Five Forces analysis
Level of rivalry The level of rivalry remained intense until the end of 2004. Then after 2004, Lego became one of the stronger competitors in the market by introducing some of its new production, which has made its position in the market strong enough. After 2005, Lego started competing in the market of environment for the children. Lego became one of the great threats for big names such as Sega and EA.
Power of buyers
The buying power Lego buyers are higher as the cost of Lego productions is much less than the other alternative toys and productions available in the market. Lega has the leading power of buyers in the market according to year 2009-2011.
Threats of substitutes
Threats of substitutes is one of the swear threat for every organization. Similar in the case of Lego Group, this threat occupies very high level of power. At the beginning of 2005, no one can explain that which is the market occupied by the Lego. In terms of substitution Lego should be as considered as the well known supplier of the products which majorly considers as children’s entertainment. In the case of Lego, the level of substitutes is very high because consumers have wide range of alternatives, and they can choose anyone. For example, Action figures can be substituted with televisions or video games.
Threat of new entrants
The level of threat of new entrants is low as compared to threat of substitutes, because in order to produce traditional toys or products relative for the entertainment of children, it requires a minimum huge investment to give a start even and to get the entry in the market is always a big challenge for new entrants. So there are very less number of investors which do agree or interested to invest their huge amount in a market where the ratio of loss for new entrants is much higher as compare to success. The high level of investments, huge cost for their development and high level of risks factor do not let new entrants to enter the market easily, as it is too hard for them to do so.
Financial Position of Lego Group:
After 2004, the structure of Lego group changed significantly. The first change was the appointment of new CEO. The replacement of CEO is always a big move for any company. It was very important and was a good step as far as development in Lego group is concerned. By the appointment of new CEO, the company got an opportunity to review all its operations , it also allowed company to step in new different markets and introduce its brand which are related to computer games and some other products as well which might be related to television.
Top of Form
After suffering from the huge loss in the year 2004, the company reduced its staff in a larger number (from 5604 to 4199 in the year 2007). This reduction of staff recovered in the year 2008, when after recruiting new staff, the total number staff of Lego group came equal to 5388. This was a most prominent sign showing the development of company. Lego group presented a positive light to consumers, and it didn’t attempt to create a genuine learning organisation.
Since 2004, there are a lot of changes made in the company, but these didn’t lead to affect the real values of company. Lego group gave more importance to quality of its products rather moving towards the other alternatives and its key values remained same. For Example: Not to promote war by giving war portfolios.
It is one of the key tools used by Lego group for their development. They used the innovative IT in a very professional way in order to get 100% success. In order to stay alive in the market, Lego group always take steps according to the nature of market, as nature of market always keeps on changing due to change in the interest of consumers and competitors.
In order to check the strength of strategy of any company, SWOT analysis is one of the best choices for that purpose, as it analyses both internally and externally. It analyses the internal elements of company as well as external elements of the company.
The key strengths of Lego Group are as follows:
- Brand Recognition.
- Use of innovative technology, without making any change to its original power values.
- Strong in IT, Design and manufacturing.
The brand recognition with and the use of available internal technology without effecting its own values are the power of the company. Lego is strong enough in IT, Design of its products and manufacturing of its products which results in the reduction of its costs.
The Keys Weaknesses the Lego group are as follows:
- Understanding the needs of consumer.
- Marketing concept.
- Lack of abilities to translate or explain the strengths of Lego group.
- Innovations of already implemented strategies.
- Technical range for its Programmable parts.
Opportunities and Threats
The threats and opportunities to Lego group can be considered together as it depends on the reaction of Lego to the elements; hence it’s better to discuss opportunities threats to Lego group together.
There are many threats to Lego Group, among which the changing of market’s nature is one of the high level threat for the company. Although Lego remained the leader in toy manufacturing after 2005-2006, most of the children started buying entertaining toys instead of traditional toys those they were used to buy before. This huge change has come due to Information technology and electronics, especially the involvement of Computer science has changed the world a lot in all aspects.
Lego Group has the power of using threats as opportunities. Before 2006, Lego has already made some efforts by introducing their store as “Lego Land” to retailing directly and to communicate and know more about the needs and interest of consumers. This results in the opportunity for some further development.
Solutions to Threats and Problems facing the Company
In my opinion several avenues can be used to improve Lego’s position in the toy making business.
The toy maker should invest more money in the manufacturing of a wide range of toys to cater for the different market segments. As noted above, several conventional clients have now shifted to the perceived better alternative of tech toys, as they are commonly referred to. The policy makers in Lego should now prioritize on the need to make better versions of their old toys, and a completely new line of toys that embrace the use of technology. However, care should be taken to ensure that they do not lose their already established clients by neglecting their needs. In order to strategically compete with auto toy makers, Lego has to come up with an elaborate plan that will map out the shift into tech toys, set up new suitable and up to date manufacturing plants and hire competent staff members.
Lego has to make deliberate efforts to capture new market segments in the toy making industry. This it can achieve through identifying untapped market segments and venturing into toy manufacturing for specific clientele. This is possible through carrying out surveys to understand the dynamics involved. Lego should begin making toys that adults can buy, electronic mass courts and automated toys such as toy automobiles. Creating specific toys for different markets including over sees markets will not only boost sales but ensure relevancy in the toy making industry and promote growth.
Setting up New Manufacturing Plants both in the Homeland and in Foreign Lands together with the facing out of old Inefficient and Expensive Manufacturing Plants
Lego should face out their old manufacturing plant that only catered for traditional toys and set up new manufacturing plants that will cater for both conventional toys and new tech toys. Lego should also venture into foreign land and set up manufacturing plants in other regions of the world, especially the untapped markets of Sub Saharan Africa and Asia, where massive economic growth have been projected.
Derrick, M., 2011, March 2, Reuters, Retrieved December 2, 2012, from
“Contemporary Strategy Analysis” by (15 june 2007)