Executive Summary

Tsinghua Univerity

1. Situation Overview of the LEGO Group

Market position: Niche player in a global toy market & No.1 in construction toy category
Core Competencies: Strong brand, high quality products and innovation abilities
Recent performance: experienced some major losses but is turning better
2. Problem Statement
Issue Definition: Being a niche player in a tightening market, How can LEGO group
achieve sustainable profits of 13.5% and growth rate of around 7% in the coming years
by leveraging its core competency?
To solve this issue, the company made a three-phased shared vision plan in which we
based our strategies on
2006 - 2008
2009 onward
2004 - 2005
Survival

Restore
Profitability
Profitability Enhancement
Strategy
in Short-term

Organic
Growth
Growth
Strategy
in Long-term

3. Strategies
3.1 Short-term Strategies: Profitability Focus
3.1.1 Interpreting the Profitability Goal
To achieve reasonable margin compared to major industry peers, that is operating
margin of 13.5%, according to future expectations made in 2006 Annual Report
To maintain sustainable profitability in the relatively cyclical toy industry
3.1.2 Strategies and Implementations to Meet the Goal
3.1.2.1 Product Strategies: adjust product portfolio and build defensive core products
Focus on pre-school/infant toy segment in which the demand is driven up by
age compression and is less affected by come-and-go entertainment fashions
Continue reinvigoration on LEGO classic toys, which are less affected by toy
trends
Take calculated risk to ride on the trends by developing licensed products and
electronic products

3.1.2.2 Competition Strategies: avoid price wars by brand enhancement and cost
reduction
Brand enhancement: stronger brand building is to be achieved through further
product innovation and marketing innovation. We proposed two initiatives,
which are closer to consumers and broader cooperation with educators to
facilitate this innovation
Lower manufacturing cost: besides current outsourcing plan, work on finding
potential outsourcing partners in China or Southeast Asia to support Japan and
emerging Asian market
Improve operating excellence: after the restructuring of corporate level
management, organizational changes in markets &products division should be
considered
3.2 Long- term Strategies: Growth Focus
3.2.1 Identify Growth Opportunities: Using the 33 matrix covering two dimension
of growth, developing new products and entering markets consist of new
customers (e.g. new geographical market or new customer segment), we
evaluate the possibilities of different growth opportunities
Current Market Presence
Weak

Discussed

Moderate

Strong
Existing
Product

Product with
Modifications

Completely
New Product

Product

Due to the past unsuccessful experiences of leverage brand into unfamiliar product areas,
growth through developing completely new product is not recommended. Careful analysis
leads to the conclusion that geographical expansion into China and expansion to target
Youth group offer growth opportunities.
3.2.2 Geographical Expansion into China
Due to the increasing importance of emerging markets and the consideration that the sales
in emerging markets would help smooth the seasonal sales cycle, geographical expansion
into emerging markets is preferred.
We considered China a favorable market expansion destination. As observed, Chinese
customers have becoming increasingly interested in educational toys that nurture creativity
and stimulate thinking. Besides, the emerging affluent and middle-class are willing to pay
more for early education of their children.
3.2.3 Expansion to Target Youth Group

4.

Summary

Why Youth? Youth are often loyal LEGO enthusiasts or lovers for creation that
would not see electronic products as substitutes to LEGO products
What to Sell? High-tech LEGO toy of intellectual challenge and unique experience
How to Sell? By utilizing our competencies in Community, Education &Direct
(CED) division, selling of products through specially designed communities and
leveraging online marketing and distribution channel

In fact, there are numerous toy-makers firms have gone the multimedia route. Although
Lego Movie revenue increased successfully by 11% product lines such as Lego Technic and
Lego Star Wars (BBC 2014). Richtel and McKinley (2012) comment that parents do not mind
the video games, books and even TV series because they want to watch their kids build