LEGO: Building for the future

A Comprehensive Case

Abrar Ahmad Ali Qurashi Fahad Insha Group Members Shakeel Anjum

Khuram Shahzad

Figure O u t l i n e We will be approaching this case by first analyzing situation broadly and then narrowing down our focus right to the problem and conclusion stage

Introduction Situation Analysis Problem Identification (Main & Sub) Alternative Development Evaluation Selection Implementa tion Recomm endation

Time Of Case •Year 1999 Industry Of Operation •Toy manufacturing Time Of Establishment •1932 By Ole the founder with few employees Geographic Area •Becloud, Denmark

Meanings •Danish word “Log Godt” meaning “play well” Key People •Ole Kirk Christianson (Founder) •Godtred Kirk Christianson (Son)

Figure S i z e O f T h e C o m p a n y

More than 10,000 employees in 30 different countries and among world’s largest toy manufactures Only European company to occupy a place in world’s top ten toy manufacturers Produces its products in Denmark, US, Switzerland and Korea and retailed through 60,000 outlets in more than 130 countries 50 years following its inception Some 203 billion LEGO elements have been produced

Figure K e y D a t e s

1932 • Ole Kirk Christiansen started business with few employees 1934 • LEGO name was first used 1949 • Ole’s son used new material to create four and eight stud building bricks 1958 • Godtfred made most important discovery 1999 • LEGO opened 128 acre-theme park in carsbad

Figure L E G O G r o u p B u s i n e s s e s

Play materials Family attractions LEGO group Lifestyle products Media

MACRO ENVIRONMENT

DEEP-LIST Analysis

Social Environment

• Child searching for a gift sooner or later is going to encounter the world famous LEGO brand • Many of today’s parents, each new LEGO experience bring back memories • “I remember my brother had a biscuit tin full of red and white LEGO bricks……..”

Technological Environment

• Towards 1940s, Ole realize the huge potential of plastic as new replacement of wooden range • In 1949, Ole’s son used new material to create simple four and eight stud building blocks • In 1958, Godtfred made most important discovery towards joining inside hollow bricks

Demographic Environment

• Children as well as people from other age groups are experienced to use LEGO brands

Note:- No sufficient data regarding Ecological,

Economic, Political, Legal, Informational,

environment provided in the case

An Industry Analysis

PORTER’S FIVE FORCES MODEL

Figure P o r t e r ’ s F i v e F o r c e s

Threat of New Entrants Bargaining Power of Suppliers Internal Rivalry Bargaining Power of Buyer Threat of Substitutes

Table I m p a c t & s i g n s o f p o r t e r ’ s f o r c e s Bargaining power of buyer Bargaining power of supplier Threat of substitutes Threat of new entrants Sign

Moderate Low High High

Impact

Moderate Positive Negative Negative

Internal rivalry

High Negative

Note:-

As most of the forces in this model are negative therefore the industry in which LEGO operates is unattractive industry

Goals & Objectives

Desire to stimulate children's creativity ‘Creativity unlimited…..Just Imagine’

Vision

For people to experience positive, happy association every time they see LEGO element.

Figure S e g m e n t a t i o n & T a r g e t M a r k e t

Demographic • Age group (play materials 0-5, play materials 4-9, play materials 7-16+, learning materials 7-16+) Geographic • Asia, America, Europe, Japan Psychographics • Not provided Media Graphics • Not provided

Customer Profile

Includes all the children with target age range of 0 to 16+

The 4 Hard P’s The 3 Soft P’s

MARKETING MIX

PLAY MATERIALS

Figure P r o d u c t C a t e g o r i e s ( L E G O G r o u p )

• Category for children who haven’t yet started school • Those products that are built up around a story Pre-school products Play materials • Name given to sets or buckets with traditional LEGO bricks Building bricks • With LEGO MINDSTORMS you can design your own robot • Products have been developed specially for the educational sector MINDSTORMS LEGO Education • Based on movies or books for which the LEGO Group has acquired the rights Licensed products

Figure P r o d u c t l i n e s L E G O ( P l a y M a t e r i a l ) LEGO PRIMO

• Children from birth to 36 month • 37 different set of toys • Sets include rattles, animal characters, aero planes and boats etc • Baby toys, stacking toys and mobility toys

LEGO DUPLIO

• 18 months to six year age • Basic LEGO duplio set includes Different products to be combines with each other • Theme LEGO duplio set Encourage role play and imagination

LEGO SCALA AND LEGO BELVILLE

• Especially for the needs of girls • LEGO BELVILLE encourage girls to enjoy range of horse riding, fairy tale,, beach and other themes • LEGO SCALA provide plenty of opportunity for play

LEGO SYSTEM

• Designed for specific needs of boys • Includes 157 different sets • Limitless range of themes includes ninja, city, action, adventures, space, star wars, trains, model team and radio control

LEGO TECHNIC

• Older children • Use technical design and construction system • CyberMaster, robots and computer sftware to allw construction of programmable toys

LEGO MINDSTORM

• Revolutionary new system based on LEGO RCX microchip • Special programming language i.e. RCX to program microcomputer which acts as a robot’s brain

ZNAP

• Recently launched construction system • Features vehicles which once built can be transformed into something else such as monster

LEGO DACTA

• For kindergartens and schools

FAMILY ATTRACTIONS

Figure L E G O f a m i l y a t t r a c t i o n b u s i n e s s

LEGOLAND Billund

• Company’s home in billund • Attract around 1.4 mil visitors a year • Some 45 mil LEGO bricks are used

LEGOLAND California

• Carlsbad, north of San Diego in California • 1.9 mil visitors per annum • Designed for children but people with all age groups have been witnessed to come

LEGOLAND Windsor

• Windsor Safari park in UK • Attracts 1.5 mil visitors per annum • Britten’s most popular new attraction Note:- Company plans to pen up two more parks in Germany and Japan early in new Millennium

Lifestyle Products

 Aim is to raise awareness of LEGO brand  LEGO Kids Wear  Launched in 1993, the result of licensing agreement with Danish Brandtex Group  Available through number of different outlets  Departmental stores, specialized children’s apparel shops  Launching its own retail outlets, by 1999, LEGO opened 15 shops selling LEGO kids wear alone

Media



Offers consumer range of children’s software, videos, books and music

 LEGO CREATOR, LEGO LOCO, LEGO Chess, LEGO SYSTEM Rock Raiders

ILC: Industry Life Cycle CLC: Company Life Cycle PLC: Product Life Cycle

PLC/CLC/ILC

Figure P L C / C L C / I L C LEGO Products Toy Industry (ILC) LEGO Company (CLC)

PORTFOLIO ANALYSIS

Figure High B C G F r a m e w o r k

• Family attractions • Lifestyle products Star Question Mark

•Media

% age of market Growth

Cash Cow Dog •Play materials

•N/A

Low High Market Share Low

KSF

 Stay tuned with changing tastes  Respond quickly to latest fads and fashions  Latest technology  Innovation  Advertising

USP

 Stimulate children’s creativity  Creative imagination

Competitors

“LEGO competes with plethora of toys ranging from Action Man and Barbie dolls to Furbies and computer games”

Figure S W O T A n a l y s i s

Strengths • Strong hold on European market • Strong brand name • Big scale business • Consistent commitment to innovation • Quality • Global retail network Weaknesses • Coordinating production with demand • Low-tech constriction sets • Distance from top to bottom • Overlap between functions • Rattle design Opportunities • Japanese market • Cyberspace LEGO world shop • Fitness programme • Licensing deal with lucasfilm Ltd.

• Licensing route to Disney film characters Threats • Asia/Pacific & S. African market • Stock reductions by retail trade • Computer and video games • Product recalls • Shift in children’s taste

Figure E n h a n c e d S W O T M a t r i x

Strengths Weaknesses Opportunities Licensing deal with Lucas Film Ltd. To produce LEGO Star Wars products Increase production to meet with the demand for important LEGO lines Threats Increase its focus on the markets of Asia/ Pacific & S. Africa using its strong brand name High technology products to compete in the markets of Asia/ Pacific & S. Africa

Table I F E M a t r i x

Key Internal Factors (Strengths)

Strong hold on European market Weight

0.06

Strong brand name

0.12

 0.08

Rating

3 4 4

Weight ed score

0.18

 0.48

0.32

Big scale business Consistent commitment to innovation Global retail network

0.10

0.11

3 4 0.30

0.44

Quality

0.11

4 0.44

Key Internal Factors (Weaknesses)

Coordinating production with demand Weight

0.10

Low-tech constriction sets Distance from top to bottom

0.07

0.13



Rating

1 2 1

Weight ed score

0.1

0.14

 0.13

Overlap between functions

0.12

1 0.12

Total

1.00

2.65

Table E F E M a t r i x

Key External Factors (Opportunities)

Japanese market Weight

0.09

Rating

4

Weight ed score

0.36

Cyberspace LEGO world shop Fitness Programme

0.1

0.06

 4 4 0.4

 0.24

Licensing deal with lucasfilm Ltd.

0.15

4 0.6

Disney film characters

0.06

3 0.18

Key External Factors (Threats)

Asia/Pacific & S. African market Weight

0.07

Stock reductions by retail trade Computer and video games

0.05

 0.12

Rating

1 1 2

Weight ed score

0.07

 0.05

0.24

Product recall Shift in children’s taste Total

0.10

0.20

1.00

1 2 4 0.10

0.40

2.64

Figure A n s o f f ’ s E x p a n s i o n G r i d

Market-penetration strategy Product development strategy Market development strategy Diversification strategy

Financial Analysis

No data as per the requirements of presenting financials has been provided in the case

Market Sales Analysis

 In company’s heartland (Europe) there was 1% decrease in sales to retail trade  In Italy, Germany and France there was 20% fall in sales to retail trade  Polish, Portuguese, British and Norwegian markets enjoyed retail trade increase  In America there was 13% & 20% increase in sales to retail trade and consumers respectively  Japanese market, sales to retail trade up by 30%

Figure M a r k e t s a l e s t r e n d a n a l y s i s

40% 30% 20% 10% 0% -10% -20% -30% -40% Sales to retail/distributors (% change) Sales to consumers (% change)

Disappointed set of results of the company following year 1998

Evidence:

Before tax loss of DKK 282 million, its worst ever set of figures

Reasons:

 Financial problems in Russia and Asia (DKK 150 million wiped off, 40 & 52% decrease in sales in Russia & Asia respectively)  Stock reductions by the retail trade  Product recall of a rattle design costing business DKK 35 million  Difficulties in coordinating production with demand for most popular LEGO lines

SUB PROBLEMS

1.

2.

3.

Decrease in sales in markets of Asia/Pacific & South Africa Difficulties in coordinating production with demand for most important LEGO lines Change in expectations of children in what they want from the toys they play with

Alternatives to the Main Problem

• • • Maintaining close control over costs to overcome financial problems Concentrate on its aptly named “Fitness Programme” to improve customer focus and establish clearer individual responsibility Supplementing its traditional lines with wide variety of high technology play offerings

EVALUATION OF EACH ALTERNATIVE

Maintaining close control over costs to overcome financial problems

Concentrate on its aptly named “Fitness Programme”

Supplementing its traditional lines with wide variety of high technology play offerings

Best Alternative

• Concentrate on its aptly named “Fitness program” to improve customer focus and establish clearer individual responsibility

IMPLEMENTATION

What to do?

• Improve customer focus and establish clearer individual responsibility within the business When to do it?

• As soon as possible How to do it?

• Reduce no of organizational levels and cutting overlap between functions Who will be responsible for the implementation?

• Company’s president and chief executive

RECOMMENDATIONS

– Supplementing its traditional lines with wide variety of high technology play offerings – Increase the production of important LEGO lines to meet the demand of it.

– Pursue new ideas and stretch the LEGO concept into unexplored areas – Licensing deal to link up with other blockbuster Hollywood movies to produce LEGO movie products