Marketing Essays - LEGO

LEGO Case Study: Analyse Lego’s macro and micro marketing environment

LEGO as we know it today first came into being in 1949 when Godtfred Kirk Christiansen used a “new” material – plastic – to create simple four and eight stud building blocks. Today, LEGO has turned into one of the most famous toy brands in the world. The aim of this case study essay is to asses the macro and micro environment in which LEGO is performing today.

Micro Marketing Environment

The micro marketing environment is defined as “the forces close to the company that affect its ability to serve its customers – the company, market channel, firms, customer markets, competitors and publics, which combine to make the firm’s value delivery system” (Kotler, Wong, Saunders and Armstrong, 2005)

One of the most notable things concerning the micro environment of LEGO is that it is viewed as a strong brand. It been part of the toy market for so long, that grandparents and parents can remember playing with the toy as a child, and so often feel they have a relationship or bond with the product. The brand has also infiltrated many markets world-wide, and its fame is instrumental in its continued success. The case study states, it’s the only European company to enter the worlds Top Ten toy manufacturers.

The product also has a unique selling point. The toy of LEGO is aiming to capture a creative imagination and also enable it to stand out in the market of dolls, cars, computer games etc. It is promoted as a “system of play”, which can be a strong selling point when trying to compete with educational toys.

Another positive aspect of the micro environment of LEGO is the broad of products it sells and its ability to create products for children of all ages. This is coupled with different products are targeted at different target markets (determined by age). This may help ensure that consumers (the children) do not stop purchasing because they feel they have “grown” out of the product. It also makes the consumer believe that the product is more personalised to them. The development of target markets over age groups may also help keep the consumer for longer, and so encourage the consumer to form a greater bond with and more loyalty to the product.

There has also been considerable extension of the brand to outside of the toy market. One of the main ways the brand has branched out is through the introduction of LEGO based theme parks in several countries, including one in Windsor in UK. The company has also entered into co-operative agreements enabling them to supply other licensed products, such as bed-linen, shampoo, children’s wear etc., whose combined effect is hoped to increase overall sales for all LEGO lines. The coupling of the LEGO brand with “brands” such as Winnie the Pooh or Star Wars furthermore helps enhance the strength and the popularity of the brand.

As of late, the company has also entered into the more technologically focussed market. First, it has set up a website where LEGO products can be purchased and information about the theme parks can be found. Second, it has created a line of goods titled LEGO Media Products which includes a range of children’s software, videos, books and music. However, these continued extensions of the brand could also be detrimental for the company. As LEGO moves further and further away from the simplistic blocks for which it is famously known, the appeal of the toy may disintegrate as the products it produces become more like substitutes for other toy products. In addition, it cannot be guaranteed that brand extensions will be successful as the “fit” with the original block product decreases.

The product report also mentions that sales of the brand have now mushroomed. In a world of increasing population, one would assume that sales should also increase. This is therefore an indication that LEGO is no longer what the child demands in a toy and its popularity is decreasing. An additional problem may have resulted from the fact that the firm needed to recall a rattle-snake product.

Attention is also brought to the disappointing results of the company in 1998, which is attributed to lack of efficiency. Specifically, the report draws attention to difficulties in co-ordinating production with demand for the most popular LEGO lines. This implies problems in the production line. Furthermore, mention is made that the company intends to solve this inefficiency problem by cutting the size of the workforce. Although this may lead to greater efficiency, it may also lead to a negative effect from a “social” point of view as a result of the negative views create if mass unemployment results.

The lack of efficiency, coupled with the increased competition the company faces may help to explain the reduced sales that were seen in parts of Europe (Germany and France). However, there were also trade increases in countries such as Poland and Britain which indicates that LEGO is being successful in some areas.

Macro Marketing Environment

The macro marketing environment is defined as “the larger social forces that affect the whole microenvironment – demographic, economic, natural, technological, political and cultural forces” (Kotler, Wong, Saunders and Armstrong, 2005).

In terms of the macro marketing environment, the main problem facing LEGO is the cultural change that is taking place in society as a whole. In today’s world, children are much more attracted to the digital and technological world. Even with the introduction of Media product, it is hard to see how LEGO could compete with companies such as Sony or Apply in producing products that appeal to the child market.

The company has also faced considerable reductions in sales in several countries that have seen a downturn in their economic environment. For example, in Korea, the economic crisis caused a 52% reduction in sales of LEGO products to retailers and distributors. There have been stock reductions by the retail trade which has lead to a DKK150-200 million sales dip.

The technological environment has also progressed. Where 50 years ago, the use of plastic in a toy may have been viewed as a highly innovative idea, today the consumer is much more attracted to technologically innovative toys. An area which LEGO is not known for.

SWOT Chart

Danish company Lego, the world’s sixth largest toy maker, has transformed the processes of its design function in recent years; and these changes have streamlined product development and the processes developed by the in-house design function are now being used as a method to enhance innovation across the entire business (Design Council, 2007). In the clichéd ‘global village’ we live in, there is no system that can survive in isolation. Especially when considering a business system, which is integrally dynamic and constantly evolving.

The fundamental concept to become familiar with when managing a business such as Lego, is the idea that the business has a creative personality in its own right. Hence it is important to understand the advantagees, disadvantages, and creative implications of such a separate creative personality, as it entails for all the participants both internal and external, a distinct creative position. The simplest form of business enterprises utilized by companies is to trade in their own abilities; for Lego this means consistent development and innovation within its own genre.

Oliver, et al (2007) elaborate the uniqueness with the Lego development case, by criticizing that intricacy and attention to detail reflects Lego’s culture of craftsmanship, but also its disregard for the costs of innovation. The company designers seem to be dreaming up new toys without taking into account the price of materials or the costs of production. This sort of carefree creativity is unsustainable and difficult to uphold in the current global toy market, where cost pressures are a constant concern.

Both national as well as international issues have a very strong bearing on the direction of the operations management in a business. In particular, when considering the work of Multi National Corporations, one cannot stay oblivious of the circumstances that are prevalent globally, as the entire world stands as their domestic customer. Lego has continually evolved its system of bricks and applications ever since its invention, wherein the original system elements have been extended in numerous ways to include, for instance, people and special parts to allow the construction of moving vehicles and working train sets (Design Council, 2007).

Lego has been a step ahead in its endeavour for innovation. As early as 1999, computer scientists claimed that a simple computer-based form of evolution had succeeded in designing Lego structures without any assistance from humans (Science Daily). This became the first successful leap from current day’s computer-aided design into the futuristic realm of fully automated design, and the first primal step toward the artificial intelligence community’s longstanding dream of evolutionary robotics, where robots might eventually adopt some form of evolution.

Should Lego fall prey to the growing competition at the risk of redundant designs, then this would give rise to issues that would be beyond the controllable limits of the parent company, thereby making the business operations vulnerable to the ever-changing international scenario. Wyetheville (2006) argues on the same lines by elucidating that reflection on the successes, failures, and past experiences of an organization needs to be utilized on an on-going basis to create an ever-renewing organization, which ends up guaranteeing success as well.

The basic element of creative production being at the forefront always, one would go by the notion of innovation. However, wanting to produce novel products, even though a dire need for the product may not be there, yet the demand for it would have to be created. And the crucial word here is ‘customer’. A new Lego product is not something that would have a potential buyer everywhere. This requires a certain niche of buyers, with a certain amount of style and balance in their preferences and likes to accomplish the needful.

For establishment of a new product market for Lego, the first step would be to engage the existing customers of the company. If the buyer has used one product of the company and is seemingly satisfied, there is every probability that he can be allured into another one. In such and event, a database for the current clients can be considered crucial. This is because Lego would want to create and capture new markets, at the same time it would not like to lose on existing brand loyalty. Then, based on the features of the product, a market sample could be acquired as to who can be the future lot with possible interest in the product. That area of the population would then be targeted by means of conventional marketing tools involving print and electronic media. It is important to create the demand, that the necessity and difference of the new product be highlighted to the maximum.

Perhaps the most important venture would be getting involved in a one-to-one method of communication with the customers. Once the target areas has been established, then the sales and marketing people, using methods of emails, telephones, letters and even workshops, would endeavor to convince the potential customer in a personalized and customized way, making them feel that this product was created in the first place for their convenience. For a more international clientele in the case of Lego, electronic media would obviously be adopted. The moment a client starts to feel special, the product is half sold. This also covers the credibility, reliability and after sales issues for the customer if initially, they are being approached as someone special.

Klassner (2002) purports that based on the sophistication of the projects, the Lego platform has much evolved since its introduction to become a cost-effective platform worthy of consideration as a supplementing programming environment to traditional PC programming. As more work is done in the open source community to address the unaddressed criticisms, the Lego platform’s infrastructure viability will only improve. To this end, Lego should work on extending the basic firmware to include support for targeted message passing and to develop a system for distributing computation within a robotic network as well. Only this can possibly ensure the ever-growing status of Lego in an ever-growing market.

References

• Design Council. (2007). Design at Lego. Eleven Lessons: managing designs in eleven global brands.
• Klassner, F. (2002). A Case Study of LEGO Mindstorms ‘TM Suitability for Artificial Intelligence and Robotics Courses at the College Level. National Science Foundation.
• Oliver, K. et al. (2007). Rebuilding Lego, Brick by Brick. Strategy + Business.
• Science Daily (1999). In First Case Of Fully Automated Design, Computers Shape Lego Bricks Into Various Designs Without Human Input.
• Wyetheville, C. (2006). Organization Renewal Through Participatory Involvement.
• Kotler, P., Wong, V., Saunders, J., Armstrong, G. (2005) Principles of Marketing, Fourth European Addition. Pearson, Prentice Hall.