached 28.6 billion (Trangbæk, 2015). The number of employees went up from 13,869 (in 2013) to 14,762 (in 2014). Importantly, 90% of the waste is recycled, which is a significant advantage, especially in the western market. Finally, the company is increasing its market share in all markets (Trangbæk, 2015).
The Business-Level Positioning
The company has adopted a specific positioning in the market. TLG is one of the oldest producers and it focuses on the quality and diversity of its products. LEGO offers products that appeal to its customers even though the price is not low. This positioning is quite effective in the western market as people there are ready to pay for the value. However, when it comes to emerging markets, the prices of LEGO products are quite high and this makes them less affordable. At the same time, it is important to note that financial results mentioned above show that the focus on the western market has been beneficial for the company. Of course, the company has done a lot to reduce costs and the products have become more affordable while profits more significant. Nonetheless, the company has lost quite a considerable amount of markets (up to 40%), which was caused to entry of other competitors that provide similar products at lower prices. Thus, the company will have to handle this issue.
The Corporate-Level Strategy
The corporate-level strategy is based on the principles of responsibility. First, TLG provides only high0-quality products that are safe. Secondly, the company provides toys that have an educational capacity and children are able to develop certain skills as well as their creativity while playing. Apart from that, TLG invests significantly into the diversity in its products. It has been estimated that 75% of sales annually are generated by the sales of new products. At the same time, many new product line become unsuccessful and lead to considerable losses.
Thus, the new Lego Friends line is supported by the marketing campaign that costs $400 million, which is a significant investment. More so, TLG stresses its focus on the non-violence principle. Thus, the company emphasises its focus on universal family values, which is very important for its customers. Finally, TLG pays a lot of attention to the environment and 90% of waste is recycled, which adds a significant value to LEGO products especially in the western markets where people tend to be environmentally conscious.
Recommendations
To address three major issues the company faces, TLG should undertake a number of step. When it comes to the launch of the new line, Lego Friends, the company has to retain the quality of products. The strategy of production optimization should also be employed to reduce production costs. The support of the products by such multimedia as the company’s website is effective. However, the company should also make use of social networks, as girls are active users. These steps will enable the new product line to be successful.
The company should also remain faithful to its core values, such as quality, diversity, non-violence and environmental responsibility. These added values make the customers remain loyal to the company. Of course, it is possible to reduce costs through cooperating with scientific agencies and various producers of materials that are becoming less expensive without losing the quality.
Of course, it is especially important for the company to focus on its non-violence culture as this is one of the universal family values that are common for all people in the world. Parents want children to be healthy and creative. Lego products may help them satisfy their needs.
Reference List
Harrison, J., & John, Caron St. (2003). Foundations in strategic management. Mason, OH: Cengage Learning. Web.
Knowledge@Wharton. (2012). Innovation almost bankrupted Lego – until it rebuilt with a better blueprint. Time. Web.
Liu, E.Z.F., Cheng, S.S., Lin, C.H., Chang, Y.F., & Chen, W.T. (2008). The development of evaluation indicators for LEGO multimedia instructional material. WSEAS Transactions on Computers, 10(7), 1782-1791. Web.
Robinson, L. (2014). Marketing dynamism & sustainability: Things change, things stay the same. New York, NY: Springer. Web.
Seppala, T.J. (2015, February 27). Disney’s retelling the ‘Star Wars’ film saga with Lego. Engadget. Web.
Stead, W.E. (2014). Sustainable strategic management. New York, NY: Routledge. Web.
Trangbæk, R.R. (2015). Global growth ensures strong 2014 result for the Lego Group. Web.
Wingate, L.M. (2015). Project management for research and development: Guiding innovation for positive R7D outcomes. Boca Raton, FL: CRS Press. Web.
Wolf, M.J.P. (2014). LEGO Studies: Examining the building blocks of a transmedial phenomenon. New York, NY: Routledge. Web.