Introduction
Lego Group is a company that is well established in the tradition of and lengthy history of customer loyalty. This is a major consideration that in the last 10 years, the company has been faced with considerable difficulties including the ever present rise in prices of crude oil. From an analytical perspective, this is the major raw material for the manufacture of plastic bricks. This equally includes the persistent influx of low cost toys with the possible speculation in regard to the future forecasts of the company that are not all that optimistic. Therefore, the past strategy of the company within the concept known as "Shared vision" emphasizes on the measures of profitability (Sun & Wing, 2005). The company has been able to manage and limit such circumstances that are unfavorable and even gain the growth excess rate of 35% as of 2015. Lego in its current operations is faced with the opportunities and issues that are related to strategy. Present economic forecasts reveal that developing nations as well as those that are high income earning are recovering from the international financial crisis.
Furthermore, the stimulation of the increment in the demand of toys can be exploited by Lego to the strategic opportunity and increase in the share of the market through the adoption of strategy that is appropriate while outperforming its competition in the industry. On the other hand, the diversification of new target factions is in service as an opportunity as well as a threat. The opportunity comprises of the improvement of the profitability of the firm and lowering of business risk on the basis of diversification (Hjarvard, 2004). The threat on the other hand is the attention by executive management that is emphasized in the strategy of diversification. This can cause the company to lose its identification within markets were its presence is strengthened.
Mattel
For over the period of seventy years, Mattel has been involved in the inspiration of imaginations that have fueled the spirit of innovation and formulation of the future for play for the millions of children around the globe. Currently, Mattel Inc comprises of a family that boasts as the largest toy company in the world with a solid portfolio of brands as well as toys for children and their parents. The portfolio comprises of iconic toys such as Barbie, Hot Wheels, American Girl as well as Thomas and Friends among others. The notion held by the company is of a healthy growth at $80 billion in its global operations at a 5 percent annual growth. The projection is that in the coming five years, the international population is to grow by 400 million with the inclusion of shifts that are dramatic in the socioeconomic that will present over 250 million families joining the middle and upper classes. Per capita expenditure of the company also places the suggestion of opportunities that are tremendous in markets that are emerging when placed in comparison to future markets such as those in Europe and the United States. Mattel leads the industry with a gross sales figure of $7.1 billion as of 2013 as well as over $900 million in net income with almost 30,000 employees spread over 40 countries as well as product sales in over 150 markets. The company has delivered consecutive years of EPS growth with an increment of 4 percent. This has been with a further increment of the gross margin from 53.1 to 53.6 percent with 2013 being the fifth straight year over 50 percent.
Hasbro
Hasbro is yet another competitor in the toy industry in representation of the crucial inflection point. As it heightens its emphasis on the all round execution of the most important international initiatives with the franchise brands being spread on the brand blueprint. Over the years the company has placed itself in a position of investment and rigorous branding as market experience is faced with continue transformations for the global consumer and retailer base with blue prints being directed to the company's decision making. Some of the company's franchise brands include Littlelest Pet Shop, Monopoly, Play Dog, the gathering, my little pony, transformers and nerf among others. The company has also solidified its initiatives of Partner Brands through the expansion of the strategic merchandising of the relation with The Walt Disney Company for crucial entertainment brands for instance Marvel and Star Wars. Currently, the company's agreements for Marvel Star were extended to the end of 2020 with coverage of all film and television over that period. On the other hand, Walt Disney Company has held plans for entertainment with the slate availing extensive support for the franchise to build for the years to come. The outcome has been the execution of the blue print and emphasis on Franchise branding with global partner brands. On an annual basis the revenues of the company stand as of 2013 at $4.08 billion with exclusion of charges and profit margin operating being at 14.6 percent with all be essential flat of the 2012 outcomes.
Evaluation of the porter's five forces model in the context of Lego
This model is applicable in the examination of the external setting so as to gain an improved understanding of the market where the company operates or holds the intention of operation. Attention is directed to the five main forces that undertake an analysis of competition present within the external setting that entails of aspects such as the threat of new entry, rivalry based on competition, customer bargaining power and the threat posed by products that are substitute. As such this methodology is of assistance as it avails the framework that can be utilized in the examination of the external setting (Sun & Wing, 2005).
This environment is crucial as it compels influence of the market in scenarios of the toy industry with the impacts of Lego's ability to sustaining and development of new strategies that will attain an advantage that is competitive and raise profits. In examining the external setting, it is crucial since it provides a guide to the company in identification of the strength and weaknesses. Certain industry players have directed criticism of the model as being outdated with highlight to the three forces that entail of digitization, globalization as well as deregulation (Hjarvard, 2004). The contention of critics is the model not being able to provide assistance to the company in building a strategy that is competitive. Although suggestion state that the introducing augmented forces extends the model to permit for increased analysis in a comprehensive approach of the scenario of competition. More so since the digitalization is now held in significance as an aspect that drives the modern economy.
Threat of new entrants
Currently for Lego the threat for new entrants within the toy industry remains low although they are several obstacles to new companies. Companies in this case hold a positive presence with the toy industry as Mattel that enjoy the benefit of economies of scale. These benefits are enjoyed by the company as gains in the aspects of reduced costs which is attributed to the rising scope of markets and companies alike. Furthermore, economies of scale make an appearance at the point when the consumption growth of resources leads to a proportional increase in volume production(Sun & Wing, 2005). This increased production is highly likely in the application of much fast and efficient equipment for manufacturer. Economies of scale are likely occur in several departments within the company in areas such as production, marketing, research, development as well as finance. Take for instance; the company's product manufacturing is undertaken in the Eastern Europe so as to gain the benefits of reduced wages. Such management at Lego holds the expert experience in production, distribution and customer requirements.
These form of benefits are absent from a new company in which case the likely investor who makes the decision of entry into the needs of the sector. In the calculation of the initiation of production at the degree that will create a guarantee of a position of competition as well as costs of production that are less that the market pricing (Hjarvard, 2004). Industry players such as Mattel and Toys R Us are also gaining the benefit of increased brand equity. The current restructure of Lego in assistance of the company sustains the image of the brand as products that are unique and iconic. In collaboration with industries that modern such as the film industry have provided assistance in maintaining the share of the market within the toy industry.
Competition Rivalry
This in examination can be held by directing our attention to the two major markets of the toy industry that entail of traditional and construction toys. Rivalry on the basis of competition in the area of traditional toys within the market segment is intensified. This is based on the expression of channels of distribution where companies made attempts of selling not only using retailers but also through the avenue of the company's retail stores and online selling (Sun & Wing, 2005). Development of such channels of distribution is not guaranteed of the success with flexibility and responsibility being critical to the market. Such as the detailed 2002 case were Lego adopted a new strategy of distribution that was held perspective of internal development of the stores being a failure attributed to fashion transformations that were unseen as well as strategic responses that were weakened. Innovation is important within the market segment of traditional toys since the market share can be raised with enhancement of brand through the development of the "next big idea".
For instance, there was success by Lego in market share strengthening through the introduction of products that are innovative for instance Lego Technic as well Lego Space. The regard held is that construction toys in the market segment of Lego are held in a positive position since the share of the market goes above the level of 60 percent (Hjarvard, 2004). Although the competition rivalry in the segment of the market is raised since its well placed among companies such as Mattel and Toys R Us. This is being in attempts of infiltration in the toy market.
Customer Bargaining Power
This in regard to customers within the toy industry was relatively reduced. On the basis that is individual, customers are not able to pose an influence that is significant in matters of pricing as well as other decisions of management. However, there are two crucial aspects that need to be held in careful consideration of Lego. With a geographical analysis of sale of toys reveals sales being more concentrated in the markets of the United States and Europe (Sun & Wing, 2005). This account for 61% of the overall retail sales and this representation demonstrate the influential selling capacity that has been significantly influential in terms of changing economic compositions. Toys are held by certain consideration as being an item of luxury. As such the reduction in the income that is disposable within the population originates from the economic downturn outcomes in the reduction of the demand for toys
The extended regard is that in the markets of Asia Pacific the demand for toys is reduced although it is growing in attribution to the economic development. The expense of shifting to competitive products is very low within the toy industry and as such it is imperative of Lego holding the responsibility to the needs of its customer (Hjarvard, 2004). This was with flexibility being very crucial for the company so as to maintain the market share.
Suppliers bargaining power
The main suppliers of Lego entail of distributors of plastic material defined as ABS with their bargaining power being fairly reduced. Since the competition is intense within the market of chemicals in which case the respect is held in a "supplier code of conduct". This has provided assistance to Lego in maintaining the quality of its products and product company brand image.
Substitute product threat
The main threat that is faced by Lego entails the increment of children's entertainment. This is because a certain risk is held of some children making a switch from toys that are traditional and construction to computer gaming. The suggestion is presented by literature of the threat of substitute products being increased with the switching expenses being low. The costs of switching from a traditional approach of toys to computer gaming is increased since computer games are highly costly. It is posited that parents also hold the preference of traditional toys when placed in comparison with traditional toys with the former being more educative(Sun & Wing, 2005). However, computer games are held in the regard of being educational resources by several educational entities as well as teaching pedagogies. These include the development towards the facilitation of computer games utilization for the purposes of education. The company has addressed this challenge of computer gaming with its recent strategy of digitization. This strategy entails development of Lego Universe with players creating scenarios and collaborated play. On the other hand, Mattel and Toys R Us have also responded to the threat with the development of several computer games on their websites. These utilize the core feature personalities that the company sells in the category of traditional category(Hjarvard, 2004).
Recommendation and Conclusion
The main strategy that Lego needs to develop comprises of the strategy for marketing that aims at providing address to the crucial threats in identification from the previous section. The strategy as such needs to seek the formulation of closer relationship based marketing with its customers. If the overall framework is established, it will in turn will raise the switching expenses as the relationship built will avail added value to the customers that can be lost should they shift to a product that is competitive and substitute.
Lego Financial Analysis
As of 2013, the company maintained its solid growth with a revenue increment of $2.3 billion to $25.4 billion which was against the $23.1 billion the previous year. The revenue growth with exclusion of the impacts of foreign exchange stood at 11 percent over the years on the basis of the localized currency. The company's profit amount prior to taxation was $8.2 billion stood against the $7.5 billion the previous year with the outcome being held in high satisfactory consideration. There was an increment of the license and royalty expenditure of 2013 at $1.6 billion from $1.5 as of 2013. These positive financial outcomes were in close relation and sustained innovation in product expansion of the portfolio at 60 percent of the overall sales in specific years as shown in the break even analysis below.
Figure 1:1Graphical presentation of LEGOs break even analysis
The operating profit was amounted to $8.3 billion as of 2013 with was against 2012'S $7.6 billion. As such the operational margin stood at 32.8 percent as of 2013 which was previously 32.9 percent in 2013. Financial income and expenses comprised of net financial formulation of a total expenditure of $97 million as of 2013 against the expenditure at $84 million as of 2012. Therefore, the annual profit amounted to $6.1 billion in 2013 to $5.6 billion as of 2012 with the expectation of the start of the years.
References
Sun, H. Wing, W. (2005).Critical aspects for product development in the toy industry. .25(3), 293-303.
Hjarvard, S. (2004).The mediatization of the international toy industry. European Culture and the Media.2 (3), 12-41.
