BUILDING BRICK BY BRICK:COMPETITIVE STRATEGIC ANALYSIS OF LEGO’S RETURN TO SUPREMACY IN TOY INDUSTRY

Group 3Akhil |Pritam| Manpreet| Neha|Nikki| Shridhar

Agenda

History of Lego

External Environment Analysis – PESTLE, Porter’s Five force analysis of Toy Industry

Internal Environment Analysis – SWOT, Core Competencies, Strategic Fit

Value Chain Analysis

Competitive Strategy Analysis

Conclusion

References

PESTLE Analysis

Trend Positive Effect Negative Effect

Political Rising import taxes Less competition if already present

Need to produce locally

Econo mic Increasing income levels across the world Larger middle class in developing countries

Shrinking middle class in developed countries

Social Demand for safety, education and environment friendly

Converging towards company culture

Increases costs

Techno logical

Growing popularity of digital games and internet

Opportunity to diversify(related, new product and new market)

Increase in competition

Legal More regulations towards safety More trust in toys quality Rising costs for compliance

Environmental

Environment friendliness Leverage company culture Cost increases

Porters 5 Forces Analysis

Competitive Rivalry

within the Industry (HIGH)

Threat of New

Entrants (LOW)

Bargaining Power of Suppliers

(HIGH)

Bargaining Power of

Buyers (HIGH)

Threat of Substitutes

(HIGH)

Porters 5 Forces Analysis

• Here we are analysing the porter 5 forces analysis for the entire Toy industry which includes traditional products as well as construction products.

Threat of Substitutes (HIGH):• The highest pressure for Lego comes from substitute products like traditional toys or computer games

and modernization of kid’s entertainment• Substitutes come from the entire toy industry as well as the electronic gadget market.• There are no switching costs for substitutes and the prices of substitutes vary, the barrier to switch is

therefore low• Brands like Mega Bloks, Kre-o, Mattel etc have become direct competitors of Lego

Bargaining Power of Buyers (HIGH): • The pressure from customers is high as there is no switching cost involved for them ( in case of

individuals who buy from retailers)• Customers of Lego are retailers such as Wal-Mart or Toys”R”Us. These have the bargaining power over

lead times and price• For example, if Lego does not provide the toys quickly enough at Christmas, Wal-Mart could take Lego

out of the shelves

Continued..

Bargaining Power of Suppliers (HIGH): • Lego brick stones are made of plastic• Plastic is produced with oil and there is no chance for Lego to bargain with oil companies• Fluctuations in oil prices directly affect Lego’s margin

Threat of New Entrants (LOW): • The threat of new entrants is high because of some difficult entrance barriers• Big players like Mattel, Hasbro and Lego are benefitting from economies of scale which would be difficult to

achieve for new entrants• High brand equity, operation excellence and cutting edge technology required to gain a dominant position in

this industry• New entrants might have advantage in specific regional markets because of various factors like low

manufacturing costs, localization etc but difficult in overall industry

Competitive Rivalry within the Industry (HIGH): • There is Best-Lock from Hongkong and Mega Brands from Canada. Both compete with lego by low prices• Lego has a strong brand image and brand loyalty among customers and can charge premium prices. Lego has

therefore a critical competitive advantage over its competitors, as they cannot look back on such a long history• But due to many companies entering into the construction toys market from traditional toys, the rivalry within

the industry is increasingly high

Core competency

Brand NameFocus on High

Quality standards

Raw Material Knowledge

Product Design

creativity

Effective Supply chain

Strategic Fit

SWOT Analysis Strengths• High brand equity• Loyal customers• Exclusive Licenses• Market experience• Solid distribution network• First Mover Advantage

Opportunities• Economic growth in core

markets• Increasing global middle

class• Further acquisition of

market share• Continued franchises

collaboration• Blue ocean markets in Asia

Weakness -• Financial crunch• Expensive products• Narrow product portfolio• Low presence in Asia

Threats• Skewed geographical

distribution• Low switching cost• Increased modernization of

children• Vertical or horizontal

integration from suppliers

References

• https://pedroantaoalves.files.wordpress.com/2013/04/strategicmanagement_lego_10dec12.pdf• http://www.wired.co.uk/magazine/archive/2013/10/features/

building-success• http://www.smashingmagazine.com/2014/08/08/learning-creativity-

innovation-from-lego/• "The LEGO Group, A short presentation," LEGO, 2012.•

Thank You !!