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Lego Bricks And Legoland Strategic Decision Machine Marketing Essay

The key proper decision designers at Lego are Jørgen Vig Knudstorp the CEO (Chief Executive Officer) and an executive board of directors contains five members, leaded by Niels Jacobsen as a chairman. Other panel users include Vice Leader Bali Padda, Religious Iversen, Lisbeth Valther Pallesen and Mads Nipper have been participated in the strategic decision making process of Lego group. Besides this, Kjeld Kirk Kristiansen is person in the board who served Lego Group as CEO from 1974 to 2004.

1. Lego Macro Environment

1. 1 Political

Politically, Euro-zone and U. S are democratic nations with very stable and peaceful business environment. The federal government changing process in this area does not cause any significant obstacle to business operations. However, authentic constitutional problems such as 'hung parliament' in United Kingdom has a high influence to worldwide monetary marketplaces, which sometimes engender economic uncertainty.

Most of the government of these countries where Lego operates have their own legislations to safeguard consumer interest and ensures a good trading environment. Government imposed patent regulations, copyright law, brand safeguard, IPR (Intellectual Property Rights) and DMCA (Digital Millennium Copyright Work) to protect a fair and competitive business environment. Though, some conflicting legislations (i. e. patent laws and regulations of Sweden) led to legal challenge between competitors triggering significant crisis and financial harm.

Government revenue generating source such as duty, VAT, excise responsibility and etc. are greatly used. The normal problem in this zone is, new political authorities always revise the taxation system and its rates as a part of political agenda. For instance, initially 2010, UK federal government did increase taxes on consumer products by 2. 5%, that was dropped consumer expanding behaviour for a while. Besides, even though UK is a part of European Union, they have a unique currency (sterling) which sometimes deflated by administration to boost export over competition in this zone, which jeopardize competition. European nations and USA authorities are imposing much stricter rules by implementing inexperienced taxation on industrials and putting pressure to improve industrial sustainability (William, 2007). Furthermore, politically enforced ban, for case, in 2009 2009 Directorate General of Foreign Trade (DGFT) of India restricted imports of all Chinese toys and games into Indian market without the reason.

1. 2 Economical

During the recession period, the buyer confidence to spending fell sharply across the globe. Unemployment rate has recently been rocketed breaking all previous record, further worsened the financial turmoil. Recession created deficit of cash flow on the market. Potential buyers from outdoor EEA are reluctant to stake in turbulent market, which sluggish to restoration process. Moreover, traders are withdrawing their money (i. e. property, stock, bonds are being sold) because of alarming credit debt turmoil slumped euro currency, a four years low against us dollars. Surprisingly, money inflation against major trading money comes as blessing for a few company, which supercharge sales with a larger profit margin.

It has been forecasted euro-zone's overall market will shrink next 2 yrs due to soaring cumulative personal debt of EEA (Western european Economic Area) countries. Some countries are doing much better than forecast USA and UK supervised an optimistic GDP progress by 3. 0% and 0. 3% respectively (BEA, 2010; ONS, 2010). Due to a common currency utilized by all EU users, the economic stableness highly depended among member country's overall economic performance. Multi-national companies are sensitive to exchange rate fluctuation and sharp inflation of trading currencies.

Lego Bricks

Legoland

Political

Economical

Social

Technological

1. 3 Social

According to a research of PPAS (Populace Policy Acceptance Research) it is observed that delivery rate is slipping in Europe. A couple of multiple reasons behind this such as low fertility rate, desired volume of children and family divide. In Germany, 22% men and 15% women do not want any children (PPAS, 2003). Almost similar tendency can be observed in neighbouring Netherlands and Belgium. Fertility rate in this zone is between 1. 6-1. 9 per female which is below the index necessary for the replacement unit of generations. Regarding to Eurostat's baseline populace projection, the amount of young society between age group 0 and 14 in Western european regions will continue to decline. It really is estimated young people group will decreased to 66 million by the entire year of 2050 whereas it was 100 million in 1975 (Europa, 2007). However, matching to OECD information, inflows of migrated overseas population are considerably increasing in euro-zone (OECD, n. d. ). In addition, more folks are travelling to Euro area for trip and leisure activities. It is observed a more robust economy always improve the inclination towards leisure activities.

Theme area visit is a useful gauge to evaluate leisure activities of particular country. USA has more than 0. 80 twelve-monthly theme parks visit per mind of the population; Europe and UK have 0. 25 and 0. 20 per head visit respectively (Camp, 2001). The socio-cultural development is growing and has a confident effect on market.

1. 4 Technological

Because of the proliferating progress of internet technology within the last decade, it's become easier for producers to interact with consumers in a better means through web portals, blogs, discussion board, email etc. Advancement in technology and automation may result in a job-cut or can put a company into a competitive market position.

Micro-chips are being designed and developed with lower R&D investment causing low priced consumer products. The rate of technical diffusion can produce low cost substitutes or imitations which may prove a preexisting matured product outdated. The superiority of style in developing industry, it's become much easier to re-invent and grow equipments for leisure activities. State-of-art processing machines are being unveiled regularly, that assist to accomplish economies level.

Using high-end computer technology, 3D virtual characters design and simulation became less unpleasant process. Modern computer technology really helps to produce rewarding advertising programs for various mass media channels.

2. Lego Competitive Environment

2. 1 Competitive Rivalry

There are four major companies in the toy manufacturing industry holding majority of the toy market share. Mattel is the greatest toy manufacturer on the planet with 12% of total toy market share, accompanied by Hasbro, Bandai and Lego keeps more than two-third of total market show.

There is price pressure from retailers on all major manufacturers to lessen the price made a price competitive rivalry. From the entire year 2003 to 2007, Mattel's gross margin have been dropped about 4% scheduled to pressure from stores (Mattel wikiinvest, n. d. ). In the meantime, to gain temporary advantage, rivals often lower product price for example, when there may be less demand or elevating the price when there's a product shortage in the market. In most cases, a competitive value could be performed by outsourcing making to third worlds. Mattel outsources more than 50% of its creation with Chinese sub-contractors. On the other hand, Lego transferred some of its production items to Eastern European countries from USA and Switzerland to minimize the creation cost.

Generally, to grab the more market show all major toy companies including Lego consistently improving product differentiation. Each year they introduce services in their portfolio to catch the attention of more customers. For instance, currently, Mindstoarm, a robotic toy range by Lego, based on its traditional brick blocks completely dominated the market.

To dominate market with bigger talk about, larger companies occasionally acquire mid-size manufacturers. In 2008, Cranium Inc. was bought by Hasbro (Hasbro WikiInvest, n. d. ). Purup Consumer electronics, a PostScript image setter company was received by Lego in 1991 to reinforce its image processing. In 2000, Lego acquires 'Zowie Intertainment', a custom made and developer company to dominate the smart toy category with the addition of new flavour in its designs (Lego Press Release, 2000).

There is strong rivalry in toy branding. Lego have been facing tremendous legal pressure with the toy patents. In 2005, German Appelate Judge dismissed an accusation of making Lego-like bricks by Best-Lock(European countries) Ltd (Business wire, 2005). In virtually all develop country Lego have been experienced a fierce legal battle against competition on Lego brick patent issues.

On the side, leisure industry once in a while take over mid-size entertainment firms that they provides better recreation effectively, meanwhile it bolster their vertical integration.

2. 2 Hurdle to Entry

Entrance of competitors as a front-line toy maker is really complicated. Also, it is difficult to assess how proven large manufacturers will respond to discuss existing market with new entrant. In general, toy manufactures will be required a very high economies of level because of the cost per product price of a toy is relatively lower than other consumer products. To accomplish MES (Least Efficient Scale), new entrant will be required to permeate market up to certain level or will need to cover hastily certain demographics to remain profitable.

Almost all major toy brands have copyrighted toy design & most toy people (i. e. superstar wars, superman) have their licensing with individual owner. These licensing and patent issues made it very complex, also adds an expensive start-up cost for new entrant. Some companies have proprietary know-how processing technology, which are results of long R&D investment and not easy to contend with. Now-a-days toy market gets the touch of advance technology; playthings are ranged from plastic to ultra advanced robotics. Such, advance products not only needs complex equipments to create specialized micro-chips but also highly skill real human resource.

Government create obstacles to entry to new market by restrictions and legislations. For instance, in UK, FTO (Good Trading Office) ensures businesses are not being monopolized by single or by few manufacturers. To maintain mid-size firm's interest, federal regulation may limit possible market expansion.

On the palm, typically amusement park or theme park requires a massive amount land acquisition. Federal government, local council or naturalist group may intercept in land acquisition process from various moral point for occasion, engagement of mass tree destruction to create a theme playground.

2. 3 Threat of Substitute

Among many, cheap imitation, online video gaming, computer games and video gaming are normal substitutes of toy. Even though, in almost all of growing countries copyright and patent exist but they are definitely not in practice. It can be almost impossible to enforce copyright or patent rights to stop illegal cheap imitation.

In an era of internet technology, free online video gaming (i. e. BBC's cbbc or nick. com etc. ) or even paid children portals (i. e. moshimonsters. com) are real danger to toy market. Parents have found it much cheaper or cost-free in any way to captivate their kids, while most of the portal uses method like 'learning while playing'.

Handheld gaming devices (i. e. Nintendo, PSP etc. ) aren't yet a hazard as substitute because their high retail price. However, as technology innovating rapidly such devices price will drop significantly in approaching years and when many will manage to buy, it could appear as an alternative to toys.

2. 4 Dealer Power

Common raw materials in toy industry are engine oil, rubber, plastic as well as for finalizing labour market (individual resource). In labour market provider power is poor in toy industry as there are many competitive suppliers. Beside, major toy companies have vertical integration in their resource chain and constantly increasing their vertical integration by acquiring mid-sized suppliers. However, recycleables supplier such as essential oil company has dominating electric power over maker as they have many alternative buyer. Despite the fact that, there are alternate oil suppliers, transitioning supplier may be expensive depending on various factors such as geographic position of producer, travel cost, and export taxes.

On the other palm, as leisure business equipments are generally requires one of installation and buyer can simply turn between suppliers to choose from.

2. 5 Buyer Power

Toy manufacturers direct buyers are stores. Large vendors such as super-market chain often dominate on the suppliers. In 2007, for illustration, three massive supermarket chain Wal-Mart, Focus on and Toys'R'US accounted 41% of total Mattel's sales. Such extensive figure provided significant leverage over Mattel when negotiating price.

Furthermore, in the case online store, end-users are directly buying from maker. In this case buyers have independence to change between online retailers.

3. Lego Internal Environment

3. 1 Lego Objectives

The main purpose of Lego is to make healthy toys and games that produces children mind to face tomorrow's challenges. The company has a eyesight to keep its main toy, Lego brick while continually adding new and ground breaking challenges in its product range. Lego wants promote the thought of "Learning through play" means problem handling in a organized way that evolves creative and creativity skills. Lego has a proper plan to expand its complex robotics toy range such as Mindstorms while they will continue development of high quality fun products predicated on Lego Bricks that children may use to explore and nurture their creative potentials.

In short-term, tactical targets, Lego targeted to stand out on customer's value, better sales stations and improvement of operational excellence.

In addition, Lego desires to tie-up the relationship much closer using its end-users, fans, vendors and suppliers.

On the other palm Legoland, a Lego style theme park that build on Lego bricks presently functioning in Denmark, UK, USA and Germany. The Targets of Legoland theme playground is provide recreational place within Lego theme where interactive family fun and learning go together. Lego has a proper plan already doing his thing to grow Legoland in to the Dubailand, Dubai and in Malaysia in forseeable future.

3. 2 Product Life Cycle

Both Lego bricks and Leisure Playground are functioning in mature market. Even in an adult market higher R&D invests is unlikely, though R&D may bring substantial product differentiation which eventually would increase maturity period.

Leisure Park

Decline

Growth

Maturity

Lego Toys

Introduction

Sales

Time

In near future market might me reduce because of falling delivery rate, also toys and games market steadily may decline because of technical advancement, which may replace toys with some others substitutes as talked about earlier.

Leisure industry is an adult market rather than likely not to show up over next few years.

3. 3 BCG Matrix

The BCG cash cows for Lego are Lego Bricks and Legoland theme area as they are operating in mature market with high market talk about. Lego Bricks has achieved competitive edge in toy market and this cash cow has high earnings and generating lots of money flow. Investment upon this cash cow for efficiency and for product variance can increase further cash flow.

Legoland Breakthrough and Mindstoarms NXT will be the BCG actors of Lego. Minstoarms NXT is the robotic toy section of Lego, which is operating in a fast growing market with major market show. Legoland Discovery can be an extension of Legoland Area, are working as a market innovator. Further support and development covering more physical location may convert it into a cash cow.

Legoland Discovery

Mindstorms NXT

STARS

High Market Show Low

Invest

PROBLEM CHILD

CASH COWS

DOGS

Low High

Market Growth

Prioritize

Kill

Lego Bricks

Legoland

Online Shop

Online community

Divest

Lego has a very low online toy market talk about. Also, the Lego network are less linked. In the current fast world, consumer's online shopping habit is growing extremely fast. Lego needs take strategic plan and marketing plan to convert the online toy market into a BCG celebrity; otherwise it could turn into a dog.

Currently, in Lego product range there is no BCG dog.

3. 4 SWOT Evaluation of Lego

3. 4. 1 Strengths

Lego' advantages are its brand name, its history of uniqueness, that includes a feelings attached that are carried generation to technology. Most of the Lego principles and products are patented and dominating the marketplace by working more than 130 countries worldwide. The USP (Unique advertising proposition) of Lego bricks with lucrative slogans such as 'learning through play', 'take a creative thoughts' or simply 'system of play' grants a competitive border over rivals. Around seven Lego pieces are being sold each second. Furthermore, it has a fast growing Lego Membership with an increase of than 2. 7 million customers. Operating since 1932, Lego is highly experienced in toy market. Furthermore, Lego is qualified to use some of the earth top comic brands such as Star Wars, Superman and etc.

On the other palm, Legoland, the theme area division is operating in growing market. Legoland building and theme structures are made of Lego bricks, which initiated a strong vertical integration.

3. 4. 2 Weaknesses

In evaluation to competitors, Lego product collection is less diversified. Besides, Lego toy models are licensed with respected owner, which weaken creditability such as future they will be required to renew, while brand owner may ask higher royalty fees. The uniqueness of basic Lego bricks has been questioned in recent years and as a result Lego failed to renew handful of their patents after expiration. Operating in an wide open market where all rivals are targeting common consumer group that is why consumer moving between rivals is quite typical. Besides, Lego is depended on merchants (i. e. supermarket chain) for marketing their product, which gives retailer an advantage to bargain to repair selling price.

Meanwhile, theme playground businesses are somewhat seasonal, for example, summer chance or Xmas. During off-season they always experience low site visitors.

Strengths

Large market share

USP (Lego Bricks)

Long Experience

Covers large demographics

licensed with multiple brands

Weaknesses

Exposure to international market

Patent complexity

Operates on different currency

Less diversified portfolio

Depended on retail chain

Opportunities

Vertical integration in the leisure industry

Expansion to Asian toy market

Threats

Cheap Lego brick imitation

Online gaming

Handheld games devices

Falling birth rate

Table 03: SWOT analysis of Lego

3. 4. 3 Opportunities

Lego has an enormous opportunity to grow their market share by penetrating mega-market in China and India. Transferring manufacturing vegetation into under-developed could also save creation cost significantly. E-marketing can be used to market products, in cooperation with specialist mass media spouse such as YouTube.

Meanwhile, Legoland can be lengthened beyond Western market. The thought of building home-based on Lego bricks can be utilized in natural catastrophe to generate short-term shelters in afflicted areas. Such practice will continue to work as a brand ambassador and shall increase Lego's market reputation.

3. 4. 4 Threats

Cheap imitation of Lego bricks is a genuine threat. In some country, it is actually hard to enforce copyright or patent legislations. Because of the improvement in technology, online video gaming already became extremely popular. Now-a-days kids are spending much time before a computer. Being able to access such online games platforms are pretty cheap, mainly one-off payment or even sometimes it's free. Besides, handheld digital video gaming devices such as Nintendo DS, PSP are being considered as a smart toy. Even though, their market show is growing gradually, they may look as a genuine threat if they can create cheap video gaming devices.

"The Anarchist Cookbook of the nursery", the Daily Telegraph criticized (FoxNews, 2007), a controversial education book "Forbidden Lego: Build the models your parents warned you against" printed by two ex-Lego employees that shows young people and kids developing fun weapons with Lego bricks, visits the market in 2007 and eventually became Holiday bestseller (Firth, 2007) lifted the concern of ethical and public responsibility. Such third party practice, generally uncontrollable, may destroy Lego's goodwill.

4. Lego Future Development

4. 1 Ansoff's Matrix for Lego

Attempting to penetrate deeper into existing market is always less risky. Lego may try alternative sales channel to increase sales size. For instance, even though eBay typically known for online auctioning, they offer specialized service for manufacturer direct sales via their portal. Bettering product quality can help penetrate existing market. Lego can set up themselves as a mega online toy merchant. Increasing relation with customers may increase market show. Both Lego and Legoland can be long outside Western and American market. Also, Lego can open own high street retail toy shop. In Legoland Area, interactive joy drive or so can be added as an addition.

Existing Product/Services

New Product/Services

Existing Market

New Market

Increase sales

Improve quality

Concentrate on online sales and promotion

Increase connection with retailers

Interactive equipment in theme park

Expand to Asian region

Forward diversification (opening Lego toy shop)

4. 2 Recommendation

It is the right time to increase into mega-market such as China and India possibly with own manufacturing facility in these countries. It really will certainly reduce the development cost because of low cost labour.

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