Chapter 10: The Lego Group: Building Strategy

Case 10: The Lego Group: Building Strategy

Submitted to: Donna Abrina, MBA

Submitted by: Dujali, Christian Leander

Fernandez, Nicole
Louh, John Michael
Pardo, Francis Wenver
Tallo, Dwight
Villarba, Vincent

December 15, 2014

I. Problem Defined
What marketing strategy would Lego create to become the third-largest
toy manufacturer and overcome competitors without having additional costs
and decreasing sales? This is the main problem of Lego that resulted from:
>increased control over licensing agreements
>loss of trademark protection; and
>competition from new and existing companies
With Lego as the fourth-largest toy manufacturer in the world, different
threats emerged and tested their stand on the industry. How will the
management of Lego handle this?
II. Analysis and Recording of Current Situation
LEGO is privately controlled by Kirk Kristiansens family, it is the fourthlargest toy manufacturer in the world and named as the Toy of the Century. The
company is known for its product lines, Lego Star Wars. Lego City and Lego
Duplo with 9000 employees that sells seven sets each second. They also design
video games, board games and a theme park. Lego has its website available for
online purchase and developed a virtual online LEGO Universe. The company
produces 2 million bricks per hour and developed 2400 different shapes of bricks
in 53 kinds of colors.
Legos management is currently focusing on developing their business
despite the problems that the company encounters in the industry.

Phase I: Environment
The global toy sales represented over $83.3 billion and is one of the fastestgrowing categories was the building sets. Different toy companies were entering
the toy market. They diversified their product line by different themes featuring
movie characters. Major competitors of Lego was the top two largest toy
manufacturers in the world namely Mattel and Hasbro, respectively.

Phase II: Industry

The toy industry is one of the fastest-growing industries with building-sets as
categories with an increase of 13 percent in 2010. Lego is the fourth largest
company and had several business operations. Lego was named as the Toy of
the Century as an icon in the toy industry. The company had produced over 400
billion bricks. It started with one patented brick design in 1958 and had
developed over 2,400 different brick shapes which were available in 53 different
colors. MEGA Bloks also introduced a product line which was compatible with
Lego bricks. Mega Bloks was Legos greatest competition of Lego having 25
percent share of the North American building toy market and a 12 percent share
of the international building toy market.

Rivalry among existing competitors

Lego had their three major competitors Mattel, Hasbro and Mega Bloks.
Some other companies also introduced plastic brick products that were

compatible with the Lego brick design. These competitors bricks could be fitted
together and be built with Lego bricks. TYCO and MEGA Bloks also created a
brick design which was almost identical to that of Lego bricks. TYCO provided
slogans such as If you cant tell the difference, why pay the difference that
resulted to a lawsuit that lasted four years.
The barriers of the competition lowered when Lego plastic brick design
patent expired. Mega Bloks was the largest competition to Lego. Mega Bloks
created products that often made consumers misled, this resulted to an 11-year
court battle. New competitors were planning to launch a new building block that
would be compatible also with Lego bricks
Threat of new entrants
Since the Lego plastic brick design patent expired, the barriers of competition
were lowered in the building toy market and it became an opportunity for other
companies to enter the market. Other than the existing huge competitors of Lego,
it was not difficult for new entrants especially with the loss of trademark
protection. New companies became more aggressive because they could easily
counterfeit the products of Lego.
Threat of substitute product
Competitors created products that were almost similar to Lego bricks.
Slogans were created like TYCOs If you cant tell the difference, why pay the
difference. Substitute products often misled consumers into purchasing other
companys products that they thought were Legos, considering that they had the
identical designs.

Bargaining power of the supplier

The management of Lego brand is seen by people as a very innovative
company. Yet the cause of having an accurate innovation of their product leads
more cost yet less profit. If this still continues it might lead into a big loss of
profits.
Bargaining power of the buyers
Every decade since 1960s, Lego creates different designs of its product that
would capture the market. Hence with this, consumers has different choice
before purchasing its product. Lego also targeted different market segments with
their unique products. Consumer were also given opportunity to create their own
designs to a Lego set online.
PHASE III. THE ORGANIZATION
Lego started during the depression in 1932. The name came up when
Kristiansen held a friendly competition among workshop employees to help name
the company, with a bottle of wine as the prize. Kristiansen won the competition
himself forming the danish word leg and godt which means play well. Danish
carpenter Ole Kirk and his son started making wooden toys because there was
not a lot of money for people to build houses and furniture. Their main motto was
only the best is good enough. Their main goal is to provide the best. After
experiencing a fire, they evolved from wooden toys into investing the first plastic
injection molding machine. From that time, they gradually succeeded.
They developed the Lego System of Play that connect bricks to each other.
They also help children about traffic safety and ideas that prepares the child for
life. Lego products are also popular to adults and sport lovers. Their consumers
were also allowed to design a Lego set online. As of 2010, Lego has 9.000
employees and is the fourth-largest toy manufacturer in the world.

PHASE IV. THE MARKETING STRATEGY

When Lego started, Kristiansen believed that only the best is good enough
and so he hung a reminder for the employees to always produce top-quality
products. He started to develop good management to his employees. Lego was
the first to design a structured system of Lego bricks that could connect to each
other across multiple sets. But that did not stop there, they designed sets that
could help teach children about traffic safety and could prepare the child for life
that gave meaning to Lego sets. As their market was growing, a Lego magazine
was created to keep members up to date on new products. Lego used television
advertising and launched a Lego website. They also had sets that featured wellknown characters and popular vehicles from films. Lego had professional sports
as part of their product line.
One of the marketing strategies of Lego was the Lego Digital Designer that
allowed a user to design a Lego set online in which they can build their own
personal designs and would be sent to them directly. Lego did not settle on what
products they have, they innovated and focused on what their consumers wanted
that made them reach this stage as the fourth-largest toy manufacturer in the
world.
III. Analysis and Record Problems of their Core Elements
Problems existed when competitors started to create products that were
almost similar to Lego bricks. It became a major issue that reached the courts
and lasted for a couple of years. Problems arised also from licensing
arrangements with Disney because Legos competitors had a better relationship

with Disney than Lego has. Another problem came from Mega Bloks that created
bricks similar to Lego products that often misled consumers. Lego lost its
trademark protection when they lost to the court battle that stated shapes were
not the basis for a trademark. This resulted to a major loss for Lego and became
an opportunity for competitors and new entrants.
Since competitors were focusing on the exact products that Lego is
producing, the company needs to create a unique marketing strategy that would
attract consumers. Something that other companies could not easily copy. Lego
is facing problems of risking its position in the industry if they somehow fail to
innovate and overcome their aggressive competitors.
IV. Formulate/ evaluate/ record alternative courses of action
If tangible products of Lego bricks can be imitated by other companies, Lego
should create marketing strategies that could attract consumers other than their
offer of the toy itself.
A. A unique toy set is designed by consumers and will have their own story
line. Two activities will be involved, one for the creators of the design, and an
opportunity for consumers with abilities to create stories. Customers can create
designs on the website which everyone can view and every two months, five
products would be featured on their site, those products that were preferred by
the consumers themselves. These five products will be the basis of the stories
that would be made by the consumers, stories that they will create originally.
They will be given one month to submit their entries. After a month, winners of
the designs and the stories will be awarded by the same Lego set that has been

created and would be listed on Legos hall of fame consumers. The existence of
the software Lego Digital Designer can be used for this strategy.

Pros:
> The Lego Website will be visited more often.
> No age requirement would be needed. Open for all ages.
> Competitors will have a hard time copying this activity.
> This will not be costly compared to what the company experienced
before.
Cons:
> There would be not much personal communication since it focuses on
the website.
> It would be timely for the management going through entries.

B. A Lego Card can be created for consumers. This will be used for every
purchase of a customer of any Lego product. One transaction will give a Lego
Card one point and one piece of a unique and limited edition set of Lego
products. For every purchase they will be receiving pieces of the set which they
will be collecting until they completed the number of transactions and points to
needed to acquire. After they have gained the required points, their last piece will
be given upon their last transaction together with the copy of the actual image of
the set. These Lego sets that would be given for Lego Card customers will be
exclusive for them and no same product sets will be sold in the market. .

Consumer can visit their account on the website and can check every
missing piece that they received until the whole picture of the product be
revealed.
Pros:
> Competitors would not be able to copy this Lego set since the actual image
of the product will be given at the end of every transaction and designs will be
changed every quarter of the year.
> This will not be costly and would generate profit resulting from consumers
curiosity.
> The Lego website would be more active.
Cons:
> Lego will be giving a lot of time in creating unique products every quarter.
Innovation and creativity must be present.

C. Lego can focus on product distribution and establish more stores in different
countries where target market exists.
Pros:
> Product awareness will be more available to consumers.
Cons:
> This will require a big investment and cost for store establishments.
> Research will be costly.

V. Recommendations/ implementation details

We recommend Alternative B, the Lego Card activity as a marketing strategy

for Lego. Since the company is experiencing problems regarding trademark and
competitor problems, consumers should be encouraged more in engaging in
Lego activities. A curious customer is a valued customer, therefore this will
differentiate Lego from other companies. Though they have similar products to
offer, this will give customers the pride that they have a unique product that would
be easily recognized as a limited product of Lego. This will give value to
customers. There would be interaction physically and the Lego website would still
be advertised.