Marketing and Operations Management Report
For: LEGO Group
By: Éva Gaál
On: 17 November 2008
At the request of the LEGO Company, this report advises the company on the expansion of its operation based on market segmentation, appropriate marketing mix, new product design and development, including total quality management for outsourcing new partners.
LEGO Group is the fifth-largest toy manufacturer of the world and has operated successfully for 75 years; however, it has had some problems in the last couple of years. To solve these problems, LEGO introduced a seven-year strategy plan, which consists of some fundamental changes regarding to the processes, procedures and structure of the company. This strategy so far has been executed successfully as shown in the financial results; however, LEGO is going to face some more challenges in the future. (LEGO Annual Report 2007, 2007).
1./ Market segmentation
‘Market segmentation is defined as the subdividing of a market into distinct and increasingly homogeneous subgroups of customers’ (FM-A, 2004, p.93) and ‘it centres on the assumption that customers demonstrate heterogeneity in their product preferences and buying behaviour’. (Green, 1977, Wind, 1978, cited in Dibb, 1998, p. 394).
‘The business did actively segment its market’ (Dibb, 1998, p. 399), as LEGO identified itself from the very beginnings as a toy manufacturer it therefore automatically determined its marketing segmentation approach. In the children's toy market the primary segmentation base is the age (the older the more complex product); however, the real buyers are the parents (e.g. LEGO Duplo). ‘Such an approach is popular because it is convenient, clear-out, easy to implement and stable over time.’ (Curran and Goodfellow, 1989, p. 23, cited in Dibb, 1998, p. 399).
During the company operation LEGO identified more and more secondary segmentation variables (FM-A, 2004) such as
• gender (dollhouse for girls: LEGO Belville and robots, football stars for boys: LEGO Sports, LEGO Racers),
• geographical area: level of income and purchasing power
(matured countries – more complex products like Technic, Bionicle, developing countries – simple products like Duplo, Creative Building)
• education (different product rages for classroom education and for child development at home)
• psychographic, lifestyle: reflects the parents believe in the importance of education and creativity of the LEGO products
LEGO related its products directly to this segmentation group and positioned them in the certain markets.
Why is market segmentation important?
Identification of market segments, physical product configurations and brand positioning (LEGO positioned itself as a premium brand) are the most important decisions that companies face in the global marketplace. (Hassan et al., 2003).
LEGO identified country-wide segments and targeted them with its products range, based around the importance of education and creativity. Universal segments across country boundaries are considered as micro factors for values, attitudes, lifestyle and perception. (Hassan et al., 2003). Even if market segments can be identified as LEGO did, it does not necessarily mean they are attractive or that a suitable marketing mix can be designed for each segment. This can be one reason why LEGO had difficulties in early 2000, however, ‘there is a lack of quantifiable evidence about the impact of segmentation on business performance’. (Dibb, 1998, p.396).
The other reason could be that despite the well documented benefits which segmentation offers, businesses continue to encounter implementation difficulties. (Dibb, 1998) Marketers are using intuition rather than systematic analysis to identify segments (Wind and Cardoza, 1974, cited in Dibb, 1998) – follow their competitors (LEGO started to create high-tech toys)...