Case Study Lego

Executive Summary

 

In today’s hyper-competitive market, it takes creativity, innovation and excellent strategy execution to gain and maintain a competitive advantage. In this light, this paper examines how LEGO can enter the UK toy markets and gain an edge over the other competitors in the industry.   To accelerate LEGO’S position in the market, the company will use licensing and exporting as the market entry strategies. Given that toys for children aged between 2 and 4 have the highest popularity in the UK toy market, this is the target group for the company. The marketing philosophy will still be, “only the best is good enough,” and LEGO will be keen to maintain excellence in all aspects of the product be it functionality, physical design and product safety. Just like the other LEGO products, the company will utilize premium pricing. The marketing plan will cost approximately $20 Million US dollars. However, given the promising toy market in the UK economy and LEGO’s reputation for quality, the company will realize a remarkable return on investment.

Marketing Plan

 

The new marketing plan will target children of ages between 2 and four since it is at this time that most parents in the UK market buy toys for their parents. Given the quality of the LEGO products and the steps taken to ensure that the product meets international safety products, the company will use premium pricing to facilitate achievement of return on investment. However, during the first two weeks, the company will offer the products at 20% discount to create a hype and motivate parents to purchase LEGO products for their children (Armstrong et al., 2014). This pricing will accelerate entry into the market and help the company to overcome the current slow sales in the UK market. When it comes to promotion, LEGO should use celebrity endorsements, experiential marketing and social media strategy to communicate and engage with the market. This integrated marketing communication will enable the company to build trust with the stakeholders (Hollensen, 2017). Furthermore, the company should establish partnerships with learning institutions as this is a new way to spark the company’s growth. Given that LEGO education centers have been revenue centers for the company in the US and Brazil markets, the firm should take advantage of this opportunity in the UK market (Martin et al., 2016). Finally, it is recommendable for LEGO to extend its CSR activities to the UK market to build and enhance stakeholder trust. And then, LEGO will strive to ensure that 40% of the total energy used in manufacturing comes from renewable sources of energy.

PESTEL Analysis

 

Political factors: The uncertainty following Brexit has significantly increased UK’s political risk which has reduced the attractiveness of the United Kingdom as an investment hub (Martin et al., 2016). Therefore, LEGO must take this aspect into account and establish appropriate mitigation strategies.

Economic Factors: The toy market in the United Kingdom is worth 2.3 Billion with LEGO coming position five after Mattel, Hasbro and MGA entertainment. Besides the GDP growth of 0.5% in the last three months of 2017 indicates the toy market will continue to expand (Khajeheian, 2018). Thus, it is prudent to state that the UK toy market is promising and with the right marketing strategies, LEGO will take the lions share.

Social Factors:  The case study reveals that most of the toys purchased in the UK toy market are for children between 2-4 years and that women make most purchases. These factors are the reason for the use of experiential marketing and celebrity endorsements since it is easier for the company to engage with the target clients (Martin et al., 2016).

Technological Factors: The internet penetration in the United Kingdom is 81.7% while the number of social media users is approximately 42 million users (Mainwaring,2016). It is for this reason that LEGO will leverage on social media given the high internet penetration and a massive number of social media users.

Environmental Factors: Notably, the raw materials used by LEGO contribute to environmental pollution. LEGO uses polymers which are produced through the burning of fossil fuels thus leading to global warming. Since LEGO is a committed corporate citizen, it must explore alternative sources of raw materials as well as use renewable sources of energy in the manufacturing plants (Hollensen, 2017).

Legal: The European Toy Directive outlines the safety requirements that toys must meet before they can be marketed in the UK. Complying with this regulation will prevent fines and trade restrictions thus enable LEGO to operate smoothly in the UK market (Keegan & Green, 2017).

Mode of Entry

LEGO will utilize exporting as a market penetration strategy instead of establishing production plants in the United Kingdom.  Exporting will enable the company to cut down the initial layout as well as give LEGO an opportunity to learn the UK market without heavily investing in the economy (Hollensen, 2017). Once the products are in the country, LEGO will license accredited toy dealers and independent stores who will oversee the retailing of LEGO’s products. Licensing will save the company the time and resources in the distribution and sale of the toys to the final customers (Armstrong et al., 2014). Besides, licensing will facilitate lean management which will significantly reduce operational expenses.

Market Segment

 

The market segment for the marketing strategy is children between the age of 2 and 4 since most toys bought in the UK are for this demographic group. However, since the children do not buy toys for themselves, LEGO will tailor marketing communication to target women between 25-34 and 35-44 (Armstrong et al., 2014). Furthermore, the marketing strategy will target middle and upper-income earners in the United Kingdom because they have the bargaining power to purchase LEGO’s products.

Detailed Analysis of LEGO’s Marketing Mix

 

LEGO’s products are high quality given the level of precision and high-quality material that goes into making these toys. For this reason, LEGO uses a slightly premium and a competitive pricing strategy that aims to enable as many people as possible to purchase the product. For instance, the LEGO Duplo basic bricks retail at $ 69.99 on Amazon while LEGO Architecture White House costs $144.49 as shown in figure 1. Although this pricing is not cheap, a middle-class family in the United Kingdom will afford the products without much of a problem. LEGO distributes its products through three critical approaches which include toy specialist outlets, online retailing and independent toy stores (Khajeheian, 2018). The online store enables the members of the LEGO club to establish a virtual LEGO construction.  These strategies increase the brand awareness and the reach of LEGO’s products in the target market.

Detail of LEGO Consumer Communication Strategy

 

LEGO’s Community, Education and Direct Division is mandated with maintaining open lines of communication between the company and customers. The division has been effective given that since its introduction, it has come up with innovative strategies such as the LEGO club for online customers which doubled the website visitors at LEGO.com. Also, through Adult Fans of LEGO, the company maintains engagement with adult enthusiasts.  Furthermore, through LEGOLAND Parks, children can enter a world of adventure and form a more profound emotional commitment to the company. LEGO Club, Adult Fans of LEGO and LEGOLAND Parks have been effective communication strategies, and the company should intensify and roll of these strategies to a broader scale (Hill, Jones & Schilling, 2014).

Enhancing Current CSR Policies

 

Evidently, LEGO uses 20,000 tons of plastic per year meaning the company contributes significantly to environmental pollution. Although the company contributes to 0.02% of the global plastic consumption, there is dire need to adopt eco-friendly plastic which will reduce LEGO’s environmental impact. Also, the current CSR strategy does not include approaches to reduce reliance on electricity from fossil fuels. Therefore, LEGO should establish a policy that 40% of the total energy consumption should come from renewable sources of energy. Finally, it is laudable that LEGO engages in charity to provide underprivileged children with LEGO toys. In addition to this charitable act, LEGO should establish a Fund to finance the education of children from low-income families thus giving them a better shot at life (Grayson & Hodges, 2017).

Case Study Lego - Subjecto.com

Case Study Lego

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Executive Summary

 

In today’s hyper-competitive market, it takes creativity, innovation and excellent strategy execution to gain and maintain a competitive advantage. In this light, this paper examines how LEGO can enter the UK toy markets and gain an edge over the other competitors in the industry.   To accelerate LEGO’S position in the market, the company will use licensing and exporting as the market entry strategies. Given that toys for children aged between 2 and 4 have the highest popularity in the UK toy market, this is the target group for the company. The marketing philosophy will still be, “only the best is good enough,” and LEGO will be keen to maintain excellence in all aspects of the product be it functionality, physical design and product safety. Just like the other LEGO products, the company will utilize premium pricing. The marketing plan will cost approximately $20 Million US dollars. However, given the promising toy market in the UK economy and LEGO’s reputation for quality, the company will realize a remarkable return on investment.

Marketing Plan

 

The new marketing plan will target children of ages between 2 and four since it is at this time that most parents in the UK market buy toys for their parents. Given the quality of the LEGO products and the steps taken to ensure that the product meets international safety products, the company will use premium pricing to facilitate achievement of return on investment. However, during the first two weeks, the company will offer the products at 20% discount to create a hype and motivate parents to purchase LEGO products for their children (Armstrong et al., 2014). This pricing will accelerate entry into the market and help the company to overcome the current slow sales in the UK market. When it comes to promotion, LEGO should use celebrity endorsements, experiential marketing and social media strategy to communicate and engage with the market. This integrated marketing communication will enable the company to build trust with the stakeholders (Hollensen, 2017). Furthermore, the company should establish partnerships with learning institutions as this is a new way to spark the company’s growth. Given that LEGO education centers have been revenue centers for the company in the US and Brazil markets, the firm should take advantage of this opportunity in the UK market (Martin et al., 2016). Finally, it is recommendable for LEGO to extend its CSR activities to the UK market to build and enhance stakeholder trust. And then, LEGO will strive to ensure that 40% of the total energy used in manufacturing comes from renewable sources of energy.

PESTEL Analysis

 

Political factors: The uncertainty following Brexit has significantly increased UK’s political risk which has reduced the attractiveness of the United Kingdom as an investment hub (Martin et al., 2016). Therefore, LEGO must take this aspect into account and establish appropriate mitigation strategies.

Economic Factors: The toy market in the United Kingdom is worth 2.3 Billion with LEGO coming position five after Mattel, Hasbro and MGA entertainment. Besides the GDP growth of 0.5% in the last three months of 2017 indicates the toy market will continue to expand (Khajeheian, 2018). Thus, it is prudent to state that the UK toy market is promising and with the right marketing strategies, LEGO will take the lions share.

Social Factors:  The case study reveals that most of the toys purchased in the UK toy market are for children between 2-4 years and that women make most purchases. These factors are the reason for the use of experiential marketing and celebrity endorsements since it is easier for the company to engage with the target clients (Martin et al., 2016).

Technological Factors: The internet penetration in the United Kingdom is 81.7% while the number of social media users is approximately 42 million users (Mainwaring,2016). It is for this reason that LEGO will leverage on social media given the high internet penetration and a massive number of social media users.

Environmental Factors: Notably, the raw materials used by LEGO contribute to environmental pollution. LEGO uses polymers which are produced through the burning of fossil fuels thus leading to global warming. Since LEGO is a committed corporate citizen, it must explore alternative sources of raw materials as well as use renewable sources of energy in the manufacturing plants (Hollensen, 2017).

Legal: The European Toy Directive outlines the safety requirements that toys must meet before they can be marketed in the UK. Complying with this regulation will prevent fines and trade restrictions thus enable LEGO to operate smoothly in the UK market (Keegan & Green, 2017).

Mode of Entry

LEGO will utilize exporting as a market penetration strategy instead of establishing production plants in the United Kingdom.  Exporting will enable the company to cut down the initial layout as well as give LEGO an opportunity to learn the UK market without heavily investing in the economy (Hollensen, 2017). Once the products are in the country, LEGO will license accredited toy dealers and independent stores who will oversee the retailing of LEGO’s products. Licensing will save the company the time and resources in the distribution and sale of the toys to the final customers (Armstrong et al., 2014). Besides, licensing will facilitate lean management which will significantly reduce operational expenses.

Market Segment

 

The market segment for the marketing strategy is children between the age of 2 and 4 since most toys bought in the UK are for this demographic group. However, since the children do not buy toys for themselves, LEGO will tailor marketing communication to target women between 25-34 and 35-44 (Armstrong et al., 2014). Furthermore, the marketing strategy will target middle and upper-income earners in the United Kingdom because they have the bargaining power to purchase LEGO’s products.

Detailed Analysis of LEGO’s Marketing Mix

 

LEGO’s products are high quality given the level of precision and high-quality material that goes into making these toys. For this reason, LEGO uses a slightly premium and a competitive pricing strategy that aims to enable as many people as possible to purchase the product. For instance, the LEGO Duplo basic bricks retail at $ 69.99 on Amazon while LEGO Architecture White House costs $144.49 as shown in figure 1. Although this pricing is not cheap, a middle-class family in the United Kingdom will afford the products without much of a problem. LEGO distributes its products through three critical approaches which include toy specialist outlets, online retailing and independent toy stores (Khajeheian, 2018). The online store enables the members of the LEGO club to establish a virtual LEGO construction.  These strategies increase the brand awareness and the reach of LEGO’s products in the target market.

Detail of LEGO Consumer Communication Strategy

 

LEGO’s Community, Education and Direct Division is mandated with maintaining open lines of communication between the company and customers. The division has been effective given that since its introduction, it has come up with innovative strategies such as the LEGO club for online customers which doubled the website visitors at LEGO.com. Also, through Adult Fans of LEGO, the company maintains engagement with adult enthusiasts.  Furthermore, through LEGOLAND Parks, children can enter a world of adventure and form a more profound emotional commitment to the company. LEGO Club, Adult Fans of LEGO and LEGOLAND Parks have been effective communication strategies, and the company should intensify and roll of these strategies to a broader scale (Hill, Jones & Schilling, 2014).

Enhancing Current CSR Policies

 

Evidently, LEGO uses 20,000 tons of plastic per year meaning the company contributes significantly to environmental pollution. Although the company contributes to 0.02% of the global plastic consumption, there is dire need to adopt eco-friendly plastic which will reduce LEGO’s environmental impact. Also, the current CSR strategy does not include approaches to reduce reliance on electricity from fossil fuels. Therefore, LEGO should establish a policy that 40% of the total energy consumption should come from renewable sources of energy. Finally, it is laudable that LEGO engages in charity to provide underprivileged children with LEGO toys. In addition to this charitable act, LEGO should establish a Fund to finance the education of children from low-income families thus giving them a better shot at life (Grayson & Hodges, 2017).

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