BUILDING BRICK BY BRICK:

COMPETITIVE STRATEGIC ANALYSIS OF LEGOS RETURN TO SUPREMACY IN TOY

INDUSTRY

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

Agenda
History of Lego
External Environment Analysis PESTLE, Porters 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

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

Environm
ental

Environment friendliness

Leverage company
culture

Cost increases

Political

Porters 5 Forces
Analysis
Threat
of New
Entrant
s (LOW)

Threat
of
Substit
utes
(HIGH)

Competiti
ve Rivalry
within
the
Industry
(HIGH)

Bargain
ing
Power
of
Buyers
(HIGH)

Bargain
ing
Power
of
Supplie
rs
(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 kids 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 ToysRUs. 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 Legos 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
Name

Focus on
High
Quality
standards

Product
Design
creativity

Raw
Material
Knowledge

Effective
Supply
chain

Strategic Fit

SWOT Analysis

Strengths

Opportunities

High brand equity

Loyal customers
Exclusive Licenses
Market experience
Solid distribution
network
First Mover Advantage

Economic growth in
core markets
Increasing global
middle class
Further acquisition of
market share
Continued franchises
collaboration
Blue ocean markets in
Asia

Weakness -

Threats

Financial crunch
Expensive products
Narrow product
portfolio
Low presence in Asia

Skewed geographical
distribution
Low switching cost
Increased
modernization of
children
Vertical or horizontal
integration from
suppliers

References
https://pedroantaoalves.files.wordpress.com/2013/04/str
ategicmanagement_lego_10dec12.pdf
http://www.wired.co.uk/magazine/archive/2013/10/featu
res/building-success
http://www.smashingmagazine.com/2014/08/08/learning
-creativity-innovation-from-lego/
"The LEGO Group, A short presentation," LEGO, 2012.

Thank You !!