Founded by Ole Kirk Christiansen in 1932, LEGO is a famous toy brand known for its signature plastic bricks. The name is an abbreviation of the Danish phrase ‘leg godt’ meaning “play well”. The Lego Group headquarters is located in Germany. First produced in 1949, Lego patented their brick design in the year 1958. The last of its basic patents expired by 1989 which put an end to its frontrunner position in the toy market which had been earned because of its exclusivity as an intellectual property. After dominating the European market, Lego diversified its products and services. Digital development over the years led to the creation of computer games such as Lego Island, programmable robots named Mindstorms, and the inception of its official website – LEGO.com.
Founded on the principles of innovation, quality, and creativity, Lego has been the recipient of many accolades including the Toy of the Century Award which it won twice. Even under the present circumstances and ongoing pandemic, the positive net revenue of the Lego Group remains unchanged.
This report attempts to inspect and analyze the various marketing strategies employed by the Lego Group to gain its current status in the global market. Its previous mistakes that led to financial losses shall also be studied and discussed. Recommendations will be made regarding the areas to be focused on for the future growth and expansion of the company.
Table of Contents
1. Introduction
The LEGO Group, a renowned brand in the toy industry, enjoys a humble history that originates from a carpentry workshop in Billund, Denmark. Founder Ole Kirk Christiansen and his son Godtfred Kirk Christiansen laid the groundwork for the company’s success through their most innovative toy – the LEGO bricks. Together, they developed a system of play with the vision of “Inventing the Future of Play”. According to Jorgen Vig Knudstorp, Executive Chairman of LEGO, “Lego is about every human being’s urge to express themselves through creativity”. The Lego bricks possess unlimited potential that challenges the creativity and imagination of its users. The company has undergone many challenges ever since its inception in 1934 including a major fire that burnt down the factory. Over time, Lego partnered with reputed companies in Norway, Sweden, and Iceland and introduced their product to foreign markets. After conquering the German toy market, they expanded to Switzerland, Netherlands, Austria, Belgium, Italy, and Portugal. The company now runs in 30 countries and has 50 companies globally. It has established its presence in over 130 countries (Anon, 2021) through e-commerce and other distributors (Amazon, Lego.com).
This report aims to study the Lego group as a globally successful industry and analyse its marketing tactics which successfully carried Lego across geographic and cultural borders while maintaining its reputation as a high-quality brand. After careful analysis, a marketing plan for the next five years shall be recommended based on marketing theories and concepts.
2. Review of LEGO’s capability and current product/service portfolio
Differentiation through innovation remains one of the key selling points for LEGO. It produces an array of construction toys with varying themes including Batman, Disney, Harry Potter, Friends, Jurassic World, Marvel, DC, Star Wars, etc.. The Lego architecture includes Lego models of famous monuments and renowned architecture from around the world. Lego Boost provides children the ability to create simple motorized models with the help of sensors and icon-based coding commands. Programmable robots that can be controlled remotely or through smart devices named Mindstorms were also invented by Lego with additional Power Functions. Creationary and Minotaurus are two of their board games. They have published magazines like Star Wars, targeting the age group between 6 to 11. With the aid of unique decorated tiles, Lego Dots allow kids to create colorful bracelets and small home decor items. Lego Education sets promote the development of essential skills in children creatively. It is interesting to note that one of the first LEGO sets was a town plan that could be used to teach children about road safety rules and regulations. Speed Champions and Technic are toy car sets produced by Lego. Technic enables users to better visualize and understand the manufacturing process of vehicles as it requires them to build advanced and functional engines, crane arms, and more. The LEGO DUPLO brick design enabled the company to expand its target group to include children under the age of 7. Similarly, their discovery system introduced in 2001 targets parents claiming to help them understand the growth and developmental stages of their toddlers.
Digital development that began in the mid-1990s encouraged the company to enter the virtual world. This led to the creation of computer games such as LEGO Island and the inception of its official website – LEGO.com. They also created a niche in the film industry through The Lego Movie and The Lego Batman movie. In an attempt to provide an immersive and real-world Lego experience to its fans and consumers, Legoland theme parks were constructed in 1968. The Lego House, a playground made up of 25 million bricks, was inaugurated in Denmark aiming to educate children about a few “core competencies” including social and emotional development, creativity, and problem-solving.
As important as diversification was for Lego’s marketing strategy, it subsequently led them to a crisis (Handley, 2018). In 2004, the Lego Group faced a 29% decline in global sales (Hollow, 2017). The crisis was averted and the company was saved by Jorgen Vig Knudstorp who was appointed CEO of the company in 2004 by concentrating on productivity more than diversification. By facing these challenges, Lego improved its understanding of its customers and devised better delivery strategies (Keegan & Green, 2013).
3. Analysis of the Market/Environment opportunities and characteristics
3.1. Micro-environment of Lego:
Microenvironment refers to the factors present in the immediate surroundings of a company, capable of having a huge influence on its performance and decision-making. The basic design of Lego bricks remains consistent over the years, meaning bricks from 1958 remain compatible with those currently produced. As a result, unlike other toys buying a new set of Lego does not automatically dictate the expiration date of the old ones. Instead, it provides a larger scope for play and thus adds value to the rest.
3.1.1. Internal organizational environment:
This refers to the numerous departments inside a company including production, finance, R&D, public relations, top management, etc. Every department should work like clockwork for a company to succeed. During 2004, Lego suffered from production overflow due to improper internal coordination. This was soon resolved by introducing a flatter structure of communication within the departments.
3.1.2. Marketing Channel:
Lego employs a combination of traditional (Store campaigning, radio, print advertising) and modern (internet ads, online customer engagement) marketing channels. Digital marketing has evolved into a core strategy for Lego. The Lego Ideas website allows users to submit their Lego ideas offering to turn selected ideas into real products (LEGO, 2021).
3.1.3. Porter’s Five Forces Analysis for Lego Company:
Developed by Michael. E. Porter 1979, Porter’s five forces act as a strategic tool that analyses competition and suggests areas requiring reinforcements to preserve or improve its competitive edge in any industry (Porter, 1979). By helping to structure a marketing strategy (Roth, 2020) with informed decisions, Porter’s five forces ensure future profitability for the company.
- Competitive rivalry: For Lego, only the top names in the toy industry qualify as rivals contenting for power and position. Even then, these do not pose a threat because any move made will be noticed immediately and counter strategies developed quickly.
- The threat of new entrants: Companies already existing in a market suppress potential entrants into the market by creating industrial or legal barriers. Lego, being a well-reputed brand with quality products, any new entrants to the market will need to invest high capital and provide better brand value to pose a real challenge.
- The threat of substitute: Alternative products available at a lower rate or better quality may threaten product sales. For Lego, substitutes pose a great threat. Lego had sued Megablocks for their use of a similar interlocking principle for their toy bricks. Even though Lego lost the case, it remained more popular than Mega blocks due to its higher quality and longer presence in the market. It can also lose its market advantage to more technologically advanced substitutes like video games and TV series.
- Bargaining power of suppliers: The toy industry, being large and diverse, offers Lego the ability to choose from a range of suppliers and even switch them as required. Lego is a sought-after company and as such becomes a valuable customer to the suppliers. Therefore, suppliers are unable to demand unreasonably high prices. Consequently, suppliers do not hold any significant bargaining power.
- Bargaining power of customers: Lego products are quality-oriented and long-lasting. As such, if customers are to choose between price and quality, their demand for quality significantly diminishes their bargaining power. Still, Lego charges only a reasonable price for its product to reach a wider audience.
3.1.4. Competitor Analysis:
Even though Lego is the most valuable brand in the toy manufacturing and packaged goods industry according to Brand finance data, it still experiences competition from other well-known names such as Bandai Namco, Fisher-Price, Barbie, Nerf, and Mattel (Bhasin, 2018).
3.2. Macro-environment:
Extrinsic forces that affect the development of a company which include political, economic, social, technological, legal, or environmental elements are collectively called macroenvironments. These “directly or indirectly influence an organization’s acquisition of inputs and generation of outputs” (Pride and Ferrell, 2015). These are the bigger social enforcing factors and can also influence the microenvironment (Kotler, 2005).
3.2.1 PESTLE Analysis of LEGO
The business sector is highly dynamic and competitive. Business analysts often employ the PESTLE model for assessing and evaluating the external business environment. According to Abhishek Gupta, it “describes a framework of macro-environmental factors used in the environmental scanning component of strategic management”. It helps understand the market position and also identifies opportunities and threats for various businesses, thus minimizing or possibly preventing risks of failure and deficit.
- Political factors: As a norm, Lego does not involve itself with political issues and avoids potential disputes whenever possible. But, after an incident involving Chinese artist and human rights activist Ai Weiwei in 2015 whose bulk order was rejected on political grounds, Lego adjusted its guidelines to include making political statements (Loughrey, 2016).
- Economic factors: Factors such as inflation rate and GDP growth affect Lego sales in a particular region. It is essential but challenging to maintain a relatively stable market price for its products to preserve customer loyalty. Rebuilding itself after the 2004 crisis, the Lego group was able to reduce production costs which enabled it to maintain reasonable prices for its high-quality products.
- Socio-cultural factors: Lego supports various charitable programs that promote children’s play, learning, and creativity and also support marginalized and vulnerable children. Recently, they also announced a 50 million dollar grant to families affected by COVID-19 as well as their intention to produce 13,000 facemasks a day for the front-line workers. According to Loren Shuster, EVP, Chief People Officer and Head of Corporate Affairs, a portion of the $50 million was to be donated to “food charities in the USA, including No Kid Hungry” (Aziz, 2020).
- Technological factors: Known as the “Apple of the Toy Industry”, Lego strives to keep up with the times and stay technologically advanced. It provides a platform for customers to interact with the brand and exhibit their creations through LEGO Ideas. Its collaboration with Texas Instruments led to the creation of Lego robots that utilize advanced technology.
- Legal factors: The expiration of its patents has led to an increase in the amount of counterfeit Lego products in the market. In 2017, Lego’s legal fight against two Chinese companies, including one named Coko, ended in its favor, thus protecting Lego’s copyright claims.
- Environmental factors: Lego is a company that is deeply involved in CSR activities. By 2017, they achieved their 100% renewable energy targets. They announced their intention to invest $400 million over the next three years to achieve sustainability and fulfill social responsibility(Hutchins, 2020). Manufacturing operations are to be made carbon neutral by 2022 and sustainable packaging will be provided by 2025 instead of single-use plastic bags (Lego, 2021). It plans to increase the utilization of bio-bricks(currently 2% of the element portfolio), a plant-based plastic sourced from sugarcane that was first released in 2019 (Dunn,2019).
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4. Discussion/Analysis and evaluation of the marketing strategies and tactics:
4.1. Market selection:
The primary target group of Lego was children, particularly boys, belonging to the age group of 7-15. In recent years, Lego has succeeded in expanding this select group to include pre-schoolers through their Lego Duplo Brick sets which are safer and easier to use by toddlers. They also developed “Lego for Girls” which takes into account the possible differences in preferred sets, figurines, and colors. The success of Lego Friends and Lego brand Disney Princess lines can be viewed as proof of positive response to their campaigns to attract more female audiences. The unlimited potential of Lego games also attracts adult customers. The complexity of the sets varies according to the intended target – ranging from simple, educational designs of the Lego DUPLO to more bigger, more complicated, motorized, and functional sets like the Lego TECHNIC. Lego attracts people across all walks of life equally, be it child or adult, American or Chinese.
4.2. Mode of market entry:
Lego mostly employs direct sales and retail trade to enter new markets. Their retail customers include many reputed franchises and shopping centers such as Toys “R” Us, Metro, Karstadt, and Galeria. With technological development, Lego entered e-commerce – offering the option of purchasing their products online through their official website ‘Lego.com’, or through other online retailers such as Amazon. They often enter into partnerships with well-reputed, local companies to introduce themselves in a foreign market. In 2014, Lego partnered with Funskool to enter the Indian market. Lego entered the China market by setting up a direct outlet for the Lego Brand.
4.3.Marketing mix:
4.3.1. Price:
Lego toys are generally considered expensive. This is mainly because the Lego bricks are made of a high-quality polymer called acrylonitrile butadiene styrene (or ABS). Although a highly unsustainable material, its incredible clutch power, safety, and durability make ABS desirable to manufacturers. The number of pieces in the set and, the cost of licensing characters also affect the price of these toys. Other aspects such as transportation costs and currency exchange rates also influence the rates of toys sold in different regions. As a result, the majority of Lego customers belong to the middle and upper levels of the social strata.
4.3.2. Promotion:
Lego uses wide-ranging methods to promote its products including online advertising and podcasts as well as television and print media. LEGO is famous for its proactive utilization of its lead users for more efficient promotion. It also helps to better connect customers to the company. They regularly provide offers and sales on their official website. My Lego network offers various items, badges, ranks, and trophies for completing certain tasks. They also conduct competitions such as “Lego Serious Play” which incorporates the team members and other event-centered contests. “Rebuild the World” and “What it is is beautiful” are two campaigns launched by Lego.
4.3.3. Product:
Lego offers a wide range of products and services – including its basic construction sets, board games, video games, and movies. Danish company Kabooki manufactures a children’s clothing line called Legowear.
4.3.4. Place:
Lego has set up manufacturing units in the United States, United Kingdom, Singapore, and China. On a global level, its toys are sold in over 132 retail stores. Department stores, theme parks, and theatres also sell Lego products.
5. Recommendations:
After careful analysis, the following are the recommendations that Lego could adopt over the next five years to further expand its market:
5.1. Increasing female characters:
Women are dissuaded from playing video games due to their violent nature and differences in personality (Hartmann, 2006). It is a fact that the world of Lego remains male-dominated. Collaborations with movies like Star Wars and Batman have led to a considerable difference in the male-to-female Lego figure ratio. Introducing powerful female characters such as Captain Marvel and Wonder Woman could help diminish accusations regarding gender stereotyping. This could create an opportunity for Lego to participate in the fight for women’s empowerment.
5.2. Sustainability:
Created to be durable, Lego bricks could take as long as 1,300 years to degrade if they reach the oceans. There are many news and example of Lego pieces that get washed up on beaches. With these facts in mind, it is important to focus on creating a sustainable alternative to traditional plastic brick. The possibility of sustainable products automatically appeals to environmentalists and similar activists who wish to promote their sentiments. Such initiatives carry tremendous influence over consumer behavior, especially during the current Covid-19 crisis.
5.3. Entering into new markets:
While remaining a titan in the Toy industry on a global scale, it is safe to say that Lego has failed to make optimum use of the potential market offered by developing countries such as India. This failure can be partly attributed to the inefficient advertising in these countries. Rather than a lack of demand, what affects the Lego market in India is a lack of connection or proper channels of communication between the seller and the consumer. While in other parts of the world such as in the US and the Nordic countries, LEGO is well-established and receives sufficient promotion through word-of-mouth and groups such as Adult Fans of Lego (AFOL), India does not enjoy this benefit. Roughly, the number of AFOLs in India would amount to less than 10% of that present in South-East Asia (Balram and Retail, 2019). Improved methods of advertising could thus become crucial in promoting and marketing the product.
5.4. Outsourcing:
While the high costs can be justified as a guarantee of the impeccable quality of the product, studies have indicated the existence of a significant difference (as high as 700%) in the margin between the average price of Lego between the most and least expensive markets. In comparison, a Lego set available in Ecuador at the rate of $672.00 is sold in Hong Kong for $111.12 (Cole, 2020). The low rate can be attributed to the LEGO factory located in Jiaxing, China. Outsourcing carried out after thorough research could aid the company in keeping its expenses in check and ensure that the production cost does not exceed sales by limiting transportation and labor costs. Scattered centers of production also ensure that even if one or two regions were to face adversities, the company would not be damaged irreparably.
5.5. Handling Counterfeits:
With its increasing success, the company has to fend off a large number of counterfeits from all over the world and protect its brand. Three years back, BBC reported that a Chinese company manufactured and distributed counterfeits of Lego products under the name Lepin. Providing detailed instructions on how to identify the original product to customers as well as educating employees about the brand guidelines are some helpful methods. Proper means of handling counterfeits ensure that the company’s revenue is not diverted and safeguards customer’s trust in the brand.
5.6. Logistics Management:
Stock losses can be minimized by implementing appropriate contingency plans (Barclay, 2014). Setting up a system to regularly monitor their suppliers can help detect and avoid possible issues and thus reduce losses.
6. Conclusion:
It is a fact that the Lego Group is one of the most successful business enterprises in the world. They have withstood numerous challenges and experienced multiple setbacks over the past 88 years. The company motto “Only the best is good enough” (Lego, 2021) remains true to the sentiments of its founder Christiansen who never conceded to anything but the best quality for his products. The peerless consistency and quality of their products coupled with the execution of carefully thought-out marketing strategies helped LEGO etch its name in history as one of the front-runners in the global market. Simultaneously, the company also exhibits superior tolerance and adaptability to changing times and circumstances. As such, it serves as an ideal object of study for marketing and management students as well as acts as a role model for entrepreneurs. Their different strategies and tactics that helped them achieve such recognition have been dissected and analyzed in this report. Possible improvements and recommendations have also been discussed which could help further expand their market shortly.
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