Lego case study analysis
Lego Case Study Analysis
Pallav Mathur
Q 1. What led the LEGO group to the edge of bankruptcy by 2004?
By the end of 2003 Lego was already facing crisis owing to dipping profits and declining market pool for toys. Lego had planned to expand into markets beyond building toys and needed huge investment to be made in it. But it found difficult to compete when fad players and other toy manufacturers were giving them stiff competition in a market that already was supposed to be giving lesser returns every year. This was mostly due to factors out of the control of Lego and other toy companies because, firstly, a research suggested that the demand of children who were primary customers of these companies were changing rapidly to fashionable and electronic products. They had lesser attention span and looked for instant gratification, and were lesser inclined to play with toys involving physical activity. Also Lego found it difficult to be competitive when its manufacturing base was in European markets while toy companies were moving to Far East and Middle East where labor was comparatively cheaper.
Management move by Lego: After Lego realized that it had to correct its declining profits, it decided to venture into new markets and imitate the success of Disney which had created a brand value for its customers through theme parks, accessories media and video games. Lego created an amusement park called LegoLand Windsor, came up with video games, accessories and robotic toys. This did not work very well for Lego as Disney already had a brand value which it created through its own characters, while Lego was still a toy making company in the minds of people. It was an early move and the market was not ready for Lego to establish as an entertainment company. Thus profits kept on declining. Lego then focused on improving organization internally to reflect in profits, when it’s COO, Plougmann restructured the organization and tried to turn around the company. The target was to
Pallav Mathur
Q 1. What led the LEGO group to the edge of bankruptcy by 2004?
By the end of 2003 Lego was already facing crisis owing to dipping profits and declining market pool for toys. Lego had planned to expand into markets beyond building toys and needed huge investment to be made in it. But it found difficult to compete when fad players and other toy manufacturers were giving them stiff competition in a market that already was supposed to be giving lesser returns every year. This was mostly due to factors out of the control of Lego and other toy companies because, firstly, a research suggested that the demand of children who were primary customers of these companies were changing rapidly to fashionable and electronic products. They had lesser attention span and looked for instant gratification, and were lesser inclined to play with toys involving physical activity. Also Lego found it difficult to be competitive when its manufacturing base was in European markets while toy companies were moving to Far East and Middle East where labor was comparatively cheaper.
Management move by Lego: After Lego realized that it had to correct its declining profits, it decided to venture into new markets and imitate the success of Disney which had created a brand value for its customers through theme parks, accessories media and video games. Lego created an amusement park called LegoLand Windsor, came up with video games, accessories and robotic toys. This did not work very well for Lego as Disney already had a brand value which it created through its own characters, while Lego was still a toy making company in the minds of people. It was an early move and the market was not ready for Lego to establish as an entertainment company. Thus profits kept on declining. Lego then focused on improving organization internally to reflect in profits, when it’s COO, Plougmann restructured the organization and tried to turn around the company. The target was to