A Case study Of Lego

Introduction

Lego is the sixth largest toy manufacturer for children. Its main product consists of
colourful interlocking plastic bricks which can be assembled to construct objects such as
vehicles, building etc.

The concept of LEGO was engineered by Ole Kirk Christensen a carpenter from
Denmark, who began making wooden toys.

 In 1934, the companies name LEGO was established

 In 1940 LEGO started producing plastic toys.
 LEGO in Danish means “Play Well”.
 LEGO’s mission statement is “Only the best is good enough”.

LEGO (2008) states “It is LEGO philosophy that “good play” enriches a child’s life – and
its subsequent adulthood. With this in mind, the LEGO Group has developed and
marketed a wide range of products, all founded on the same basic philosophy of
learning and developing – through play.”

The LEGO Brick pieces that were made in 1958 will still interlock with the bricks that are
made today. LEGO estimate’s that it has sold over 400 billion LEGO Bricks since its start.

This case study analysis looks at The LEGO Groups strategic direction and the battle of
the block makers in particular Mega Bloks. The case study has been summarised for
clear understanding of the issues raised.

Summary

LEGO is one of the top toy manufacturers’ in the world. Its interlocking plastic bricks
have made the company a sensation for the world’s most innovative toy creators
through learning and developing while playing.

Each year LEGO produces 14 Billion plastic bricks to distribute around the world for
children to play with. Until Mega Bloks arrival LEGO had a competitive advantage as the
only toy maker of interlocking plastic bricks. Mega Blocks as its major competitor
challenged this by introducing similar products as LEGO.
Mega Bloks who are based in Montreal, Canada makes interlocking plastic bricks that
cost less than LEGO products. LEGO however, believes that the high quality of its
product justifies its prices, because it uses a higher quality of resin which is found in
paints and vanishes. Mega Blok however uses commodity-grade resin.

LEGO is still the most popular plastic brick toys with the 7 to 12 year old segment of the
market, however Mega Bloks is gaining its market share through the preschool market.
The Mega Blok toys are larger and softer compared to the Lego products, users of the
toys think Mega Bloks toys are easier for younger children to play with. In response to
this, LEGO introduced the Duplo Line of oversized blocks made from the same material
as its original design.

Mega Blok also introduced a new line called Micro which is aimed at 7 to 12 year olds or
immediate school set. This new line is interchangeable with the LEGO line. LEGO took
Mega Blok to Court in Canada over the issue that Mega Block had copied its brick
design, however the Court ruled that the brick design is functional and entitled to
trademark protection.

Mega Bloks sales doubled between 2000 to 2003. Lego reported its first loss ever of $44
million in 1988. LEGO was at serious risk of losing its core brick market to Mega Bloks if
it did not come up with a strategy to deal with the problem of how to regain the market
share it was losing to Mega Blok. LEGO chose to call for new sources of growth beyond
the core block category. This solution gave them a new line of original robot action
figures known as “Bionicles”. The Bionicles were LEGO’s best seller in 2003 which led to a
direct to DVD animated feature which was released by Miramax. Lego also formed
alliances with Walt Disney Company and Lucasfilms, the creator of Star Wars. LEGO had
its own Harry Potter play sets which in 2003 LEGO were left with millions of dollars of
unsold products. This was relatively blamed on the retail situation and the dollar’s
weakness compared to the Danish Krone. In 2003 LEGO posted a loss of 166 million.
LEGO, in a desperate aim to regain profits, unveiled a wide range of new products
aiming at the preschool market and a new range aimed at young girls.

Questions

What is the most important decision currently facing Kjeld Kirk Kirstiansen?

Ole Kirk Christiansen created LEGO which was popular in 1934 when there was no other
product similar available. However LEGO did not recognise the changing environment
and the changes to the needs and wants of consumers. One of the most important
decisions facing Lego/ Kjeld Kirk Kirstiansen is deciding who its main market is and how
to target that market, using data to conduct a segmentation of the different needs and
wants of that market and become the leading toy seller again.

In 2004, LEGO continued its entertainment promotional and product tie-ins with
the new Harry Potter and Spiderman movies. Do you think this was the right
strategy?

With LEGO reporting a loss in 2003 and with evidence that the sales of Harry Potter play
sets going down, this was not the right strategic decision. Harry Potter movies go in and
out of fashion, they are only popular while the movies are popular. Choosing to stick to
a product that is popular all season would have been the better option for LEGO. This
reflects the need to have a strategy that will be successful in the long term, which will be
a competitive advantage, rather than fill its temporary demand.

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An example is LEGO’s Mindstorms Robotics Invention system which allows users to build
computer-controlled creatures. This fulfils LEGO’s philosophy that the users of its
product play while learning because the users are controlling the creature they creative,
which uses the child’s creative thinking rather having a action figure that has already
been created and has limited use in regards to improving the creative thinking of the
child in terms of building and making the product.

Mega Bloks is a cost leader because they have increased profits through reducing cost
by using different quality of materials to make their products then LEGO, who uses a
much higher quality resources to make its products, which in turn will increase their
cost, making their products much higher in price than Mega Bloks. Therefore Mega
Bloks gains a bigger market share.

Mega Bloks through research had found a niche, in which it is now the number one
seller, in the preschool market. They developed bricks that are larger and softer which
makes them easier and safer to play with according to parents. Mega Bloks introduced
new line of bricks for 7 to 12 years of age which can be interchanged with LEGO bricks.

LEGO before Mega Bloks arrived was more differentiation focused on the narrow scope
because it mainly targeted one market. 7 to 12 year old.
LEGO now focuses on differentiation on a broad scope by targeting more than one
market. For example the preschool market.

LEGO is trying to be popular through having movie action figures for example Harry
Potter play sets which sales for this went down whereas the Harry Potter movie was still
popular. LEGO needs to focus more on long term innovative products that way it can
still keep its competitive advantage in the market place as being the creator of toys that
help develop learning and new skills. As the original LEGO bricks did where children
would make objects with the bricks which involves using the children’s creative thinking
and imagination.

Conclusion

Lego was founded by Ole Kirk Christiansen who a carpenter began making wooden toys.
In 1934, the companies name LEGO was established. Lego is the sixth largest toy
manufacturer for children. Its main product consists of colourful interlocking plastic
bricks which can be assembled to construct objects such as vehicles, building etc.

LEGO (2008) states “It is LEGO philosophy that “good play” enriches a child’s life – and
its subsequent adulthood. With this in mind, the LEGO Group has developed and
marketed a wide range of products, all founded on the same basic philosophy of
learning and developing – through play.”

Mega Bloks challenged LEGO brick market by having similar products as LEGO but
targeting a new market, the preschool market.

Mega Bloks products are also cheaper to purchase then LEGO because Mega Blok uses
commodity grade resin where LEGO uses a much higher quality resin which is why LEGO
is more expensive then Mega Bloks.

Through many ups and down of LEGO, it had to make strategic decisions on what it
wanted for its future and where they wanted to see themselves in the toy market.

The solution varied but what it needs to do is keep in mind their philosophy and make
innovated products that will help the children learn and develop new skills while playing.