This article aims to highlight the global strategies used by the Lego Group for market entry and expansion. It provides a detailed overview of Lego’s global strategies through the help of BCG Matrix, VRIO Analysis, external environment analysis, and a brief marketing mix of the company. The article also highlights the marketing strategies employed by the company and offers marketing related suggestions that can help Lego strengthen its competitive position and overall market share in the global markets over the next five years. The changing industry environment poses new questions and challenges before Lego. This article analyses Lego’s existing strategies and suggests methods that can help it enhance its brand value globally in a hypercompetitive era.
Kotler has defined marketing as “the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires” (Kotler, 2019). He further adds that marketing is not just a means to dispose off the products a company manufactures. Marketing has evolved a lot with time. Changing market dynamics and technological evolution have led to significant changes in the domain of marketing.
The focus of this article would be the global marketing strategies adopted by Lego Systems A/S and how they have supported the company’s success in the global market. Lego is among the largest toy manufacturers in the world known for its unique products. Founded in 1932 by Ole Kirk Kristensen, the Lego Group is a family owned business (Lego, 2020). Its headquarters are located at Billund Denmark. The company is widely acclaimed for its marketing strategy and compared frequently with marketers like Nike and Ikea. Its main product offering is the Lego Brick.
The main emphasis of this article is to identify and critically evaluate the global marketing strategies utilized by Lego that became the foundation of its global success cutting across markets and cultures. It will also include marketing suggestions for the company over the next five years.
ANALYSIS OF LEGO’S GLOBAL MARKETING STRATEGIES
ABOUT LEGO GROUP’S BUSINESS.
The foundation of the Lego Group was laid almost 88 years ago by Ole Kirk Kristiansen. He owned a small carpenter’s workshop. In these past 88 years, Lego has come a long way from a small workshop to a global enterprise and one of the largest toy brands globally. The core product of the company, the Lego Brick (then automatic binding brick) came in 1949 and Kristiansen got its design patented in 1958 (Lego, 2020). These interlocking bricks are the company’s unique product offering and can be used to build toys of larger shapes and sizes. It allows kids and grown-ups alike to bring their creative ideas alive through play.
The company has seen enormous success in its history and since the launch of the interlocking plastic bricks. While these bricks are safe for use for people of all ages, their popularity arises from their uniqueness and their use. Lego has expanded globally and while kids love Lego products, the popularity of the bricks is not limited just to kids. Grownups also like to give form to their creative ideas using these bricks. In the digital era, the company has introduced several new tools and features with the potential to drive customer engagement and customer loyalty higher. In the first half of 2020, the company experienced a sharp growth in the number of visitors to its e-commerce platform. More than 100 million people visited the lego ecommerce website which was more than double compared to the same period previous year (Lego, 2020). The company has divided its operations on geographical basis into three regions including Americas, EMEA and Asia Pacific. Based on 2019 revenue, EMEA (Europe, Middle east and Africa) is the largest geographical segment followed by the Americas. Lego Group’s revenue from Asia Pacific has remained lower compared to the other two geographical segments showing a lower penetration of the Asia Pacific market region. The group is now focusing on long term growth and investing in initiatives that can drive higher success for the company in the long term.
The chart below shows how the revenue of the company has grown historically over the past 17 years.
Image source: Statista, 2021.
Organizational Capabilities: LEGO VRIO Analysis
This section of the report focuses on analysing the firm’s resources and capabilities which have helped it generate a sustainable competitive advantage in the global market. A VRIO analysis is used to highlight the importance of each resource and capability. For a resource or capability to offer a sustainable competitive advantage, it must meet all of the four important criteria that are Value, rarity, imitability and organization (Sharif & Khattouti, 2020).
|Brand Image||Yes||Yes||Yes||Yes||Competitive Advantage|
|Intellectual Property||Yes||Yes||Yes||Yes||Competitive Advantage|
|Human resources||Yes||No||Yes||Yes||Partial Competitive Advantage|
The brand image of lego group differentiates it from its competitors and is a critical resource for the company. It is affected by several factors including customer experience, marketing and other factors like pricing, product quality and customer service. Lego’s customer friendly image has led to higher customer loyalty and faster sales growth. A strong brand image helps the company maintain its success and leadership position. Moreover, brand image cannot be easily imitated and offers a firm sustainable competitive advantage even if it requires continuous focus and improvement. In the case of Lego Group also, its brand image supports its marketing and helps to retain valuable customers. Lego’s image is associated with fun, growth, learning, and innovation.
Several brands in the world have found enormous success globally mainly due to their distinguished marketing strategies and tools. Lego’s marketing strategy is compared with leading brands like Nike and Starbucks. Its product offering is unique but the company’s global success is also driven by its focus on marketing (Einwächter and Simon, 2017). Lego products are popular globally.
The company is using traditional tools and techniques in combination with digital tools and technologies to grow its influence. It has designed fun games and online activities to deliver a superior customer experience and grow loyalty. Overall, marketing has helped Lego establish itself as a unique and outstanding brand. It is difficult for the other brands to imitate its marketing strategies giving Lego a strong competitive edge over the rivals.
A firm’s intellectual property can be one of the most critical sources of competitive advantage for it. For example, a particular product or technology patented by a company can lead to long lasting advantage in the market. Lego’s advantage lies in the uniqueness of its products. The Lego brick is a unique product offering. The company patented its design long back in 1958 and it has experienced faster growth since. None of its competitors has created a solid substitute for the Lego bricks.
The human resources of a company are the foundation of the competitive edge the company enjoys. Their skills and knowledge are the most fundamental drivers of a company’s success in the market. Lego’s staff is behind the global success of the company. If Lego wants to strengthen its competitive advantage from human resources, it must focus on hiring and retaining the best and create employee friendly policies. Since other companies are also focusing on developing their human resources to derive the best results, Lego’s competitive advantage in this area is only partial.
The diversified and unique product portfolio of Lego is also a source of competitive advantage for the brand. Lego bricks are the core product of the company but it has also introduced a large range of toys and theme sets as well as online games for kids and teens. While its portfolio is a valuable resource, it is also rare, inimitable and organized. Its product portfolio is a source of sustainable competitive advantage for the firm.
Product/Service Portfolio (BCG Matrix)
The section below analyses the business units of Lego based on the Boston Consulting Group (BCG) Matrix. It is a well known and simple Portfolio planning matrix introduced by BCG, US. The matrix has four cells and groups the products/services of a business into four strategic groups including cash cows, stars, question marks and dogs based on their growth rate and market shares (Mohajan, 2017).
As in the case of Lego, the BCG matrix will look like below:
Mindstorm NXT Legoland Discovery
|Question MarksOnline Games|
Lego Bricks/Thematic brick sets
Legoland Theme Parks
Products/Services by Lego:
Lego’s cash cows are the core products of the company. Lego bricks and thematic brick sets are among the company’s cash cows. The company holds a major market share in these products even if the market growth rate is low. In fiscal 2019, the top selling theme sets of Lego included Lego Star Wars, Lego City, Lego Friends, Lego Technic and Lego Creator (Lego, 2019). The legoland theme parks are also among the company’s cash cows where Lego holds a major market share.
Mindstorms NXT is the robotic division of Lego. The company released Mindstorms in 1998 (Newton, 2020). There were very few similar products in the market before it and there have been many since the release of Mindstorms. However, Mindstorms is still the biggest of its kind and also the most influential in the market. Legoland discovery is a smaller version of the Legoland theme parks or an extension. With some more focus and investment, the company could turn Legoland discovery into a cash cow.
The online games market is riddled by a large number of brands offering games for both kids and grown ups. Several of them are large brands with significant market share and Lego’s share is small. Lego has also released many educational and interesting games and apps to engage kids. To turn its online games business into a star or cash cow, the company will need to invest more in research and development of games.
The products/services portfolio of Lego does not include any dogs.
Analysis of the market/environment opportunities and characteristics
The Economic Factors:
The role of economic factors is central to the growth of international brands. Economic forces affect the performance of markets and economies and in turn that of businesses operating in those regions. For example, recessionary periods see declined levels of economic activity and lower employment which results in lower spending by customers. When economic activity is high globally, customers’ spending on nonessential items is high. Over the past several years, the global economy experienced higher activity resulting in growth in sales and revenue for Lego. The US economy was also growing at an impressive rate and the unemployment rate was low. However, the unemployment rate in the US shot high because of the pandemic and again reduced after the lockdowns were removed.
The pandemic had caused dramatic swings in consumer spending (Brauer, Broady, Edelberg, and O’Donnell, 2020). Lego’s sales could have dropped significantly if the company was not investing strategically in digitalization which helped it beat the effects of the pandemic. People’s income levels in the key market, level of employment and GDP growth rate are some of the economic factors that can impact Lego sales and revenue directly.
The Sociocultural Factors:
The sociocultural factors also have a significant impact on global businesses. Most large businesses have market specific strategies since the preferences of customers can vary from culture to culture and society to society. However, throughout the globe technology has brought sweeping changes making parents more aware of their kids’ educational needs and growth. Parents are relying more on technology and technological tools to aid their kids learning.
This offers Lego a significant opportunity since mixing its physical and digital products and partnering with local educational institutions helps it grow its penetration key markets including Europe, the Americas, Middle East and Asia Pacific. Cultural factors also affect marketing and businesses like Lego need to formulate specific marketing strategies for various markets and cultures.
The Competitive Environment:
The competitive environment of Lego is being shaped by several changes including faster technological evolution, growing digitalization as well as changing market dynamics and consumer preferences. The focus on customer experience has also grown in recent years forcing businesses to spend more on personalization and customer engagement. Apart from the leading toy brands like Bandai Namco, Barbie, Hasbro and others, there are several more competitors of Lego in the international market (Handley, 2018).
Lego does not just compete with other toy brands, but there are companies that create educational games and educational programs for kids which also compete with Lego. Overall, Lego is facing a high level of competition in the international market. Due to it, the brand has also grown its investment in research and development to research its customers’ needs and develop more innovative sets and games. Its R&D expenses were DKK 768 million in 2019 compared to DKK 689 million in 2018 (Lego, 2019).
Analysis and Evaluation of the Marketing Strategies and Tactics
According to Kotler, market selection is key to faster growth and market expansion. In his words, “Marketing defines, measures and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company is capable of serving best and it designs and promotes the appropriate products and services (Kotler, 2019)” Lego’s geographic markets include Americas, EMEA and Asia Pacific. EMEA denotes Europe, Middle East & Africa. China is a key market for Lego products in the Asia Pacific region and the US, the largest one in the Americas. The strategic importance of China has grown as it has evolved to be one of the most lucrative markets for Lego products.
The target market of Lego includes children and teenagers in the 2 to 15 years old segment. It has released Lego brick toys and theme sets for kids, adolescents and teenagers. The complexity level of its toy sets grows with the targeted age group. The company sells higher complexity toys for the children 10-15 age group and lower complexity for younger kids (Bartneck and Moltchanova, 2018). Lego also partners other brands for marketing like the Warner Bros group to target its customer segments effectively. There are several ethical considerations related to marketing to children and Lego has to remain cautious about these issues (Krajnović, Hordov and Župnek, 2019). The company targets customers in the middle class and affluent segments. Lego products are costly and therefore affluent customers are the leading target market for Lego.
Modes of Market Entry
Companies use various modes to market entry to expand into new markets and grow their international footprint. In the case of Lego, internationalization has driven faster business growth (Tormer & Henningsson, 2020). Lego’s leading modes of market entry are explained below.
This is the costliest mode of entry into new markets which requires establishing manufacturing facilities and distribution centers locally. However, companies undertake Greenfield investment when they are sure about the profit potential of a particular market. The company has established five manufacturing facilities globally including Denmark, China, Czech Republic, Mexico and Hungary. Apart from that, it established regional hubs in the US, UK, China and Singapore. Lego has also established Legoland Parks in Denmark, UAE, the US and UK (Lego, 2019).
A company uses this mode when it has found a lucrative market but there is no need to establish manufacturing infrastructure there. As in the case of the UK and Norway, it exports products it creates in its manufacturing facilities to these markets.
While many companies find franchising an attractive option for international expansion, Lego has not used this option extensively. It uses this option in very few markets including mainly in Asia and in the UK.
Licensing is an attractive option for firms looking forward to international expansion by giving away rights to firms with a large market share in those respective markets. Lego licensing agreement covers a large number of products and accessories. However, the company has entered into licensing agreements with a limited number of licensed partners (Lego, 2020).
Partnerships become essential in many cases and particularly in the Asian markets. In China, Lego has entered into a partnership with Tencent to create exclusive digital experiences for local customers. The company’s partnership agreements also extend into the field of marketing and includes companies like Warner Bros. and Adidas (Lego, 2020).
The Marketing Mix
According to Kotler, the marketing mix is a set of controllable, tactical marketing tools that the firm blends to produce the response it wants in the target market (Kotler, Armstrong, Harker and Brennan, 2019). It includes everything that the firm can do to influence the demand for its products. The marketing mix includes four groups of variables including product, place, price and promotion. The following section includes the two P’s Products and Promotion of Lego Group.
Lego’s product mix has expanded a lot over the past five or six decades. The core offering of the product, the lego bricks are a leading source of revenue for the company. The company also sells theme sets, Mindstorms Nxt2.0 and other educational products for kids. Apart from special themes like Toy Story and Star Wars, it has brought products in the following categories – animals, Cars, Boats, aircrafts, STEM, Coding and Robots. Lego has enriched its product portfolio by introducing apps and games (Pratap, 2019).
Lego Tencent Partnership.
Lego is well known industry wide for its marketing strategy. The company promotes its products using a mix of innovative and modern methods with the traditional methods it has relied upon in the past. Apart from the hundreds of retail stores the company operates across the globe, the company also uses online channels for marketing. Lego uses various promotional methods including social media promotions, digital advertising and other methods like reward programs to drive higher customer loyalty. It has also partnered with many brands like Warner Media, Disney and Adidas for joint promotions. The company has achieved strong brand awareness throughout the globe and remains a favorite of kids aged 2 to 14 years old. The promotional strategy of Lego has proved to be the driver of global success. It has differentiated its brand image from other brands through innovation. Recently, Lego entered into a partnership with Universal to create an exclusive film franchise (Fleming Jr., 2020). This will further help Lego strengthen its brand awareness globally.
Research and innovation:
The company can grow the attractiveness of its existing product portfolio through innovation. The use of latest technologies like AI and Machine Learning can help the company develop superior online experiences for kids and adolescents. The focus is shifting towards digital technology and the company can grow its customer engagement and sales through the use of latest technologies including Virtual reality. The company can also use AI to make its existing line of Lego toys more attractive.
Focus on customer experience:
From a marketing perspective, the focus of Lego must remain on delivering a superior customer experience for higher customer loyalty and superior results. The company must use data and analytics for higher personalization and for creating more personalized and immersive shopping experiences for customers. Taking a CRM based approach will drive higher customer loyalty in the future.
Lego has focused on digitalization during recent years. However, with the pandemic the balance has tilted in the favour of digital technology forever. Not just sales and marketing, Lego must invest in digitalization in all aspects of business from supplier management to logistics. The growing use of mobile technology also requires the company to focus on mobile advertising and promotions. Reducing its dependence on physical stores will also be a good idea.
Expand Product Line:
While diversification can sometimes be risky, it is also a worthy consideration in a hypercompetitive market environment. Lego must consider expanding its product line to include new educational products for kids. It can also partner with other entertainment brands like Netflix that create original content to grow brand awareness and create new channels of growth.
Pricing strategy for emerging markets:
Lego mainly targets kids and teens from affluent families in leading markets. In order to grow its penetration of global markets and particularly in the Asia Pacific region, Lego must consider a new pricing strategy. Customers are generally more price sensitive in the emerging markets and by introducing lower priced products, Lego could quickly gain a strong foothold in markets like India.
Regional tie ups and partnerships:
In order to manage the negative impact of political factors, Lego must consider entering into local partnerships and tie ups in key markets like China and India. The partnership with Tencent has proved fruitful in China. A similar partnership in India, where the tax system is complex compared to the Western Nations can help Lego find more success there.
Lego is a market-leading toy brand with a unique brand image. Its success in the global markets is a result of a consistent focus on marketing and customer satisfaction. Its unique value proposition and product portfolio gives it a competitive edge in the global market that is difficult to beat for rivals. While Lego has experienced enormous success in most leading markets, its future depends on its ability to bring more innovative products to the market. The market dynamics are changing fast driven by technological innovation and the pandemic which has led to growth in ecommerce and digital sales. Lego must focus on digital stores and customer experience to achieve superior growth in the post-pandemic era. Simultaneously, it must expand its product portfolio and grow its footprint in emerging markets by altering its pricing strategy. In the near future, its success will depend on its ability to innovate and respond fast to the changing market conditions where Lego is facing higher competition from online sources of entertainment.
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