LEGO presentation (2018)

Marketing and Operations Analysis of LEGO

1. Marketing and Operations Analysis of
Group Name: Alpha
Members: Ibrahim Hamdhan
Mohamed, Mary Ekwere,
Mohamed Abdi Osman, Damy

2. Contents Overview
1. Introduction
2. Operations Strategy
3. Macro-environment Analysis
4. Micro-environment Analysis
6. SWOT Analysis
5. Marketing Strategy
7. Conclusion and Recommendation
8. References

3. 1932The
LEGO Group was
founded in by Ole
Kirk Kristiansen
1950s
The LEGO brick is patented
with a coupling principle
and LEGO system of play is
introduced
1960 -1980
Introduced the first LEGO
building instructions,
LEGOLAND, LEGO DUPLO and
LEGO Minifigures
1980 –2000
Launch of LEGO website,
LEGO MINDSTORMS, new
factory opening in Kladno,
Czech Republic
2000 –Present
Three factories opened in
Europe, NA and Asia, LEGO
Movie, Opening of LEGO
House
MISSIONInspire and
develop the builders of
tomorrow
VISIONInventing
the future of play

4. OPERATIONS STRATEGY

5. Material Requirement Planning
Sequencing
Manufacturing Process Type
Manufacturing Process Layout
Service Process Type
Capacity Planning
Push System
FIFO
Batch Process
Cell Layout
Service Shops (LEGO’s own retail stores)
Lead Strategy
OPERATIONS OVERVIEW

6. 0.00
2,000,000,000.00
4,000,000,000.00
6,000,000,000.00
8,000,000,000.00
10,000,000,000.00
12,000,000,000.00
JanuaryFebruaryMarch April May June July AugustSeptemberOctoberNovemberDecember
Sales (DKK)
Months
LEGO Sales Forecast 2018
•Festive: Increase in sales during
Christmas, Summer, IP partner
movies
•Behaviour: For kids and adults who
prefer construction toys
•Financial: LEGO toys are targeted to
middle –high income customers
•Unpredictable due to short PLC of
toys of approximately 1.5 –2 years as
a result of constantly evolving
consumer trends
•New product launches account for
approximately 60% of LEGO’s sales
(LEGO Annual Report 2017)
Trend Pattern
Cause of seasonality Predictability Demand Pattern
DKK
38.0 B

7. Transformation Process
Research
Design
Prototype
Testing
Feedback and approval
Production
Marketing
Distribution
Transformed Resources –Materials
ABS Plastic granulates, Coloured resins
Transforming Resources –Human
Capital
Design team, Production department,
Finance, HR, Marketing, Operations,
Sales
Transformed Resources –Facilities
Factories, Moldingmachines, Automatic
Guided Vehicles, High Bay Warehouse,
Packing assembly
Input
Output
LEGO Toys
Feedback

8. Monterrey, Mexico:
Moulding and processing of LEGO
system elements, packing of
system, and LEGO Duplo
elements
Billund, Denmark:
Moulding of LEGO
System elements
Nyíregyháza, Hungary:
Moludingand packing of LEGO System
and LEGO Duplo elements, and
processing of LEGO Duplo elements
Kladno, Czech Republic:
Processing and packing of
LEGO System elements
Jiaxing, China:
Moulding and processing of LEGO
System elements, packing of LEGO
System and LEGO Duplo elements
LEGO MANUFACTURING AND PACKING FACILITIES
The LEGO Group: A Short presentation, 2017

9. MANUFACTURING AND
DISTRIBUTION PROCESS OF LEGO
WIP Inventory
Raw Material
Inventory
Finished Goods
Inventory

10. 0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
2013 2014 2015 2016 2017
VALUE (DKK)
YEAR
LEGO Inventory Levels
Raw Material InventoryWIP InventoryFinished Goods Inventory
6% 6%
7%
37%
52%
4% 5%
45% 47%
39% 41%
52%
48%
54%
57%
LEGO Annual Reports 2017, 2015, 2013

11. 4 V ANALYSIS
Lego produces an average of 36,000bricks per
minute, 2.16 millionbricks every hour, 40 billion
bricks every year (LEGO Group 2018)
Specialisedin manufacturing and selling
construction toys only using the LEGO brick
Highvariation in LEGO elements with 3,700+
elements in 60+ different colours
Customers are ableto track online orders through
website and the customer service department is
highly responsive to enquiries
VOLUME
VARIETY
VARIATION
VISIBILITY
LOW HIGH

12. OPERATIONS
PERFORMANCE
COST
QUALITYDEPENDABILITY
FLEXIBILITY SPEED
•COST: Due to the high emphasis given on
quality, Lego’s raw materials and production
costs are high
•QUALITY: All manufacturing facilities adhere
to the same strict safety and quality
regulations and undergo same methods in
production
•SPEED: The most efficient packaging lines
pack over 50,000 boxes every 24 hours
•FLEXIBILITY: Moulding machines can only
produce a limited variation of LEGO elements
•DEPENDABILITY: Fully automated
manufacturing process that enables to run
for 24 hours a day 7 days a week with little
interruption

13. MACRO ENVIRONMENT
ANALYSIS

14. PESTLEANALYSIS
•International Trade
Agreements
•Tax Policies
•Labour Policies
Political Economic
•Currency Exchange Rates
•Economic Growth
•Labour Costs
•Population size of children
aged 0-14 years
•Price sensitivity
Social
•3D Printing Technology
•Augmented and Virtual Reality
•Machine learning and Artificial
Intelligence
Technology Legal
•Patents
•Legal systems in different
countries
Environment
•Reached 100% Renewable
Energy Target in 2017
•Raw materials are recycled in
manufacturing
•Plant based plastic to be
introduced in 2018

15. MICRO ENVIRONMENT
ANALYSIS

16. INDUSTRY ANALYSIS
TOYS AND GAMES USD187.1 BILLION
TRADITIONAL TOYS AND GAMES USD82.0
BILLION
VIDEO GAMES USD105.1 BILLION
CONSTRUCTION TOYS USD10.1
BILLION
TOYS-TO-LIFE USD1.4 BILLION
Source: “LEGO Group in toys and games”EuromonitorSeptember 2017

17. THREAT OF NEW ENTRANTS (LOW)
Requires a large amount of capital to
compete globally at the same level
BARGAINING POWER OF SUPPLIERS
(MEDIUM)
•Raw materials are purchased in
large quantities
•Selective in sourcing raw
materials due to emphasis on
quality
POWER OF BUYERS (LOW)
Customers cannot negotiate prices
due to emphasis on high quality,
costly production processes,
perceived value and brand
recognition
THREAT OF SUBSTITUTION (MEDIUM)
•Availability of cheaper construction
toys
•Growing market for mobile games
INDUSTRY RIVALRY
(MEDIUM)
•Equally balanced
competitors
•High degree of
differentiation
INDUSTRY’S KEY SUCCESS
FACTORS:
•Marketing investments
•Research and development
•Brand recognition
•Quality perception
PORTER’S FIVE
FORCES

18. VALUE CHAIN
ANALYSIS
Inbound
Logistics
Operations
Outbound
logistics
Marketing
and Sales
Service
•Few and selective
Suppliers of LEGO.
•Biggest supplier Lanxess
•Designing and prototyping
•Manufacturing
•Quality control
•Warehousing
•Packaging
•Maintenance
•Order Handling
•Dispatch from
Warehouse
•Distribution centres
outsourced to DHL
•Invoicing
•Customer Management
•Order taking
•Sales Analysis
•Market research
•Promotions and
advertising
•Interactive LEGO retail stores
•After Sales Service:Free returns
policy for 90 days, full refunds for
undamaged returned LEGO toys,
responsive customer service via
phone, live chat and e-mail
•Loyalty programs that allows
discounts for future purchases
Differentiation
Strategy

19. COMPETITOR
ANALYSIS
Brand recognition
Innovativeness
Product quality
Product variety
After sales service
Financial strength
Distribution network
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20. MARKETING STRATEGY

21. •LEGO creations are limited to imagination
•Cross-generational appeal
•Continuously innovates the product to
stimulate demand : Integrating digital
technology around the LEGO brick
•Strong Licensed toys portfolio
MARKETING MIX
PRODUCT PRICE
•Price skimming strategy
•Highly profitable
•Price/brick has remained constant
•Customer perceived value driven by high
quality and brand recognition
There are
915,103,765ways to
combine six two-by-
four LEGO bricks of
the same colour (LEGO
Group 2017)

22. MARKETING MIX
PLACE
•Selective distribution strategy
•Independent LEGO certified retail stores :
Hamleys, Toys R Us, Tesco, etc
•LEGO owned retail stores
•E-commerce : LEGO official online store,
Amazon, SmythsToys, etc
PHYSICAL ENVIRONMENT

23. MARKETING MIX
Promotion
5.1 Million subscribers
12.8 Million likes
521.1KFollowers
6 Million Users
Over 600,000uploads
7.5 Million
daily
consumer engagements
(LEGO 2017 Annual press conference)
Allows LEGO fans to submit own
LEGO creations and get a chance to
launch it as a LEGO product
LEGO creations competition
program on TV
Collaboration with teachers and
educational specialists to deliver
playful learning experiences
LEGO Movies, cartoons and digital
games : The LEGO Movie, LEGO
Batman Movie, LEGO Ninjago, etc

24. MARKETING MIX
People
•Passionate and highly innovative
culture in the company
•Total workforce of 17,500 +full
time employees around the globe
•More than 250highly qualified
designers from more than 40
different countries
Process
•Manufacturing equipment such as the
moulding machines are specifically designed
and created for LEGO
•High emphasis on quality –The moulds used to
process LEGO elements are accurate to within
0.0004 mm (LEGO website 2018)
•Invests heavily in research and development
that places LEGO in the forefront

25. STRENGTHS
•High brand recognition and
perceived value
•High quality
•Innovation
•Strong License partners
WEAKNESSES
•Expensive
•Limited to construction toys
•Gender imbalance in product
portfolio
•E-commerce reach is limited
•High WIP inventory levels
OPPORTUNITIES
•Expansion to growing markets
•Growth in educational toys
•Growth in AR and VR integrated
toys
THREATS
•Cheaper products from competitors
•Growth of digital games
•Loss of major licenses
•New technologies such as 3D
printing

26. CONCLUSION
•Even though revenues dropped in 2017, the LEGO group is in a strong position
in terms of market share in relevant categories and is in a financially strong
position to recover and compete well against major competitors
•LEGO is a brand well known globally and is a company that continues to work
closely with its major customers; Adult fans of LEGO (AFOL) and kids
•Due to high quality requirements in the company and unpredictable demand,
there are inefficiencies in the supply chain of LEGO which can be improved
•Key factors that will determine future success will be innovation, new markets,
widening the product portfolio, and license partners

27. RECOMMENDATION
•Expand “LEGO Friends” range which is targeted for girls
•Extend e-commerce business and shipping worldwide
•More integration of AR and VR experience to physical toy products with a focus
on educational play experiences
•Focus on expanding operations into emerging markets that will drive revenue
growth of LEGO as a result of current slowdown in mature markets
•Increase localisation of supply chain to bring down logistics costs
•Increase the volume and speed of information sharing across the supply chain

28. References
Hudak(2017) LEGO Group in toys and games (WORLD), EuromonitorInternational, Available at:
https://www.warc.com/content/article/euromonitor/lego_group_leisure_and_entertainment/90870[Accessed 20 April 2018]
Jobber, Chadwick (2016) Principles and practice of marketing 8
th
edn. McGraw-Hill Education
Mattel Corporate (2018) Annual report 2017, Available at https://mattel.gcs-web.com/financial-information[Accessed 15 April 2018]
Sender (2017) Toy Retailing –UK, February 2017, Mintel Academic, Available at:http://academic.mintel.com/display/792539/
[Accessed 07 May 2018]
Slack, Nigel (2016) Operations Management 8
th
edn, Harlow, England: Pearson
The LEGO Group (2018) About us, LEGO Group corporate website, Available at: https://www.lego.com/en-gb/aboutus/lego-group
[Accessed 1 April 2018]
The LEGO Group (2018) Annual report 2017,2016,2015 Available at: https://www.lego.com/en-gb/aboutus/lego-group/annual-
report/[Accessed 15 April 2018]
The LEGO Group (2018), How LEGO bricks are made, Available at: https://www.lego.com/en-us/service/help/bricks-building/brick-
facts/how-lego-bricks-are-made-408100000007834[Accessed 10 April 2018]
Wang, Ip, (2017) Restructuring, brick by brick, Ivey business review, Available at: http://iveybusinessreview.ca/cms/5757/lego-
restructuring-brick-brick/[Accessed 02 May 2018]

29. Q & A