SUPERVISING THE SALES FOR RESPECTIVE RESULTS OF OPERATIONAL AND SITUATIONAL ANALYSIS
This report aims to assess and adopt an effective & efficient sales strategy for LEGO. The study was guided by the following objectives; to assess the pricing strategies employed by selected competitor organizations, and to determine the effective and efficient pricing strategy to adopt at LEGO Group. In order to access and collect a vast amount of data within the specified time and resources available, a secondary data collection approach was chosen. A review of journals and writings in strategic and operational planning relevant to this case study was undertaken. SWOT and PESTLE analysis was also undertaken for LEGO Group. Strategic and operational planning form the backbone of business management. Strategic planning integrates written business goals, financial forecasts and long-term/long-range budgets (KPMG & ACCA, 2015).
On the other hand, organizational planning involves the short-term financial, inventory, marketing, and sales planning. According to the Chartered Management Institute (Chartered Management Institute, 2014). Strategy relates to the direction an organization takes in order to achieve success in future. Pricing strategy informs the business managers on the best price points to maximize profits on sales or services. To come up with an effective price point organizations must consider its costs for production and distribution, brand position, competitor prices, demographics of its prospects and customer base. Ordinarily, buyers will not buy goods that they perceive as highly priced whereas business owners won’t be able to cater for all production and business’ costs if goods are lowly prices. It is therefore important for businesses to skilfully balance between the buyer and owner demands and needs.
Product or service pricing has a great effect on the overall success of any business venture in a competitive market (Ingenbleek, 2013). This study, therefore, embarked on assessing and adopting an effective and efficient sales (pricing) strategy in order to improve revenue and sales for LEGO Group. This was achieved by assessing the different pricing strategies employed by LEGO group competitors. LEGO competitors that this report focused on included Mattel Inc, Mega Bloks, and Mega Construx. A further review of the selected company is provided in subsequent sub-topics. The study was guided by the following two objectives: 1. Data collection was facilitated by a desk review spanning empirical literature, university repositories, company related data & surveys and existing customer feedbacks (online) as captured from various sources.
Additionally, to extensively understand LEGO business environment, an analysis of three organizations that deliver similar products and services in LEGO’s target market was undertaken. SWOT and PESTLE analysis was carried out on LEGO. Further, a review of journals and writings in strategic and operational planning relevant to this case study was also carried. Literature evidence reviewed is provided as part of this report references. ANALYSIS, PRESENTATION & FINDINGS AN ANALYSIS OF LEGO GROUP & ITS’ COMPETITORS LEGO Overview LEGO Group is a privately held toy manufacturing company based in Billund, Denmark. It was founded in 1932 by Kirk Kristiansen who began by making simple wooden toys. According to LEGO philosophy, play enriches a child’s life and is a key element in their growth and development.
LEGO products are based on the philosophy of learning and development through play “Only the best is good enough” (LEGO Group, 2018). LEGO mission: ‘Inspire and develop the builders of tomorrow’ Our ultimate purpose is to inspire and develop children to think creatively, reason systematically and release their potential to shape their own future - experiencing the endless human possibility (LEGO Group, 2018). 4 billion in 2016 Figure 2: Profit for Year 2013-2017 LEGO Group PESTLE Analysis Political The political scenario in LEGO areas of operation remains rather stable thus providing easy entry to markets with minimal changes to company operations or strategies. A stable political environment where the government is perceived to be working for the public good translates to increased creativity, innovation and entrepreneurial activities (World Bank Group, 2015).
Economic The NPD Group (2018) reported that the global sales in toy industry increased by at least 1%. This implies that LEGO Group has an opportunity to improve on their product sales not only in their local markets but also internationally. Social In LEGO’s commitment to creating a positive impact on the world using play and learning, the organization has continually created toys and offered services that are friendly towards community needs. It has a distribution network in more than 150 countries globally. Its products include key toy lines namely Barbie, Me card, American Girl, and Hot wheel. Their mission is to help children learn and develop through play. Mattel believes that by inspiring wonder in the next generation, they are shaping a brighter tomorrow (Mattel, 2018).
Though Mattel net sales in 2017 were down by 11%, their toy line Barbie enjoyed strongest brand growth among toy manufacturing company recording 9% increase. Introduced in 2017, Mega Construx distinguishes itself from its competitors by developing exclusive character figures for children aged 4 years and beyond (PR Newswire, 2017). Mega Construx products can be accessed worldwide by visiting Target, Walmart, Amazon, Toys R Us and most international toy stores. DATA PRESENTATION & FINDINGS This analysis focuses on LEGO Group steadily declining sales in 2017 – notably 1st, 2nd, and 3rd quarters - with an aim of suggesting strategic and operational directions the LEGO could take. With the introduction of Science, Technology, Engineering, and Maths (STEM) education, the trend towards building sets and toys that promote STEM are on the rise.
This means that LEGO Group now shares its toy market with new entrants and product expansion from existing organizations. The financial year 2017 shows an ‘unexpected’ fall in revenue against an upward trend, this forms the basis of this study. According to NPD Group report (2018), US toy sales have grown at a compounded rate of 5% since 2013. In 2016, the industry grew by 5% registering $20. 46 billion in retail sales. LEGO Group products and manufacturing facilities and product sales were in more than 130 countries as of 2017. As a comparator, Mattel boasts of manufacturing and marketing facilities in more than 35 countries and sells products in more than 150 countries internationally with a presence in America, Asia, and Europe. In line with this study first objective, subsequent paragraphs will assess pricing strategies employed by LEGO, Mattel, Mega Construx, and Mega Bloks.
Pricing as a Strategy The NPD Group analysts attribute toy industry success in 2017 to positive reactions experienced by consumers on social media-driven approach and most importantly the lower price points offered by toy companies (NPD Group, 2018). Using social media influence to drive trends saw a boost in slime and fidget spinner sales worldwide. As noted in preceding sections, the digital technology currently plays a pivotal role in children’s lives as evidenced by the slime – a product of Mattel, Inc - and fidget spinner craze in 2017 (Tuttle & O'Brien, 2017). Firms’ competitive response is critical for its operations to stay afloat. Most businesses in their aim to shade off market competition apply Porter’s model on competitive strategies (Ormanidhi & Stringa, 2013). Mega Bloxs and Mega Construx using Porter’s strategies have been able to be cost leaders by providing relatively lower points.
They achieve these cost reductions by using disparate quality of materials to make their toys. This is in contrast with LEGO Group whose toy prices are relatively higher compared to Mega Brands owing to the higher quality materials used in making their products. LEGO Group business strategy does not exactly involve discounts or promotions with their product prices and quality same throughout the year. Business analysts perceive LEGO Group holding onto prices all year long as a matter of organization strategy. In spite of its fixed prices, LEGO still performed fairly better on brand image beating to Mattel, Mega Bloks and Mega Construx (Brand Finance, 2017). Johnson from the Robert H. Smith School of businesses reiterates that “If you want to create a perception of high quality, an exclusive kind of brand, you really have to price the product in such a way that indicates quality and deliver on that quality promise.
Findings also show that LEGO Group uses wind power to manufacture ‘bricks’ in its bid to reduce environmental impact. LEGO products and packaging is also touted by management board to be fully sustainable and recyclable by the year 2030. Through employee volunteer programs, LEGO also engages local communities in creative play, social and environmental activities. LEGO undertakes all these activities in line with UN sustainable Goals; specifically Goal 4 (Quality Education), 12(Responsible Consumption and Production), 13(Climate Action), and 17(Partnerships). According to Giroux et al. DISCUSSION The global toy industry grew at a rate of 3% in 2017. This implies that LEGO Group sales decline registered in 2017 was against the tide, a first in over 10 years of consistent growth. LEGO Group products and manufacturing facilities and product sales were in more than 130 countries as of 2017.
The organization also has a presence in five continents namely, Africa, America, Asia, Australia and Europe. As a comparator, Mattel boasts of offices and manufacturing facilities in more than 35 countries and sells products in more than 150 nations internationally with a presence in America, Asia, and Europe. Mega Construx is proving to be a cost leader through providing lower price points. Such pricing strategies employed by adopted by LEGO competitors not only influences market share but also helps competitors penetrate the market faster. If LEGO continues to lose its market share and influence on the target market, ultimately the company will experience sales and revenue decline or loss. As indicated in the study findings, collectibles and toys that were lowly priced reported successful sales with most customers continually opting for lowly-priced innovative substitutes.
Digital technology currently plays a pivotal role in children’s lives. It is therefore recommended that most of LEGO Group products, operational and strategic direction to be focused on international markets to boost revenue. Lastly, LEGO Group commands a great brand image and therefore should use this niche to market its products robustly to the US and the rest of the world. Planning whether strategic or operational simply represents a ‘point in time’ perception from a business view and not necessarily what happens in the market. In most scenarios, businesses can only control internal but not external environments. Pricing strategies play a key role in any business continuity, it is therefore important for LEGO not only to evaluate its price points but also ensure that it’s incorporated into strategic and operational planning.
& Wieseke, J. Gambled price discounts: A remedy to the negative side effects of regular price discounts. Journal of Marketing, 79(2), pp. Brand Finance, 2017. Toys 25 2017: The annual report on the world's most valuable toy brand, London: Brand Finance. Mattel gets construction toy brand Mega Bloks, VIrginia: USA Today. Ingenbleek, P. T. Relating price strategies and price-setting practices. European Journal of Marketing, 47(1/2), pp. LEGO Group, 2018. LEGO. [Online] Available at: https://www. lego. com/en-us/aboutus [Accessed 10 May 2018]. Mattel. [Online] Available at: http://corporate. mattel. com/about-us/default. aspx [Accessed 10 May 2018]. Journal of Marketing Research, 48(1), pp. Monica, P. R. CNN Money. [Online] Available at: http://money. Management Reports and White Papers, Volume 1. NPD Group, 2018. The toy association. [Online] Available at: https://www. toyassociation. com/news-releases/mattel-rebrands-mega-bloks-and-mega-construx-300405682.
html [Accessed 10 May 2018]. Richmond, S. Focus Reports: Lego's loss may not be competitor's gain. [Online] Available at: https://www. C. Comparing fixed price and discounted price strategies: the role of affect on evaluations. Journal of Product & Brand Management, 11(3), pp. Tovey, A. The Telegraph. Tripathy, P. J. Secondary data analysis: Ethical issues and challenges. Iranian Journal of Public Health, 42(12), pp. Tuttle , B. Business Process Management Journal , 12(2), pp. World Bank Group, 2015. Doing business 2015: Going beyond efficiency. 12 ed. Washington: World Bank. LEGO Group is also associated with high-quality products and unlike most of its competitors avoids a gendered marketing approach. LEGO toys and collectibles are designed to appeal to both boys and girls. LEGO mono-brand structure has also contributed to its brand strength. The CEO reiterates that to maintain brand recognition and customer perception on high-quality LEGO products pricing will remain higher, unlike its competitor prices.
Whether this strategy will survive market competition and influence on customer purchasing decisions compared to its comparators is a matter of wait and see. (2015) pricing strategy greatly influence customer’s purchasing decisions. This could, therefore, pose challenges for LEGO Group whose products are highly priced. Toy sale industry grew approximately 1% globally and 5% in the US markets in 2017. The US market takes up approximately 25% of total toy sales globally. At the same time, US host three of the top five key organization in the global toy industry. Evidently, going forward digital technology and social media network will play a pivotal role in toy and collectibles marketing strategy. Currently, the majority of toy sales globally have shifted towards online purchases through sites like Amazon albeit at lower prices compared to purchase made at toy stores (on-site).
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