How LEGO Manages to Constantly Reinvent Its Business
Understanding the Target Market: Lego Is Parent-Approved
While children are any toy company’s main target customer, successful firms also sell to parents. They are the initial customers, who open their wallets to purchase the product. Recognizing this, Lego’s designers position its goods as a creative outlet for children as well as an opportunity to expand their interest in science, technology, engineering, and math (STEM). Lego’s website has an Education area with activities to enhance learning with toys developed for children of all ages – from prekindergarten to primary school. Parents today are cautious about the toys their children play with. Lego makes it easier to increase purchases by developing a parent-approved product.
Partnerships and Licensing
Lego’s marketing strategy is based on licensing as much as it is on developing original concepts. Star Wars is a Disney brand, yet it is still a significant income generator for the firm. When merchants couldn’t keep their Star Wars sets on the shelves in December 2015, a “Lego scarcity” erupted. The firm was concerned about not being able to ship all the orders by Christmas. Even though some toys arrived late, 60% of Lego’s income came from the holiday season, giving the firm a banner year. This tendency to holiday late deliveries led to the emergence of the third group of Lego’s target audience: collectors and enthusiasts who wanted to buy items and store them for resale value. The third group was not just kids; it included many adults as well.
The Role of Marketing Research in Lego’s Market Success
Consumer and marketing research lowered manufacturing complexity and secured the effectiveness of its product launches. For instance, in a way to attract more girls to the brand, the corporation developed the LEGO Friends line in 2011. According to the firm’s market research, girls tended to use their LEGO sets for role-playing, whilst boys wanted strong backstories, such as those presented in the Ninjago kits (Bartneck & Moltchanova, 2018). The construction part of LEGOs was liked by both categories of children. The LEGO Friends line added new sets and places, such as shopping malls and creative laboratories, for ladies to role-play with their figures. The line quickly became popular in countries throughout the world, including China and the United States.
Lego and Its Competitive Advantage
The Lego Group’s brand image distinguishes the company from its competitors and is a vital resource for the firm’s business success and leadership in the market. It is influenced by a variety of elements, including customer experience and product quality. The idea that lies behind Lego products is difficult to replicate and provides a business with a long-term competitive edge, even though it requires constant attention and refinement. In the case of the Lego Group, the brand image assists marketing and aids in the retention of key consumers. The Lego brand is synonymous with play, development, learning, and innovation.
Potential Ethical Implications and Alignment with Ethical Practices
The Lego group’s workers and partners are required to adhere to high ethical standards and values of integrity, honesty, and legality in all their endeavors. The corresponding requirements are set in the 2017 Lego group communication letter on expected ethical, social, and environmental concerns to partners. Furthermore, the company wants its partners to guarantee that everybody with whom they interact follows the same standards and ideals.
PESTLE Analysis
PESTLE analysis aims to examine the commercial strategy of the Lego brand. It investigates the numerous external elements that influence the firm, including political, economic, social, and technical issues, and sometimes legal and environmental considerations. PESTLE analysis is a widely applied tool that helps determine the general strategical moves of the company under the consideration. It also helps to discover gaps in strategic development and policies.
Political Factors
Lego has a policy of non-participation in political events of any kind. The company avoids governmental concerns, and this decision is reflected in its involvement on various occasions. In 2015, for instance, the Chinese artist Ai Weiwei was preparing for an exhibition of his latest piece constructed entirely of Legos in Melbourne (Butler, 2017). Weiwei is recognized for publicly criticizing governments across the world, and his work is usually daring and gutsy, frequently edging on the controversy. Lego declined to fund the exhibition, forcing Weiwei to cancel his planned show. There is another example of reluctance to discuss politics, which prompted a significant shift in Lego’s policy. In 2016, the company rules determined that Lego should ask bulk consumers to sign an agreement pledging not to integrate Lego into their work if it has political aspects (Butler, 2017). Later, this rule led to a broader debate and criticism in media, as it put limitations on the customers.
Legal and ethical factors are often seen as determining the company’s political standing and civil liability. Lego works in several nations, thus it must adhere to the norms and regulations of the countries in which it operates. It should examine if government policies or court decisions have a detrimental impact on company operations. It should also be noted that various countries provide varying amounts of intellectual property protection. Lego won a copyright battle against two Chinese corporations in 2017 (Johnson, 2019). The goods were created under the brand Bela, and it was the replica of Lego that greatly harmed Lego’s company. After winning the case, Lego now has the option of filing more lawsuits against firms that are infringing on its trademark.
Economic Factors
The attractiveness of the little LEGO blocks all around the world is the ongoing cause of the firm’s increasing income. Every year, Lego grows by around twelve percent in its revenues (Srikant & Lessard, 2020). Surprisingly, LEGO kits are priced differently throughout the world, and the prices are presumably dictated by the average income of the citizens (Chernev et al., 2021). Naturally, this gap piqued the interest of many consumers, so Lego responded by stating that the price of its sets is determined by the number of new molds required to make the components, the number of pieces, and the cost of licensing additional country-specific figures (Srikant & Lessard, 2020). Lego made another statement, saying that certain international shops adjust the cost of its products without their knowledge.
Social Factors
The Lego organization has collaborated with United Nations International Children’s Emergency Fund (UNICEF) to protect children’s rights by eliminating child abuse and child labor (Srikant & Lessard, 2020). It has a very clear viewpoint on the mentioned topics and takes every possible action to better the current situation. Lego has pledged to be competent in its commercial direction because toys are most unambiguously linked with children. Hence, the responsibility of designing toy figures that are safe for youngsters lies with the company.
As the market leader, it is Lego’s responsibility to address child welfare concerns. It is doing so by pledging to provide UNICEF a total of $8.2 million over the next several years to put resources into child welfare endeavors, particularly for children living in battle zones (Srikant & Lessard, 2020). Lego acknowledges that a child’s psychological and academic growth is heavily influenced by the types of challenges and exercises they participate in at a young age. Therefore, children who live in war zones may face some issues when developing logical and dynamic skills (Srikant & Lessard, 2020). These findings suggest that the programs should be focused on developing kits that are more appropriate for the mentioned category of children.
Environmental factors can be distinguished as a separate category or considered social factors. Despite being one of the world’s largest makers of plastic toys, Lego has managed to go green. Recently, plastics, despite their longevity, have come under scrutiny for leaking toxins into the environment. To tackle this, Lego has vowed to make all of its LEGO blocks sustainable by 2030 (Bredenoord, 2017). At the moment, all bricks are produced of acrylonitrile-butadiene-styrene, a petroleum-based material. The firm intends to gradually transition to creating its bricks from sugar cane polyethylene, making its goods bio-viable.
Technological Factors
Lego collaborated with Texas Instruments to create a robot that runs on unparalleled ingenuity. Robots using this technology would be directed by remote controllers and Bluetooth devices (Hölscher et al., 2018). The Lego Robot product is an attractive bid, due to its affordable price and educational potential. Lego is renowned as the “Apple of the Toy Industry” because of its ongoing development, innovative advertising, and distribution structure (Hölscher et al., 2018). Interestingly, Lego has recently created an animated interactive added reality for its Ninjago characters. The firm realized that the kids who watched the animations were becoming more genuinely connected to the characters. This meant that such customers will eventually seek an opportunity to buy the toys.
SWOT Analysis
The SWOT analysis is usually performed to evaluate the internal and external factors that determine the company’s success in the market. These factors are classified as strengths, weaknesses, opportunities, and threats of the company.
Strengths
Strong Brand Name and Reputation
Lego is the world’s top supplier of creative play and learning tools, and one of its primary assets is its strong brand name and reputation. Lego kits are distributed in over 140 countries, and the firm considers children to be its role models, constantly striving to make the best for them (Zaichkowsky, 2020). The corporation is considered the best in the world in the context of company reputation, and the Lego Group has been listed in the top ten of the Reputation Institute’s annual RepTalk 100 study for seven consecutive years, ranking second in 2017 (Hölscher et al., 2018). This demonstrates the company’s dedication to creativity, invention, and ethical business methods.
The Emphasis on Quality and Safety
Lego spends much on quality and safety to guarantee that children have a high-quality Lego experience. Lego goods conform to the most stringent safety and quality standards, and the company’s emphasis on quality has resulted in zero product recalls since 2009 (Bartneck & Moltchanova, 2018). LEGO and LEGO Duplo are subjected to a variety of physical and chemical tests, including biting and drop tests. Furthermore, Lego is an active member of the European (CEN) and worldwide (ISO) Toy Safety Standardization Committees (Bartneck & Moltchanova, 2018). These organizations exist to advocate for consumers’ rights and oversee toy safety.
Weaknesses
Pricing
The premium cost of LEGO bricks has an impact on the company’s sales and growth. Customers mostly from the middle and upper classes are targeted by the firm. However, the raw materials needed to manufacture these toys are expensive, and the manufacturer must raise the price to remain viable. While customers in developing countries are increasingly price-sensitive, this results in lower sales of LEGO items there. While the company’s financial performance remains remarkable, with tendencies to cheaper pricing, its sales in the Asia Pacific area might have been greater.
Product Range Growing Increasingly Complex
Over time, Lego’s product line has become more sophisticated and complex. According to a recent study, Lego goods became increasingly intricate, which might feel overwhelming to the less experienced and young builders (Bartneck & Moltchanova, 2018). As the sorts of bricks required to construct diverse models get more specialized, more sets share fewer comparable bricks. According to the study, “the average number of brick kinds in a set has climbed by 2.4 percent every year on average, while the maximum number of brick types in a set has increased by 4.1 percent” (Bartneck & Moltchanova, 2018). While the study does not explicitly suggests that the appeal of LEGO kits is negative among young children, it does highlight several challenges that may deter young builders.
Opportunities
Digital Games and Interactive Learning
While the firm has increased its emphasis on digital experiences, there is still plenty of room for quicker development and more revenue by investing in digital games and interactive learning. The popularity of digital games has expanded rapidly over the world. With the growth of the internet, an increasing number of individuals, including teenagers and young children, are learning through applications and interactive games online. This might be a key generator of sales and income for the brand in the future years. While there is a lot of competition in this space, Lego has a solid position in the toy business and can utilize its current approach to draw more people to its digital services.
Threats
Counterfeits
The possibility of counterfeits is a significant concern for Lego. Counterfeit items are less expensive and can lead to brand dilution and decreased sales. Customers may feel disappointed due to the quality and safety issues after purchasing counterfeit Lego toys online. There have been multiple reports of buyers being deceived into purchasing counterfeit Lego toys online (Zaichkowsky, 2020). While these goods are of lesser quality and may be hazardous to children who play with them, they are also significantly less expensive. The problem is that these items are freely available for purchase on the internet. Lepin, a Chinese company, claims to be the finest Lego replacement and sells practically all of Lego’s theme sets, including superheroes (Zaichkowsky, 2020). Lepin’s goods are not of the same quality as Lego’s, but they are less expensive.
Competition from Diverse Players
Lego is experiencing increasing competition from a variety of businesses, including toy companies like Mattel, Hasbro, and other brands aimed at children and teenagers. While Lego has worked on strengthening its value offering and investing in digitalization and invention to increase its attraction among existing and new clients, competition from game developers has increased. With the rise of the internet and cloud technology, which has provided a plethora of learning and entertainment possibilities for children, teenagers, and adults, the total level of competition has skyrocketed. The rivalry between digital game developers has become particularly fierce. As a result, Lego confronts a massive task in maintaining its market leadership in a hypercompetitive and hyper-digital world.
Organizational Problems Faced by LEGO
One of the primary issues confronting the Lego business is pricing. Lego is a premium brand; hence its premium pricing has an impact on the company’s sales and growth (Andersen & Gadde, 2019). Lego passes on licensing charges to end-users through its license agreements. This raises the prices of Lego items in comparison to the prices of non-licensed products. Regrettably, the world market is not homogeneous; the sales are more unstable in price-sensitive nations that cannot afford premium pricing. As a result, Lego faces significant potential revenue losses in these markets. Potential marketing techniques to address these issues include economic pricing, psychological pricing, and pricing based on geographic location.
Alternatives
Several potential marketing-related solutions to the problem above should be discussed in more detail. Lego firm could develop a social media campaign, where it will inform the customers of its new pricing policies. Lego can explain in a few words, how it will apply the chosen marketing pricing technique to reduce the related friction. First, to use the economic pricing tool, Lego will reduce the prices for products that have power production costs to attract more customers and stabilize its position.
The second potential solution is using psychological pricing which entails slightly reducing the price to creating a psychological effect, like selling the kit for $99 instead of $100. The third potential solution is applying the technique of pricing based on geographic location (Chernev et al., 2021). This technique is the most sophisticated one, as it may depend on the shipment costs, and the consumers’ willingness to pay depending on the geographical region. For example, the company may seek some justification for its pricing, like saying that it sells an elite product, or focusing on a more advantageous part of the population.
Recommendation (Marketing Strategy)
Using the economic pricing marketing technique could be the best choice for Lego, given its accent on quality. Lego spends a lot of money to ensure the safety of its consumers. However, there are always expenses that could be reconsidered depending on the customers’ purchasing power. For example, Lego can sell less complicated kits at lower prices, while saving the elite versions with more versatile settings.
References
Andersen, P. H., & Gadde, L. E. (2019). Organizational interfaces and innovation: The challenge of integrating supplier knowledge in LEGO systems. Journal of Purchasing and Supply Management, 25(1), 18-29.
Bartneck, C., & Moltchanova, E. (2018). LEGO products have become more complex. PloS One, 13(1), e0190651.
Bredenoord, J. (2017). Sustainable building materials for low-cost housing and the challenges facing their technological developments: Examples and lessons regarding bamboo, earth-block technologies, building blocks of recycled materials, and improved concrete panels. Journal of Architectural Engineering Technology, 6(1), 1-11.
Butler, R. (2017). Andy Warhol Ai Weiwei: National Gallery of Victoria. Australian Historical Studies, 48(2), 283-286.
Chernev, Philip Kotler, Kevin Lane Keller, A. (2021) Marketing Management. Pearson Education.
Hölscher, N., Kuan-Hsun, C., & Jian-Jia, C. (2018). Examining and supporting multi-tasking in EV3OSEK. In Proceedings of the Operating Systems Platforms for Embedded Real-Time applications”, OSPERT (pp. 25-30).
Johnson, D. (2019). A license to diversify: Media franchising and the transformation of the “Universal” LEGO mini-figure. In Cultural Studies of LEGO (pp. 321-344). Palgrave Macmillan, Cham.
Srikant, C. D., & Lessard, B. (2020). Changing in sync with societal preferences: LEGO master’s strategic alliances. Journal of Business Strategy.
Zaichkowsky, J. L. (2020). The psychology behind trademark infringement and counterfeiting. Psychology Press.
